Town of Chesapeake Beach v. Pessoa Construction Co.

McAULIFFE, Judge. In 1984, the Town of Chesapeake Beach (the Town) entered into a construction contract with Pessoa Construction Company, Inc. (Pessoa). On 2 January 1986, before construction was completed, the Town declared Pessoa in default and terminated its right to continue work. On 19 May 1989, Pessoa filed a demand for arbitration with the American Arbitration Association.

The Town promptly filed a petition in the Circuit Court for Calvert County to stay or enjoin arbitration, on the ground that Pessoa waived or lost its right to arbitration by its failure to file a timely demand. Following a hearing on the Town’s motion for summary judgment, the court determined there was no dispute of any material fact, but that Pessoa, and not the Town, was entitled to the entry of judgment in its favor. The court entered an order denying the Town’s petition, and the Town appealed. The Court of Special Appeals dismissed the appeal in an unreported opinion, holding that the lower court’s order was interlocutory and not subject to immediate appeal.

We granted the Town’s petition for certiorari, and we reverse. The issue raised by the Town’s petition — timeliness of the demand for arbitration — was properly before the lower court. Although there is a split of authority on the question, we have consistently held that timeliness of the demand for arbitration is for the courts and not the arbitra ⁷⁴⁸ tors. Frederick Contr. v. Bel Pre Med., 274 Md. 307, 315 , 334 A.2d 526 (1975); Crown Oil v. Glen, 320 Md. 546, 558 , 578 A.2d 1184 (1990); Messersmith, Inc. v. Barclay Townhouse, 313 Md. 652, 660 , 547 A.2d 1048 (1988); Hilliard & Bartko v. Fedco Systems, 309 Md. 147, 150 , 522 A.2d 961 (1987).

The issue of whether a timely demand has been filed is properly raised before arbitration by the filing of a petition for a stay pursuant to § 3-208 of the Courts and Judicial Proceedings Article, Maryland Code (1974, 1989 RepLVoL). That section provides: (a) Petition to stay. — If a party denies existence of the arbitration agreement, he may petition a court to stay commenced or threatened arbitration proceedings. (b) Filing of petition. — (1) A petition to stay arbitration shall be filed with the court where a petition to order arbitration has been filed. (2) If a petition for order to arbitrate has not been filed, the petition to stay arbitration may be filed in any court subject to venue provisions of Title 6 of this article.

(c) Determination of existence of arbitration agreement. — If the court determines that existence of the arbitration agreement is in substantial and bona fide dispute, it shall try this issue promptly and order a stay if it finds for the petitioner. If the court finds for the adverse party, it shall order the parties to proceed with arbitration. Section 3-208 encompasses questions of timeliness of demands for arbitration because the existence of an agreement to arbitrate is conditioned on the making of a timely demand; in the absence of a timely demand, there is no agreement to arbitrate. Judge Wilner, speaking for the Court of Special Appeals in Stauffer Constr. v. Bd. of Educ., 54 Md.App. 658, 668 , 460 A.2d 609 (1983), correctly analyzed the rationale of our earlier cases in these words: Because an inappropriate delay in demanding arbitration acts as a relinquishment of the contractual right to com ⁷⁴⁹ pel such a proceeding, where that matter is in dispute, its resolution constitutes, in effect, a determination of whether the agreement to arbitrate still exists; and, under the statute, that is a proper issue for the court.

(Emphasis in original.) Pessoa does not seriously question the Town’s right to seek a judicial determination of the timeliness of Pessoa’s demand through a petition for stay of arbitration brought pursuant to § 3-208. It insists, however, that the court’s order denying the stay is interlocutory and cannot be appealed. The Town advances three separate arguments in favor of immediate appealability: 1) that the order is a “final judgment entered by a court in the exercise of original, special, limited, statutory jurisdiction” within the meaning of § 12-301 of the Courts Article; 2) alternatively, if it is not a final judgment it is nonetheless appealable pursuant to § 12 — 308(3)(iii) of the Courts Article, because it is an order refusing to grant an injunction; or 3) it is appealable under the collateral order doctrine. We shall consider the Town’s contentions separately, but in a slightly different order.

Denial of Injunction Section 12 — 303(3)(iii) of the Courts Article permits an appeal from an interlocutory order “entered by a circuit court in a civil case ... [rjefusing to grant an injunction----” Notwithstanding that the Town captioned its petition as a “Petition to Stay/Enjoin Arbitration,” the Court of Special Appeals did not err in viewing the petition as one seeking a stay of arbitration rather than an injunction. The mere characterization of a petition as a request for an injunction is insufficient to render its denial immediately appealable. See Security Admin, v. Balto. Gas & Elec., 62 Md.App. 50, 53 , 488 A.2d 208 (1985) (§ 12-303(3)(iii) cannot be used “as a transparent artifice for appealing that which is not appealable.”).

See also Greater Continental Corporation v. Schechter, 422 F.2d 1100 , 1102 (2d Cir.1970) (order granting or refusing stay of arbitration ⁷⁵⁰ is not grant or denial of injunction); Peat & Co. v. Los Angeles Rams, 284 Md. 86, 98-99 , 394 A.2d 801 (1978) (order refusing to disqualify counsel not immediately appealable as denial of injunction). To hold otherwise would enable a litigant, to appeal the denial of almost any preliminary motion by filing a petition to enjoin the proceedings which would follow the denial. S ee Final Judgment Section 12-301 of the Courts Article provides that, except in certain circumstances not here relevant, a party may appeal from a final judgment entered in a civil or criminal case by a circuit court. The right of appeal exists from a final judgment entered by a court in the exercise of original, special, limited, statutory jurisdiction, unless in a particular case the right of appeal is expressly denied by law.

The General Assembly has said that “ ‘[f]inal judgment’ means a judgment, decree, sentence, order, determination, decision, or other action by a court, ... from which an appeal ... may be taken.” Section 12-101(f) of the Courts Article. Thus, it is for this Court to define and give content to the meaning of the term “final judgment.” Harris v. Harris, 310 Md. 310, 314 , 529 A.2d 356 (1987). We recently discussed the question of what constitutes a final judgment in Horsey v. Horsey, 329 Md. 392 , 620 A.2d 305 (1993). We said, at 401-02, 620 A.2d 305 : [A] trial court’s order sometimes may constitute a final appealable judgment even though the order fails to settle the underlying dispute between the parties.

Where a trial court’s order has ‘the effect of putting the parties out of court, [it] is a final appealable order.’ Houghton v. County Comm’rs. of Kent Co., 305 Md. 407, 412 , 504 A.2d 1145, 1148 (1986), and cases there cited. See, e.g., Wilde v. Swanson, 314 Md. 80, 85 , 548 A.2d 837, 839 (1988) (‘An order of a circuit court ... [may be] a final ⁷⁵¹ judgment without any adjudication by the circuit court on the merits’); Doehring v. Wagner, 311 Md. 272, 275 , 533 A.2d 1300, 1301-1302 (1987) (trial court’s order ‘terminating the litigation in that court’ was a final judgment); Walbert v. Walbert, 310 Md. 657, 661 , 531 A.2d 291, 293 (1987) (circuit court’s unqualified order was a final judgment because it ‘put Denise Walbert out of court, denying her the means of further prosecuting the case at the trial level’); Houghton v. County Com’rs of Kent Co., 307 Md. 216, 221 , 513 A.2d 291, 293 (1986); Concannon v. State Roads Comm., 230 Md. 118, 125 , 186 A.2d 220, 224-225 (1962), and cases there cited. A petition to stay arbitration proceedings, brought pursuant to § 3-208, may be prosecuted as a separate action. Indeed, unless there is civil litigation already pending between the parties, the petition necessarily must be brought as a separate, self-standing action.

The relief sought by the moving party in such an action does not bear on the merits of the underlying claim; it relates solely to the forum to be used for the resolution of that dispute. The party bringing the petition contends it cannot be forced into arbitration because there is no valid agreement to arbitrate. The entire action is resolved when a judge decides that issue — nothing more remains to be tried. Under these circumstances, the Town contends, a final decision that an agreement to arbitrate does exist and that arbitration is appropriate finally determines and concludes the rights involved in that action, and denies to the Town the right to further prosecute that action.

Thus, it argues, the decision is a final and appealable judgment. Although cases from other jurisdictions are of limited value because of differing statutes governing appeals, the following cases furnish some support for the Town’s argument that the denial of its petition for a stay is a final judgment subject to immediate appeal: Daginella v. Foremost Ins. Co., 197 Conn. 26 , 495 A.2d 709 (1985); Machine Products Co. v. Prairie Local Lodge No. 1538, 230 Miss. 809 , 94 So.2d 344 (1957); Cabrini Medical Center v. Desi ⁷⁵² na, 64 N.Y.2d 1059 , 489 N.Y.S.2d 872 , 479 N.E.2d 217 (1985); Wagner v. Columbia Hospital District, 259 Or. 15 , 485 P.2d 421 (1971); Board of Ed. v. Philadelphia Fed. of Teach. Loc.

No. 3, 464 Pa. 92 , 346 A.2d 35 (1975); Evansville-Vanderburgh Sch. v. Teachers Ass’n, 494 N.E.2d 321 (Ind.App.1986); Systems Construction, Inc. v. Worthington Forest, Ltd., 46 Ohio App.2d 95 , 345 N.E.2d 428 (1975). Pessoa points out that although the Town might have filed its petition for stay as a separate action, it did not. In April 1988, more than two years after being removed from the project, Pessoa filed an action against the Town 1 in the Circuit Court for Calvert County, alleging breach of contract, misrepresentation, and conspiracy. At the same time, Pessoa filed a motion asking that its own action be stayed, so that it might institute and prosecute arbitration proceedings.

The Town objected to the stay, contending that Pessoa no longer had a right to arbitrate, and that no request for arbitration had been filed. The lower court granted the stay on 12 December 1988. 2 When Pessoa filed its demand for arbitration with the American Arbitration Association on 19 May 1989, the Town filed its petition for stay of arbitration in the existing civil action. Pessoa contends that because the