Questar Homes of Avalon, LLC v. Pillar Construction, Inc.

CATHELL, J. The case before us involves the propriety of Circuit Court Orders staying all litigation between a general contractor, Questar Homes of the Avalon Courtyard, LLC (“Questar”), appellant, plaintiff in a third-party complaint, and forty third-party defendant subcontractors and suppliers, appellees, 1 pending arbitration proceedings where it is evident that certain of those forty third-party defendants may never have agreed to arbitrate "with Questar, waived their right to arbitration, chose to litigate their claims in lieu of arbitration, or never had the right to initiate arbitration. Questar presents one question for our review: “Did the trial court err when it compelled arbitration and stayed all litigation between appellant and all forty appellees after hearing arguments on only two appellees’ motions to dismiss without regard to whether the remaining thirty-eight appellees moved to compel arbitration, waived their right to arbitration, or had no right to arbitration?” We hold that the Circuit Court erred when in its Orders it directed that all litigation stemming from Questar’s third-party complaint be stayed between Questar and all third-party defendants pending the outcome of arbitration. While the Orders were correct in effect as to the two third-party defendants that brought the motions to dismiss and petitions to compel arbitration, it appears that numerous other third-party defendants in the suit, for whatever reasons, either waived, relinquished or never possessed a right to demand arbitration. ⁶⁷⁹ I. Procedural History and Background Questar is in the business of residential and commercial construction. It acted as the general contractor during the construction of a residential single-family home community in Baltimore County known as Avalon Courtyard Homes.

On June 3, 2003, after completion of Avalon Courtyard Homes by Questar, the Council of Unit Owners of the Avalon Courtyard Homes Condominium, Inc. (“Council of Unit Owners”) filed suit in the Circuit Court for Baltimore County against six defendants, including Questar, alleging that the named defendants defectively designed and constructed Avalon Courtyard Homes. Specifically, the Council of Unit Owners alleged (1) negligence; (2) breach of implied warranties under Md.Code (1974, 2003 Repl.Vol), § 10-203 and § 11-131 of the Real Property Article; (3) negligent misrepresentation; (4) violation of the Maryland Consumer Protection Act; (5) breach of express warranty; (6) breach of contract; and (7) negligent repairs against Questar. 2 In response to the Council of Unit Owners’ claim against it, Questar filed, on December 3, 2003, a third-party complaint seeking indemnity and/or contribution from the forty subcontractors, suppliers and manufacturers that performed various work and furnished a variety of housing goods during the construction of Avalon Courtyard Homes. 3 Of these forty ⁶⁸⁰ third-party defendants named in the suit, thirty-seven of them had entered into identical subcontract agreements with Ques-tar to perform certain work and labor for the construction of Avalon Courtyard Homes. These subcontract agreements contained the following arbitration clause: “16. Arbitration: All claims, disputes and other matters in question arising out of, or related to, this Subcontract, or the breach thereof, and not resolved pursuant to the other provisions of this Subcontract, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining, unless the parties mutually agree otherwise.

At Contractor’s option, the parties to the arbitration shall be entitled to pre-hearing discovery in accordance with the Federal Rules of Civil Procedure. The response time to discovery shall be fifteen (15) days after receipt rather than the time allotted by the Rules. This agreement to arbitrate shall be enforceable pursuant to and interpreted under the laws of the State of Maryland. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with the applicable law in any court having jurisdiction thereof.

Subcontractor shall be liable for Contractor’s expenses, including costs and attorneys’ fees, should it be necessary for Contractor to enforce its rights, including its right to arbitration, under this Paragraph.” Of the three remaining third-party defendants, the record indicates that no arbitration agreement existed between Ques-tar and M.I. Home Products, Inc., a manufacturer of windows, and that Questar’s purchase contracts with Barber & Ross ⁶⁸¹ Company and Specialty Screen & Window Company, both suppliers of construction materials, contained a separate arbitration provision, which granted to Questar the right to demand arbitration but contained no provision granting the supplier the right to demand arbitration: “16. Disputes: Supplier expressly agrees that in the event there is any dispute between Supplier and Contractor relating to or arising from this Purchase Contract, it shall seek resolution of such dispute only in the courts of the State of Maryland in and for the county in which Contractor has, at the time suit is commenced, its principal place of business in the State of Maryland. In the event that Supplier institutes a suit respecting any such dispute, Contractor shall have the right, within 30 days from the date upon which such suit is first served on Contractor, to have the matters raised in such suit referred to arbitration and the lawsuit stayed pending the outcome of arbitration proceedings. Contractor may seek resolution of any dispute between Contractor and Supplier, either by filing suit in the courts of the State of Maryland, in and for the county in which Contractor has its principal place of business or, at Contractor’s option, by referring the matter to arbitration.

Upon Contractor’s election to have a Supplier initiated suit stayed and the matters therein referred to arbitration or upon Contractor’s referring a matter to arbitration, it is agreed that such matters shall be submitted to arbitration and decided by an arbitration panel in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining. This agreement to arbitrate shall be enforceable pursuant to and interpreted under the laws of the State of Maryland. The award rendered by the arbitrators shall be final and judgment may be entered upon such award in accordance with the applicable law in any court having jurisdiction thereof. For the purpose of this paragraph 16, a dispute shall include any claim, demand or other matter in question arising out of or relating to this Purchase Contract or the breach thereof.” ⁶⁸² In reaction to Questar’s third-party complaint against them, fifteen of the third-party defendants filed a motion to dismiss or petition to compel arbitration pursuant to the terms of the subcontract and purchase agreements. 4 Questar thereafter invited these fifteen third-party defendants to enter into a stipulation, to be filed with the Circuit Court, wherein Questar conceded the existence of the arbitration clause in the pertinent subcontract and purchase agreements and agreed, pending arbitration, to stay its claims against those third-party defendants entering into the stipulation.

Ten of those fifteen third-party defendants entered into this stipulation. 5 Of the remaining five third-party defendants that filed a motion to dismiss or petition to compel arbitration, two of them, namely, Louis Badolato, Inc. and Sun Ventures Contracting, Inc., withdrew their motions, intending to waive the arbitration provision and litigate the case in the Circuit Court. Two others, Pillar Construction, Inc. (“Pillar”) and Wayne Drywall Company, Inc. (“Wayne Drywall”), opted to argue their motions before the Circuit Court rather than enter into the stipulation with Questar. On August 30, 2004, Pillar and Wayne Drywall argued their motions to dismiss Questar’s third-party claims and to order arbitration before the Circuit Court. The court heard argument from counsel for Questar, Pillar and Wayne Drywall. ⁶⁸³ That same day, following the conclusion of counsels’ arguments, the Circuit Court issued two Orders, both of which stated: “ORDER/RULING Having read Third-Party Defendant’s Motion to Dismiss Third-Party Complaint and Petition for Order to Arbitrate, and after a hearing on the motion held on August 30, 2004, it is this 30th day of August, 2004, by the Circuit Court for Baltimore County hereby, ORDERED, that the Third-Party Defendant’s Motion is hereby DENIED, and it is further, ORDERED, that the Third-Party Plaintiff commence arbitration proceedings; and it is further, ORDERED, that all litigation between Third-Party Plaintiffs and Third-Party Defendants in the instant matter be stayed until the conclusion of the arbitration proceedings.” Questar, contending that the Orders of the Circuit Court were overbroad in that they improperly stayed all litigation between Questar and each third-party defendant in favor of arbitration, thereafter appealed the decision of the Circuit Court to the Court of Special Appeals.

On March 11, 2005, prior to consideration by the Court of Special Appeals, we issued a Writ of Certiorari to address this contention. Questar v. Pillar, 385 Md. 511 , 869 A.2d 864 (2005).

II

Standard of Review As we recently observed in Walther v. Sovereign Bank, 386 Md. 412 , 872 A.2d 735 (2005): “A trial court’s order to compel arbitration constitutes a final appealable judgment. See Horsey v. Horsey, 329 Md. 392, 403 , 620 A.2d 305, 310-11 (1993) (stating that ‘an order compelling the parties before the trial court to submit their dispute to arbitration, thereby denying all relief sought in the trial court and terminating the action there, is a final ⁶⁸⁴ appealable judgment’); see also Litton Bionetics v. Glen Constr. Co., 292 Md. 34 , 437 A.2d 208 (1981). “Our role in reviewing the trial court’s order to compel arbitration ‘ “extends only to a determination of the existence of an arbitration agreement.” ’ Allstate Ins. Co. v. Stinebaugh, 374 Md. 631, 645 , 824 A.2d 87, 95 (2003) (quoting Holmes v. Coverall North America, Inc., 336 Md. 534, 546 , 649 A.2d 365, 370-71 (1994)).

The trial court’s conclusion as to whether a particular dispute is subject to arbitration is a conclusion of law, which we review de novo. See Wells v. Chevy Chase Bank, F.S.B., 363 Md. 232, 250 , 768 A.2d 620, 629-30 (2001).” Id. at 422, 872 A.2d at 741 .

III

Discussion As our decision as to whether the Circuit Court’s Orders were in error shall rest in part upon the fundamental concepts of the existence of agreements to arbitrate between Questar and the third-party defendant subcontractors and suppliers, we are inclined yet again to reiterate the law relating to agreements to arbitrate as it exists in Maryland. The statutory principles concerning such agreements are found in Md.Code (1974, 1998 Repl.Vol.), §§ 3-201 to 234 of the Courts and Judicial Proceedings Article, otherwise known as the Maryland Uniform Arbitration Act (“MUAA”). § 3-234. It “expresses the legislative policy favoring enforcement of agreements to arbitrate,” Allstate Ins. Co. v. Stinebaugh, 374 Md. 631, 641 , 824 A.2d 87, 93 (2003), by giving the courts jurisdiction to enforce arbitration agreements and enter judgments on arbitration awards. § 3-202; see also Holmes v. Coverall North America, Inc., 336 Md. 534, 546 , 649 A.2d 365, 371 (1994) (stating that the “scope of the court’s involvement follows from our recognition of the legislative intent to favor arbitration”); Charles J. Frank, Inc. v. Associated Jewish Charities, Inc., 294 Md. 443, 454 , 450 A.2d 1304, 1309 (1982).

The MUAA gives a party to an arbitration agreement the ability to compel the other party, or parties, to arbitration by ⁶⁸⁵ requesting an order from the courts. § 3-207. The courts must then “stay any action or proceeding involving an issue subject to arbitration,” where a petition to arbitrate has been filed or an order to arbitrate has been made. § 3-209. The principal requirement, however, is that an arbitration agreement between the parties must exist. Without an agreement to arbitrate, the MUAA does not apply and the court is not allowed to stay the proceedings or require either party to submit to arbitration.

Furthermore, an arbitration panel lacks jurisdiction in the absence of an arbitration agreement. Stinebaugh, 374 Md. at 645 , 824 A.2d at 96 ; see also United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 , 80 S.Ct. 1347, 1353 , 4 L.Ed.2d 1409 (1960) (the Court, interpreting the federal Labor Management Relations Act, stated that “arbitration is a matter of contract and a party cannot be required to submit