Marsh v. Loffler Housing Corp.

HARRELL, Judge. Appellants, H. Brandis and Jo Ann K. Marsh (Marshes), appeal from an Order of the Circuit Court for St. Mary’s County (Raley, J.) granting the motion of appellee, Loffler Housing Corporation (Loffler), to modify an arbitrator’s award in a contract dispute so as to include costs and attorneys’ fees. 1 We have re-ordered appellants’ issues as follows: Issues I. Did the lower court have the authority to award Loffler attorneys’ fees where the Uniform Arbitration Act authorizes attorneys’ fees only if so provided in the arbitration agreement between the parties?

II

Did the lower court have authority to modify the arbitrator’s award to reallocate the costs of the arbitration and to include attorneys’ fees incurred by Loffler where none of the three enumerated bases set forth in the Uniform Arbitration Act for modification of an award by a court were satisfied by the facts of this case? ¹²⁰ Facts In September 1988, appellants purchased a three-story house on Knight Road, Leonardtown, Maryland in St. Mary’s County. Appellants decided to renovate and expand their house, and solicited bids from various contractors for the renovation. Appellants ultimately selected appellee to serve as general contractor on the project. On 4 October 1989, appellants and appellee entered into an American Institute of Architects (AIA) standard construction contract (AIA Contract), with the attendant AIA General Conditions of the Contract for Construction (General Conditions).

Article 16.1.7 of the AIA Contract, entitled “Other Documents, if any, forming part of the Contract Documents are as follows:”, provided: It is agreed that the documents listed below and attached to this contract routinely used by Loffler Housing Corporation, shall be executed by the appropriate respective parties to this agreement and shall become part of this agreement. Where there are conflicts between this document and those listed below, this document shall supersede those listed below.... The first document listed and attached was the Home Improvement Contract, duly signed and executed by appellants at the same time as the AIA Contract. The Home Improvement Contract provided, in pertinent part, that: In the event that payment under this contract is enforced through legal action, or other collection action, homeowner agrees to pay contractor’s costs and attorney’s fees related to said action.

Article 4.5 of the General Conditions set forth the agreement to arbitrate any dispute arising out of or relating to the AIA Contract. It stated: Any controversy or claim arising out of or related to the contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association.... ¹²¹ Paragraph six of the Construction Industry Arbitration Rules (Rules) in effect at the time the contract was executed stated that the initiating party shall provide written notice setting forth the nature of the dispute to the other party. Paragraph eight explained that once a claim is filed, any new or different claims or counterclaims shall also be made in writing. Once the contract was executed, appellee began construction on appellants’ home.

Subsequently, a dispute developed regarding the final three payments remaining to be made by appellants to appellee pursuant to the AIA Contract. On 15 April 1992, appellee filed a mechanic’s lien petition in the circuit court against appellants’ property, seeking $3993.38, plus interest. In response, appellants, among other things, filed a petition for arbitration based on the arbitration clause in the General Conditions. On 22 May 1992, the circuit court stayed the mechanic’s lien action and ordered the parties to arbitrate their dispute.

In July 1992, appellants filed a written claim against appellee with the American Arbitration Association (AAA) alleging that appellee performed defective workmanship and requested improper and excessive charges for the work performed. 2 Appellants requested $151,000 in damages. Appellee counterclaimed, seeking $50,000 for an unpaid balance, lost revenue, and items not previously billed. During twelve days of hearings, both sides presented substantive evidence regarding their written issues submitted to the arbitrator. Appellee also apparently offered documentation of its attorneys’ fees. 3 Both sides were then granted leave to file post-hearing briefs. ¹²² On 12 August 1993, the arbitrator awarded appellee $2791 and denied appellants’ claims in their entirety.

Specifically, the award stated: 1) all subcontractor warranties would be honored; 2) the parties would split administrative fees and. expenses of the AAA as well as the compensation and expenses of the arbitrator; and 3) the award was in full settlement of all claims and counterclaims submitted by the parties. There was no mention of attorneys’ fees. On 3 September 1993, appellants filed with the arbitrator a motion to clarify his award as to three issues: 1) what was included in “administrative fees and expenses;” 4 2) which defective workmanship was to be covered by “warranties;” and 3) whether appellee was required to submit “as-built” plans as provided for in the AIA Contract. Appellee filed a response to the motion to clarify, generally opposing appellants’ motion, but also requesting that the award be clarified to order appellants to pay costs and expenses plus appellee’s attorneys’ fees.

Citing Md.Code Ann., Cts. & Jud.Proc. § 3-221, 5 appellee renewed its argument that because the clause in the Home Improvement Contract awarded costs and attorneys’ fees if appellee enforced payment via legal action or other collection action, the arbitrator should have included costs and attorneys’ fees in his award. On 5 October 1993, the arbitrator filed a clarified award generally reaffirming his award of 12 August 1993. Again, however, the award was silent as to attorneys’ fees. ¹²³ On 17 September 1993, while the motions to clarify were pending, appellants filed in the Circuit Court for St. Mary’s County a motion to vacate the arbitrator’s award, arguing that the award was “completely irrational when viewed against the twelve days of hearings and thousands of pages of documentation presented by the parties and the substantive contract provisions.” On 20 October 1993, appellee filed an opposition to the motion to vacate and a petition to correct or modify the award. Appellee’s motion to correct or modify the award argued, pursuant to Md.Code Ann., Cts. & Jud.Proc. § 3-223(b)(2) (1989 Replacement Volume & 1993 Supp.) and Bernard v. Kuhn, 65 Md.App. 557 , 501 A.2d 480 (1985), 6 that the circuit court must modify the arbitrator’s award to include appellee’s costs and attorneys’ fees.

Appellants filed an opposition to appellee’s petition to correct or modify and a reply to appellee’s opposition to the petition to vacate the award. Appellants argued that none of the statutory bases set forth in § 3-223(b)(2) was met in this case, and that Bernard was distinguishable because in that case the issue of attorneys’ fees was not submitted to the arbitrator for consideration. Therefore, argued appellants, because the issue of costs and attorneys’ fees was submitted to the arbitrator, § 3—223(b)(2) and Bernard were inapplicable to the case sub judice. On 15 November 1993, the circuit court held a hearing on the various motions.

At the close of oral argument, the court denied appellants’ motion to vacate and granted appellee’s motion to modify. The court found that § 3-223(b)(2) empowered it to modify the award in accordance with the Home Improvement Contract language, because the arbitrator ruled on an issue not submitted for arbitration, namely costs and attorneys’ fees. Because this issue was never formally sub ¹²⁴ mitted to the arbitrator, the court ruled that the award must be modified to include attorneys’ fees as per the agreement between the parties. The court then conducted an evidentiary hearing on the amount of attorneys’ fees incurred by appellee and the costs of arbitration, and awarded appellee $53,676.48 plus costs.

Appellants filed a timely appeal to this Court. Discussion The Maryland Uniform Arbitration Act (Act), Md.Code Ann., Cts. & Jud.Proc. §§ 3-201 to 3-234 (1989 Replacement Volume & 1993 Supp.), was enacted in 1965 as an alternative method of dispute resolution. The Act embodies a legislative policy favoring enforcement of executory agreements to arbitrate. Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 103 , 468 A.2d 91 (1983).

The arbitration process, in turn, provides a speedy, informal, relatively inexpensive, and private procedure for resolving controversies arising out of commercial transactions. Bel Pre Medical Ctr., Inc. v. Frederick Contractors, Inc., 21 Md.App. 307, 315 , 320 A.2d 558 (1974) , rev’d on other grounds, 274 Md. 307 , 334 A.2d 526 (1975) . Indeed, the General Assembly has established a policy in favor of the settlement of disputes through arbitration, and thus has severely limited the role of the courts in this process. O-S Corp. v. Samuel A. Kroll, Inc., 29 Md.App. 406, 409 , 348 A.2d 870 (1975).

The Act does provide, however, that once a court obtains jurisdiction over an arbitration, it retains jurisdiction to correct or modify the award or to vacate the award. C.W. Jackson & Assocs. v. Brooks, 289 Md. 658 , 426 A.2d 378 (1981). Modification of an arbitrator’s award is governed by § 3-223(b). If the petition to correct or modify is granted, then § 3-223(c) requires the court to modify or correct the award to effect its intent and to confirm the award as modified or corrected.

Otherwise, the court must confirm the award as made. Appellants contend that the circuit court did not have the authority to award attorneys’ fees because the arbitration ¹²⁵ agreement did not provide for such fees. Appellants also assert that the circuit court improperly modified the arbitrator’s award to include attorneys’ fees and costs pursuant to § 3—223(b)(2). Each argument will be considered in turn.

I. Litigants in the United States must follow the so-called “American rule” with regard to attorneys’ fees. A court cannot award attorneys’ fees to the prevailing party unless a statute or contract provision provided for the award, or the losing party brought suit in bad faith. Rice v. Biltmore Apartment Co., 141 Md. 507, 517 , 119 A. 364 (1922); Maxima Corp. v. Cystic Fibrosis Found,., 81 Md.App. 602, 622 , 568 A.2d 1170 , cert. denied, 319 Md. 582 , 573 A.2d 1337 (1990). An arbitration award, however, may lawfully include an award of attorneys’ fees if the underlying agreement between the parties so provides.

See Md.Code Ann., Cts. & Jud.Proc. § 3-221(b) (1989 Replacement Volume & 1993 Supp.). In arbitration matters, § 3-221(b) of the Maryland Uniform Arbitration Act governs the award of counsel fees. It provides: (b) Counsel fees.—Unless the arbitration agreement provides otherwise, the award may not include counsel fees. Therefore, we must first decide what constitutes the “arbitration agreement,” and then decide whether that agreement provided for attorneys’ fees.

Focusing on the language, “[u]nless the arbitration agreement provides otherwise,” appellants contend that the “arbitration agreement” in the case sub judice did not otherwise provide for the allocation of attorneys’ fees, and therefore the court had no authority to award such fees. Appellants assert that the arbitration agreement was composed of only what was set forth in Article 4.5 of the General Conditions. That Article stated: Any controversy or claim arising out of or related to the contract, or the breach thereof, shall be settled by arbitra ¹²⁶ tion in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association.... Because there is no provision there making either party responsible for attorneys’ fees, appellants argue that the arbitration agreement did not provide for attorneys’ fees and therefore § 3-221(b) precludes such fees from being awarded in the instant case.

Appellants also contend, without supporting authority, that even if the arbitration agreement is read more broadly than Article 4.5, the attorneys’ fees provision of the Home Improvement Contract cannot be considered part of the arbitration agreement as it does not apply to arbitration. That provision provides: In the event that payment under this contract is enforced through legal action, or other collection action, homeowner agrees to pay contractor’s costs and attorney’s fees related to said action. Appellants contend that an arbitration proceeding is not a “legal action, or other collection action” for which they would be responsible for costs and attorneys’ fees. Appellee, on the other hand, argues that there was no singular arbitration agreement, but rather numerous clauses throughout the totality of the contract that worked together to establish the arbitration rights of the respective parties.

Moreover, appellee contends that because an arbitration is both a legal action and a collection action, the attorneys’ fees provision of the Home Improvement Contract is applicable in the instant case and must be read as part of the agreement to arbitrate. While the intent of the parties to award attorneys’ fees for any legal or collection action is readily discernible from the clear and unambiguous language of the Home Improvement Contract, we nevertheless think it appropriate to stress that the intention of the parties to an agreement must be garnered from the terms considered as a whole, and not from the clauses considered separately. Delmarva Drilling Co. v. Tuckahoe Shopping Ctr., Inc., 268 Md. 417, 423 , 302 A.2d 37 ¹²⁷ (1973); Kasten Constr. Co. v. Rod Enters., 268 Md. 318, 329 , 301 A.2d 12 (1973).

It would be contrary to modern contract law to read the arbitration agreement to include only the express authority to arbitrate set forth in Article 4.5. Indeed, Article 4.5 of the General Conditions was only one of several clauses throughout the AIA Contract that related to arbitration. 7 Maryland courts have long held that “in ascertaining the true meaning of a contract ... the contract must be construed in its entirety and, if reasonably possible, effect must be given to each clause so that a court will not find an interpretation which casts out or disregards a meaningful part of the language of the writing.” Sagner v. Glenangus Farms, Inc., 234 Md. 156, 167 , 198 A.2d 277 (1963); see also Kimmel v. W.T. Grant Co., 233 Md. 466, 469 , 197 A.2d 122 (1963); Mattingly Lumber Co. v. Equitable Bldg. & Sav. Ass’n, 176 Md. 403, 407 , 5 A.2d 458 (1939). One paragraph of special provisions in a contract may not be read alone, without reference to the other paragraphs of special provisions elsewhere in the contract.

Kelley Constr. Co. v. Washington Suburban Sanitary Comm’n, 247 Md. 241, 249 , 230 A.2d 672 (1966); Wheaton Triangle Lanes, Inc. v. Rinaldi, 236 Md. 525, 530-31 , 204 A.2d 537 (1964); Schapiro v. Jefferson, 203 Md. 372, 378 , 100 A.2d 794 (1953). Thus the various clauses pertaining to arbitration scattered throughout the AIA Contract must be read in pari materia to comprise the “arbitration agreement.” The Home Improvement Contract expressly provided that appellee is entitled to costs and attorneys’ fees if it must enforce payment by “legal action, or other collection action.” ¹²⁸ Article 4.5 of the General Conditions, however, provided for arbitration in lieu of legal action to resolve a dispute arising out of the ALA Contract. Therefore, by virtue of the agreement to arbitrate contained in the contract, appellants could, and did, confine appellee’s only available means of collection to arbitration.

The Court of Appeals has held that “[w]here several instruments are made a part of a single transaction they will all be read and construed together as evidencing the intention of the parties in regard to the single transaction.” Rocks v. Brosius, 241 Md. 612, 637 , 217 A.2d 531 (1965). Thus the language of the Home Improvement Contract, read in pari materia with the dispute resolution provisions contained elsewhere in the ALA Contract, applies to collection actions such as arbitration. Appellee’s aborted effort to collect via a mechanic’s lien petition, coupled with its counterclaim in arbitration, constituted “other collection actions,” as those terms are used in the Home Improvement Contract. Appellee instituted the action to collect an unpaid balance and was required to pursue its claim through arbitration.

Appellants’ petition for arbitration changed the forum of the claim, but did not change the nature of the action. Therefore, we hold that the arbitration proceeding constituted a collection action, thereby vesting authority in the arbitrator and the court to award attorneys’ fees. 8 II. Appellants also contend that the circuit court erred in modifying the arbitrator’s award pursuant to § 3-223(b)(2) to include costs and attorneys’ fees. As that section permits modification of an award only if the arbitrator ruled upon an issue not submitted for arbitration, appellants argue that the issue of costs and attorneys’ fees was, in fact, submitted for ¹²⁹ arbitration and ruled upon by the arbitrator.

We consider costs and attorneys’ fees separately to facilitate our analysis. Attorneys’ Fees In support of the contention that the issue of attorneys’ fees was submitted for arbitration, appellants highlight several instances in the Joint Record Extract where appellee requested attorneys’ fees. These include, inter alia, appellee’s post-hearing brief directed to the arbitrator, appellee’s response to appellants’ motion to clarify before the arbitrator, and appellee’s petition before the circuit court to correct or modify the award. Appellee, on the other hand, argues that the issue of attorneys’ fees was never submitted to the arbitrator.

Appellee emphasizes that