Park Plus v. Palisades of Towson

Park Plus, Inc. v. Palisades of Towson, LLC and Encore Development Corp., No. 7, September Term, 2021. Opinion by Gould, J. ARBITRATION – STATUTE OF LIMITATIONS Section 5-101 of the Courts and Judicial Proceedings Article (“CJ”) of the Maryland Annotated Code provides “A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced.” A petition to compel arbitration under CJ § 3-207 is not a “civil action at law.” Thus, without language in the arbitration agreement providing otherwise, a petition to compel arbitration is not subject to a defense under CJ § 5-101. Circuit Court for Baltimore County Case No.: 03-C-16-001349 Argued: October 8, 2021 IN THE COURT OF APPEALS OF MARYLAND No. 7 September Term, 2021 ______________________________________ PARK PLUS, INC. v. PALISADES OF TOWSON, LLC and ENCORE DEVELOPMENT CORP. ______________________________________ Getty, C.J. Watts Hotten Booth Biran Gould Raker, Irma S. (Senior Judge, Specially Assigned), JJ. ______________________________________ Opinion by Gould, J. ______________________________________ Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic.

Filed: March 25, 2022 2022-03-25 15:13-04:00 Suzanne C. Johnson, Clerk Private agreements to arbitrate future disputes are now commonplace. Variations in such agreements are many because, as with other contracts, parties are free to structure an arbitration process to suit their needs. Parties can specify in their agreement how to initiate the arbitration process, the number of arbitrators, the identity of the arbitrators, the scope and extent of discovery, the locale of the proceeding, and whether and how far the rules of evidence apply, among other matters. As in other voluntary relationships, parties entering contracts tend to focus on the future benefits of the transaction, and not so much on what can go wrong.

As a result, they don’t always consider or foresee all of the pitfalls of arbitration, not the least of which is that cooperation between the parties—when they are quarrelling—may be necessary to start the arbitration process. Parties, therefore, sometimes omit such details from their agreements. With the growth of arbitration as a favored dispute resolution alternative, private companies offering turnkey arbitration services have emerged. Such services generally have rules of procedure governing every aspect of the process, including how to file a demand for arbitration, service of the arbitration demand on the adverse party, the pleadings required and allowed, the selection of the arbitrators, motions practice, the scope and extent of discovery, hearing procedures, and the form of award.

One advantage of such a service is that no cooperation is needed to commence the arbitration proceeding. When parties agree to arbitrate a dispute, whether they realize it or not, they are also agreeing to curtail the role that courts may play in resolving their dispute. And because arbitration is favored as a matter of public policy, Maryland has a statute—the Maryland Uniform Arbitration Act (“MUAA”)1—that defines and limits the court’s role in arbitrable disputes. One role is to enforce such agreements.

The Court of Special Appeals (“CSA”) recently explored this role in Gannett Fleming, Inc. v. Corman Constr., Inc., 243 Md. App. 376 (2019). There, the arbitration agreement identified an independent arbitration service—the American Arbitration Association (“AAA”)—to administer the arbitration proceeding. Id. at 386 . Needing no cooperation from the other party, the claimant started the proceedings by filing a demand with the AAA in accordance with its rules.

Id. at 387 . The respondent petitioned the court under the MUAA to stop the arbitration, as barred by the statute of limitations. Id. at 388 . The trial court denied the petition and ordered the arbitration to proceed.

Id. at 388-89 . The CSA affirmed, finding that waiting beyond the three-year statute of limitations period to demand arbitration was not a waiver of the right to arbitrate. Id. at 383, 389 . The matter before us implicates the same question addressed in Gannett Fleming, although it comes to us from a different direction.

Here, the arbitration agreement did not specify an arbitration service. When the respondent withheld cooperation to start the arbitration proceedings, the claimant enlisted the court’s assistance by petitioning to compel arbitration. The respondent opposed the petition, arguing that it was barred by the statute of limitations. After holding an evidentiary hearing, the circuit court rejected the respondent’s arguments and ordered the parties to arbitrate their dispute.

Relying mainly on Gannett Fleming, the CSA affirmed. 1 The MUAA is codified in the Courts and Judicial Proceedings Article of the Maryland Annotated Code (“CJ” or the “Courts Article”) (2020) §§ 3-201 et seq. 2 For the reasons explained below, so do we. FACTS AND PROCEEDINGS The Contract In March 2009, Park Plus, Inc. (“Park Plus”) and Palisades of Towson, LLC and Encore Development Corp.2 (together, “Palisades”) executed a contract requiring Park Plus to “furnish and install” an electro-mechanical parking system in a luxury apartment building owned by Palisades in Towson, Maryland (the “contract”).3 The contract included a one-year warranty period. The contract also contained the following arbitration provision: 7.1. Any disputes between the OWNER and the CONTRACTOR relating to the execution or progress of the WORK or the interpretation of the Contract Documents shall be referred initially to the ARCHITECT or ENGINEER.

The ARCHITECT’S or ENGINEER’S decision shall be binding upon the parties in 7 matters relating to artistic effect. In all other matters, it shall be binding upon the parties unless a demand for arbitration under Paragraph 7.2, below, is made within 30 days after a decision was rendered. 7.2. Subject to Paragraph 7.1, above, all disputes between parties shall be resolved by arbitration. This agreement to arbitrate shall be specifically enforceable.

The award rendered by the arbitrators shall be final and binding on the parties. 2 Palisades of Towson, LLC was the owner of the building and Encore Development Corp. was the “authorized agent” of the owner. 3 As discussed below, the circuit court held an evidentiary hearing on Palisades’ petition to compel arbitration and made findings of fact and conclusions of law. Neither party has contended on appeal that the court’s factual findings were unsupported by the evidence. Thus, our recitation of the facts—which is limited to those facts necessary to frame the legal issues before us—is drawn from the circuit court’s factual findings and the documents admitted into evidence. 3 Problems with the Parking System Tenants began using the parking system in October 2010. Problems arose immediately.

During the one-year warranty period that expired on July 31, 2011, the parties worked amicably to resolve the problems; indeed, Park Plus kept an employee on- site until September 2011 to “monitor the system and fix problems as they arose,” for free. Park Plus then disclaimed any duty to resolve the problems and announced it would charge for ongoing repairs and maintenance. Because of the problems with the parking system, tenants began moving out in August 2011, and a fatal accident with the system occurred in February 2012. In September 2014, Palisades sent a written arbitration demand to Park Plus.

As required by the contract, Palisades then submitted its claims to the project’s architect, who declined to participate. Within 30 days of the architect’s refusal, Palisades again issued a written arbitration demand to Park Plus. Park Plus showed a willingness to arbitrate, but Palisades filed a petition to compel arbitration in the Circuit Court for Baltimore County. That petition was later dismissed without prejudice for lack of service.

After more delays, the parties agreed to appoint retired Court of Special Appeals Judge James Eyler as their arbitrator. More delays ensued. Ultimately, when Park Plus failed to “proceed to arbitration as it had agreed to do[,]” in February 2016, Palisades filed its second petition in the Circuit Court for Baltimore County, seeking an order enforcing the arbitration agreement. 4 Circuit Court Proceedings Park Plus opposed the petition and cross-moved to stay arbitration. The battle in the circuit court was mainly fought over whether a petition to compel arbitration is subject to the statute of limitations provided under Section 5-101 of the Courts Article.

Park Plus maintained that CJ § 5-101 applied, and that the three-year period commenced when the breach of contract claim accrued. Thus, Park Plus argued, Palisades’ petition was untimely and should be denied.4 Palisades argued that there was no deadline in the contract to demand arbitration or petition a court to compel arbitration, and that CJ § 5-101 did not apply to such petitions. Palisades also advanced several arguments on the assumption that CJ § 5-101 did apply. Palisades argued that if the limitations period had commenced when the breach of contract action accrued, then the accrual of the claim was delayed by Park Plus’s assurances it would fix the problems, as well as the tolling agreement between the parties.5 In any event, Palisades contended, it demanded in writing that Park Plus arbitrate their dispute within the three years following the accrual of the cause of action, thus, its petition was timely.

Palisades also argued that if CJ § 5-101 applied, the three-year limitations period should 4 The non-exhaustive summary of the parties’ respective positions in the circuit court derives from multiple filings by both sides, including those filed in connection with the evidentiary hearing. Only those positions relevant to the issues in this appeal are included here. 5 On July 30, 2013, Park Plus and Palisades entered into a tolling agreement, agreeing to suspend until July 20, 2014, the running of any limitations period for Palisades’ claims against Park Plus related to the parking system. 5 run from the date Park Plus refused to arbitrate, in which case, Palisades’ demand was timely. The circuit court held an evidentiary hearing and received extensive briefing from the parties. The court did not, however, have the benefit of Gannett Fleming or any other Maryland reported decision on the applicability of CJ § 5-101 to petitions to compel arbitration.

Ultimately, the court treated the refusal to arbitrate as a separate contractual breach that started the limitations period for petitioning the court to compel arbitration, found the petition timely, and granted Palisades’ petition to compel arbitration. The court made other findings of fact and conclusions of law on the issues raised by the parties, presumably in the interest of judicial economy if later an appellate court disagreed with its analysis. The court found that Palisades’ breach of contract claim accrued in August 2011. But, for statute of limitations purposes, the court found that Park Plus’s assurances to remedy the problems and the tolling agreement extended the accrual date to September 19, 2011.

Applying the three-year limitations period to that accrual date, the court found that Palisades’ written demand to Park Plus to arbitrate their dispute was timely. The Arbitration While the appeal was pending, the parties proceeded with the arbitration. On March 5, 2020, the arbitrator awarded $3,178,800.64 to Palisades and $365,677.69 to Park Plus on its counterclaim.6 6 In 2015, Park Plus brought a counterclaim against Palisades to recover fees for maintenance expenses for the parking system. 6 On April 24, 2020, Palisades petitioned the Circuit Court for Baltimore County to confirm the arbitration award. Park Plus filed a counter-petition requesting a stay of the proceedings pending the result of this appeal.

The parties ultimately entered into a Consent Order under which an arbitration award in favor of Palisades in the net amount of $2,813,122.95 was confirmed, and a stay of entry of the judgment on the award was entered, pending this appeal. The Court of Special Appeals’ Unreported Decision After oral argument, but before the CSA issued its opinion, the CSA issued its reported decision in Gannett Fleming, Inc. v. Corman Constr., Inc., 243 Md. App. 376 (2019). Then, in an unreported opinion, the CSA affirmed the circuit court’s order compelling arbitration here. Park Plus, Inc. v. Palisades of Towson, LLC & Encore Dev.

Corp., No. 1723, Sept. Term, 2017 (filed Feb. 10, 2021). Relying on Gannett Fleming, the CSA held that without language in the contract specifying otherwise, CJ § 5-101 does not impose a deadline for petitioning a court to compel arbitration. Id. at 9-11. The CSA held that the “right to arbitration was not time-barred by the statute of limitations set forth in [CJ] § 5-101, even if its demand for arbitration was made more than three years after discovering [the] alleged negligence.” Id. at 8 (quoting Gannett Fleming, 243 Md. App. at 389 ).

In so holding, the CSA rejected Park Plus’s argument that this Court’s decision in Shailendra Kumar, P.A. v. Dhanda, 426 Md. 185 (2012), compelled a contrary result. Id. at 10-11. 7 Petition for Certiorari Park Plus petitioned for a writ of certiorari, which we granted. Park Plus, Inc. v. Palisades of Towson, LLC & Encore Dev. Corp., 474 Md. 631 (2021).

Park Plus presents four questions for our review: 1. Did the courts below err in spurning the principles set forth in Shailendra Kumar, P.A. v. Dhanda, 426 Md. 185 , 43 A.3d 1029 (2012) (hereinafter “Kumar”), in order to justify affirming the Order compelling arbitration here, even though: (a) the Petition to compel arbitration was filed more than four-and-a-half years after the Palisades breach-of-contract claim accrued, (b) the Contract’s arbitration agreement did not expressly waive, toll or otherwise modify applicable statutes of limitations, and (c) the MUAA does not exempt arbitrated claims from statutes of limitations? Petitioner asks this Court to extend the Kumar principles to petitions for binding arbitration, and to hold, contrary to the lower courts, that statutes of limitations apply to claims subject to arbitration except to the extent that the agreement to arbitrate expressly tolls or waives them. 2. Did the Court of Special Appeals in this action err in following Gannett Fleming, Inc. v. Corman Construction, Inc., 243 Md. App. 376 , 220 A.3d 411 (2019), in which another [CSA] panel: (a) sub silentio limited the application of Kumar to contracts for non-binding arbitration, and (b) held that Md. Code, Cts. & Jud.

Proc. § 5-101, which applies to all “civil actions at law,” does not govern claims subject to contractual arbitration, on the pretext that the Md. Rule 1-202(a) definition of civil “action” – that is, “collectively all the steps by which a party seeks to enforce any right in a court” – does not include court-enforced arbitration? Petitioner asks this Court to rule that proceedings under the MUAA come within the definition of “action” in Md. Rule 1-202(a), and that the [CSA]’s ruling misread the definition of “action” as if it were limited to “collectively all the steps in a court by which a party seeks to enforce any right.” 3. Did the courts below err by treating a petition to compel arbitration as a “claim” with a separate limitations period, rather than as a remedy that must be properly invoked within the applicable limitations period for the substantive claim? Petitioner asks this Court to rule: (a) that statutes of limitations apply to causes of action, not to remedies or procedures, and (b) that refusal to arbitrate does not create a separate cause of action. 8 4.

In the alternative, did the Circuit Court err in failing to defer to the arbitrator the ruling on the substantive statute-of-limitations issue, and thereafter err in confirming the arbitral award, even though the arbitrator had refused to hear the affirmative defense based on the statute of limitations applicable to the Palisades damages claim? Petitioner therefore asks this Court to rule that the statute of limitations on the Palisades damages claim bars enforcement of the arbitral award. DISCUSSION Park Plus advances multiple arguments which all boil down to one fundamental proposition: the statute of limitations applicable to Palisades’ underlying breach of contract claim should have been applied to Palisades’ petition to compel arbitration. Park Plus asserts that, based on the circuit court’s findings on the accrual of the breach of contract claim, Palisades’ February 2016 petition was untimely.

Thus, according to Park Plus, the circuit court went astray when it treated Park Plus’s later refusal to arbitrate as a separate breach that triggered a new limitations period for the petition to compel arbitration. Park Plus claims support for its theory in this Court’s opinion in Kumar v. Dhanda. Park Plus maintains that by failing to apply the statute of limitations to Palisades’ petition to compel arbitration, the circuit court and the CSA implicitly found the parties waived the statute of limitations defense in their contract. Thus, its argument goes, by failing to enforce the statute of limitations here, the circuit court impermissibly re-wrote the parties’ contract.

In addition, recognizing the court’s function is limited to determining whether an arbitration agreement exists, Park Plus equates the statute of limitations to other defenses that go to the existence of an arbitration agreement such as fraud, duress, or 9 unconscionability. According to Park Plus, Gannett Fleming was decided incorrectly, and the CSA’s reliance on Gannett Fleming was reversible error. Standard of Review Park Plus raises a purely legal issue — whether petitions to compel arbitration are subject to the limitations period in CJ § 5-101. Legal questions of this kind are reviewed without deference.

Walther v. Sovereign Bank, 386 Md. 412, 422 (2005). Law and Equity In a bygone era, civil cases in Maryland were adjudicated in either a court of law or a court of equity, and the separation between the two courts was “scrupulously maintained in this State.” Higgins v. Barnes, 310 Md. 532, 540 (1987). An action filed in a court of law was known as a civil action at law; an action filed in an equity court was called an equitable action or an action in equity. See id. at 540-41 ; see also Merritt v. Craig, 130 Md. App. 350, 361 (2000).

Whether an action belonged in a court of equity or a court of law depended on the nature of the remedy sought. Ver Brycke v. Ver Brycke, 379 Md. 669, 697-98 (2004). The remedy in actions at law was damages. See id. at 688, 696 ; see also Merritt, 130 Md. App. at 361 .

Equity courts, with few exceptions not relevant here, were limited to granting equitable forms of relief. See Higgins, 310 Md. at 540-41 ; Merritt, 130 Md. App. at 361 ; Mattingly v. Mattingly, 92 Md. App. 248, 259 (1992). The separation of courts of law and equity was abolished under the comprehensive changes to the Maryland Rules that took effect on July 1, 1984, Higgins, 310 Md. at 534 , at which time Maryland recognized “one form of action known as ‘civil action.’” Md. Rule 10 2-301. The merger of law and equity merely “eliminate[d] distinctions between law and equity for purposes of pleadings, parties, court sittings, and dockets[,]” see Comm.

Note to Md. Rule 2-301, but did not erase the substantive distinction between the two actions. Taylor v. Taylor, 306 Md. 290 , 297 n.6 (1986). The Maryland Uniform Arbitration Act When enacting statutes in the pre-merger era, the General Assembly understood the distinction between the courts of law and equity and the remedies available in each. See Pye v. State, 397 Md. 626, 637 (2007) (“The General Assembly is presumed to have had full knowledge of [the Court of Appeals’] holding in [a case] when it enacted the legislation. . . .”); see also CJ § 1-201(a) (confirming the Court of Appeals’ rulemaking authority over the “unification of practice and procedure in actions at law and suits in equity, so as to secure one form of civil action and procedure for both”).

Of particular relevance here, one such pre-merger era statute was the MUAA. At common law, courts did not have jurisdiction to enforce an agreement to arbitrate, so a party could disregard a binding arbitration clause and plow ahead with a lawsuit. Am. Bank Holdings, Inc. v. Kavanaugh, 436 Md. 457, 471-72 (2013).

But, if the parties did submit their dispute to binding arbitration, the circuit court had jurisdiction over an action to enforce the resulting arbitral award. See id. That asymmetry was re-balanced with the enactment of the MUAA. The MUAA was enacted in 1965 and first codified in Article 7, Sections 1-23 of the Maryland Code (1957, 1968 Repl.

Vol.). In 1973, the MUAA was recodified into Title 3, Subtitle 2 of the newly created Courts Article, Am. Bank Holdings, Inc., 436 Md. at 473 - 11 74, which went into effect on January 1, 1974. Smith v. Wakefield, LP, 462 Md. 713, 727 (2019).

Due to the perceived efficiency, cost savings, and procedural simplicity of arbitration, the MUAA “expresses the legislative policy favoring enforcement of agreements to arbitrate.” Allstate Ins. Co. v. Stinebaugh, 374 Md. 631, 641 (2003). The “MUAA’s purpose was ‘to provide for enforcement of written agreements to submit existing and future controversies to arbitration, to provide for court proceedings to compel or stay arbitration pursuant to written agreements,’ and ‘to provide procedures by which arbitration may be had’ in Maryland.” Am. Bank Holdings, Inc., 436 Md. at 471 -72 (quoting 1965 Maryland Laws, Chapter 231).

In abrogation of common law, the MUAA provides that an agreement to arbitrate future controversies “confers jurisdiction on a court to enforce the agreement and enter judgment on an arbitration award.” CJ § 3-202; see also CJ § 3-206(a). The MUAA also provides that an arbitration agreement is “valid and enforceable, and is irrevocable, except upon grounds that exist at law or in equity for the revocation of a contract.” CJ § 3-206(a). Given its legislative purpose, it should come as no surprise that under the MUAA, the court has always acted as a court of equity.7 Indeed, when it was first enacted in 1965, the MUAA provided: 7 Park Plus acknowledges that the court acts as a court of equity under the MUAA, and, on that basis, argues that the courts below should have applied “equitable principles including laches, waiver and estoppel.” Park Plus maintains that by failing to appreciate the equitable role of the court, “the Circuit Court and the [CSA] panel—as well as the (continued . . .) 12 The term “court” means the circuit court for a county sitting in equity or the Circuit Court or Circuit Court No. II of Baltimore City of this State. The court shall make any determination provided for herein without a jury.

The making of an agreement described in Section 1 providing for arbitration in this State confers jurisdiction on the court to enforce the agreement under this article and to enter judgment on an award thereunder. Maryland Code Art. 7, § 16 (1957, 1968 Repl. Vol.) (emphasis added). The definition of “court” did not change when the MUAA was recodified in the Courts Article.

CJ § 3- 201(b) (“‘Court’ means a court of equity.”); Am. Bank Holdings, Inc., 436 Md. at 474 (“No substantive changes [to the MUAA] were intended during the recodification