WSC/2005 LLC v. Trio Ventures Assocs.

Panel Barbera, C.J., Greene, Adkins, McDonald, Watts, Hotten, Getty, JJ. Adkins, J. *²⁴⁸ Arbitration is a procedure frequently imposed by contract but seldom the topic of Maryland appellate decisions. In this appeal, we determine whether a court may vacate an arbitrator's decision for manifest disregard of applicable law even though such a ground is not listed in the Md. Code (1973, 2013 Repl. Vol.), § 3-224(b) of the Court and Judicial Proceedings Article ("CJP").

Applying this standard, along with the express statutory grounds to vacate arbitral awards, we then consider whether a circuit court erred in refusing to vacate the award in question. BACKGROUND This commercial dispute centers on real properties located in Montgomery County, Maryland. The Washington Science Center Joint Venture ("WSCJV") owns land and commercial *²⁴⁹ buildings on Executive Boulevard in Rockville, Maryland. Although the WSCJV owns several properties, only two are relevant to this appeal: 6100 Executive Boulevard and 6011 Executive Boulevard.

Respondents Trio Venture Associates, Myron Levin, Jean Levin, Lawrence Guss, and the Guss Family Limited Partnership (collectively "Trio") owned 58 1/3% of the WSCJV. In 2005, Trio and the remaining joint venturers were embroiled in contentious litigation stemming from Trio's attempted sale of its ownership interest. During this litigation, the parties reached a settlement. As part of the settlement, Trio sold its ownership interest to Petitioners WSC/2005 LLC, and Simon and Ruth Wagman (collectively "WSC").

The parties set out the terms of this transfer in a Purchase and Sale Agreement ("PSA"). The PSA provided several detailed provisions regarding the price WSC would pay for Trio's ownership interest. Paragraphs 3.A-3.C required an initial payment of $10 million from WSC to Trio. Paragraph 3.E also required WSC to pay an additional $3.5 million if one of two things happened.

First, the payment was ²⁵⁸ required if the government tenants at 6011 or 6100 Executive Boulevard renewed their leases for at least ten years. Second, payment was required if, in the event that the government tenants did not renew, both 6011 and 6100 Executive Boulevard, "in the aggregate are not less than seventy-five percent (75%) leased to and occupied by tenants for terms of not less than five (5) years in each case (excluding options) ...." This paragraph also provided that it was "understood that WSCJV [would] use commercially reasonable efforts to obtain renewal leases on terms and conditions acceptable to WSCJV as soon as is practical." The parties signed the PSA on August 17, 2005. One year later, WSC sold 6100 Executive Boulevard to a third party. Trio maintains that it did not receive notification of the sale.

In 2010, Trio, still unaware that the property had been sold, sent an e-mail to WSC asking about the leasing status at both 6100 and 6011 Executive Boulevard. A representative from *²⁵⁰ WSC responded by explaining that the government leases-which were in place when the property transferred from Trio to WSC-did not expire until 2014. The message indicated that the earliest time the payment under Paragraph 3.E would be due was 2014. According to Trio, it then ran a title search on 6011 Executive Boulevard in January of 2014, which revealed that WSC had sold the building.

This discovery led to the dispute giving rise to this appeal. Trio sent WSC a letter asserting that WSC had an obligation to lease 6100 Executive Boulevard and that Trio was misled into thinking that WSC remained the owner. The letter argued that "the sale of [6100 Executive Boulevard] triggered the payment due under Paragraph 3.E [of the PSA]." After WSC refused to acknowledge any right to additional payment stemming from the sale of 6100 Executive Boulevard, Trio filed a demand for arbitration. The demand asserted five claims stemming from WSC's sale of the property: (1) payment due under terms of purchase and sale agreement; (2) payment due as a result of fraudulent contract performance; (3) payment due for failure to comply with commercially reasonable standards requirement; (4) payment due as a result of unjust enrichment; and (5) failure to provide information.

WSC moved to dismiss the demand and argued that the PSA did not require an additional payment under Paragraph 3.E until the leasing condition occurred. According to WSC, the "leasing contingency" only required payment when the leases at the buildings were renewed, or if they were re-leased at certain thresholds. Trio moved for summary judgment, arguing that the sale deliberately frustrated and destroyed any possibility that WSC could fulfill the leasing contingency. After a hearing on the motions, the Arbitrator issued an opinion dismissing some of Trio's claims, 1 but granting Trio's motion for summary judgment on the issue of whether WSC breached the PSA by *²⁵¹ selling 6100 Executive Boulevard.

The Arbitrator concluded that the sale of 6100 Executive Boulevard breached the PSA and required WSC to pay Trio the $3.5 million fee specified in Paragraph 3.E. We shall discuss the reasoning of the Arbitrator's decision in more detail infra . Shortly thereafter, WSC filed a petition to vacate the arbitration award in the Circuit Court for Montgomery County pursuant to CJP § 3-224. The petition argued that the Arbitrator "manifestly disregarded ²⁵⁹ well-established Maryland law in several significant respects," and that the Arbitrator wrongly concluded that WSC breached the PSA by selling 6100 Executive Boulevard. Trio moved to dismiss the petition, arguing that WSC had not alleged any of the statutorily permitted vacatur grounds enumerated at CJP § 3-244(b).

Trio also filed a request, pursuant to CJP § 3-228(a)(2), for the attorney's fees and costs incurred in defending and enforcing the arbitration award in the Circuit Court. After a hearing, the Circuit Court dismissed the petition. The order stated that the arbitration award did "not manifestly disregard applicable law" but denied Trio's request for attorney's fees and costs. WSC filed a timely appeal in the Court of Special Appeals.

The intermediate appellate court, in an unreported decision, affirmed the Circuit Court's order. WSC/2005 LLC v. Trio Venture Assocs. , Nos. 946, 1531 & 1784, 2017 WL 4422973 , at ⁷ (Md. Ct. Spec. App. Oct. 5, 2017). The Court concluded that "the [A]rbitrator's award is fully supported by the language in the PSA and in accordance with applicable law." Id.

We issued a writ of certiorari to answer the following questions: 2 *²⁵² (1) May an arbitral award be set aside for manifest disregard of applicable law according to the MUAA? (2) Did the arbitration award manifestly disregard applicable law? (3) Does a circuit court have discretion to deny a request made, pursuant to CJP § 3-228(a)(2), for an award of the attorney's fees and costs incurred in defending or enforcing the arbitration award? We hold that the MUAA does permit a party to challenge an arbitration award for manifest disregard of the law.

According to this standard though, the Circuit Court correctly concluded that the Arbitrator's award did not manifestly disregard the law. We also hold that a circuit court has discretion to award or deny attorney's fees to a party seeking to vacate or confirm an arbitration award. DISCUSSION The MUAA is a comprehensive statute governing the arbitration process in Maryland. CJP §§ 3-201, et seq. ; Walther v. Sovereign Bank , 386 Md. 412 , 423-24, 872 A.2d 735 (2005).

Once the arbitrator issues an award, the MUAA-CJP § 3-224(b) specifically-provides certain grounds ²⁶⁰ upon which a circuit court shall vacate an award: (b) Grounds . - The court shall vacate an award if: (1) An award was procured by corruption, fraud, or other undue means; *²⁵³ (2) There was evident partiality by an arbitrator appointed as a neutral, corruption in any arbitrator, or misconduct prejudicing the rights of any party; (3) The arbitrators exceeded their powers; (4) The arbitrators refused to postpone the hearing upon sufficient cause being shown for the postponement, refused to hear evidence material to the controversy, or otherwise so conducted the hearing, contrary to the provisions of § 3-213 of this subtitle, as to prejudice substantially the rights of a party; or (5) There was no arbitration agreement as described in § 3-206 of this subtitle, the issue was not adversely determined in proceedings under § 3-208 of this subtitle, and the party did not participate in the arbitration hearing without raising the objection. Subsection (c) further provides that "[t]he court shall not vacate the award or refuse to confirm the award on the ground that a court of law or equity could not or would not grant the same relief." (Emphasis added). A circuit court's decision to grant or deny a petition to vacate or confirm an arbitration award is a conclusion of law, which we review without deference. See, e.g. , Prince George's Cty.

Police Civilian Emps. Ass'n v. Prince George's Cty. , 447 Md. 180 , 192, 135 A.3d 347 (2016) ("An appellate court reviews without deference a trial court's ruling on a petition to vacate an arbitration award."). The parties agree on this point but dispute the appropriate standard upon which a court must evaluate the Arbitrator's award. WSC maintains that the vacatur grounds set forth in CJP § 3-224(b) are not exclusive.

Specifically, WSC argues that, in addition to the grounds set forth in subsection (b), a court may set aside an arbitration award when the award manifestly disregards applicable law. Although the MUAA provides specific grounds for vacatur, WSC contends that the statute was never intended to eliminate the common-law grounds of vacatur, chiefly manifest disregard of the law. Trio's response to this contention is sparse. Rather than addressing WSC's contention *²⁵⁴ that the MUAA did not abrogate common-law vacatur grounds, Trio asserts that WSC has attempted to undo the Arbitrator's decision merely because it disagrees with the award.

We begin by assessing whether the MUAA abrogates or otherwise eliminates the common-law vacatur grounds of "manifest disregard of applicable law." Manifest Disregard--Maryland Common-Law Origins Arbitration has been traditionally recognized as a "favored" method of dispute resolution. See, e.g. , O'Ferrall v. De Luxe Sign Co. , 158 Md. 544 , 552, 149 A. 290 (1930) ("Arbitration is a method favored by law for the settlement of disputes."). This Court has often refused to review the merits of arbitration awards because the "purpose of arbitration is 'to compose disputes in a simple and inexpensive manner' ...." Board of Educ. of Prince George's Cty. v. Prince George's Cty. Educators' Ass'n , 309 Md. 85 , 98, 522 A.2d 931 (1987) (quoting Roberts Bros. v. Consumers' Can Co. , 102 Md. 362 , 368-69, 62 A. 585 (1905) ).

Extensive judicial review would defeat that purpose. Id. ²⁶¹ In 1793, the General Court of Maryland 3 held that, in addition to the statutory review grounds that then existed, an arbitrator's decision could be set aside for reasons that "were apparent on the face of the award ." Dorsey v. Jeoffray , 3 H & McH. 81 , 81 (Md. 1793) (emphasis added). In 1802, the General Court again recognized that "[a] palpable mistake in law or fact, is good cause to set aside an [arbitration] award, if it is apparent on the face of the award ." Goldsmith v. Tilly , 1 H & J 221 , 223 (1802) (emphasis added). Years later in Roloson v. Carson , 8 Md. 208 , 220-21 (1855), this Court wrote that "[m]istakes committed by [arbitrators] in drawing incorrect inferences, or forming erroneous judgments or conclusions, *²⁵⁵ from facts, will not vitiate their awards; but when mistakes are relied upon for that purpose they must be gross and manifest ." (Emphasis added).

Later, we again recognized that the common law permitted vacatur of an arbitration award for a "mistake of law or fact ... appearing on its face." Parr Constr. Co. v. Pomer , 217 Md. 539 , 544, 144 A.2d 69 (1958). Likewise, our more recent decisions have recognized that, at common law, an arbitral award may be vacated for manifest disregard of the law. In Prince George's Cty.

Educators' Ass'n , 309 Md. at 105 , 522 A.2d 931 , we examined a similar challenge to an arbitration award. There, the parties also disputed the exclusivity of the vacatur grounds provided by CJP § 3-224(b). In that case, we ultimately concluded that the arbitration agreement was not governed by the MUAA. Id. at 98 , 522 A.2d 931 .

We did not affirmatively announce whether an arbitration award may be vacated only for the reasons enumerated in CJP § 3-224(b). Id. at 105 , 522 A.2d 931 . But we did explain that it "was firmly established as a common law principle in Maryland that mere errors of law or fact would not ordinarily furnish grounds for a court to vacate or to refuse enforcement of an arbitration award." Id. at 99 , 522 A.2d 931 (citing Roberts Bros. v. Consumers' Can Co. , 102 Md. 362 , 368-69, 62 A. 585 (1905) ). There are exceptions to this rule though-mainly, "fraud or for misconduct, bias, prejudice, corruption[,] or lack of good faith on the part of the arbitrator." Id. at 100, 522 A.2d 931 (citing, inter alia , Chillum-Adelphi Volunteer Fire Dep't, Inc. v. Button & Goode, Inc. , 242 Md. 509 , 516-18, 219 A.2d 801 (1966) ).

We have also recognized an additional common-law ground for vacating an arbitrator's award: manifest disregard of applicable law. Id. at 101-02, 522 A.2d 931 ("[M]anifest disregard of the law must be something beyond and different from a mere error in the law or failure on the part of the arbitrators to understand or apply the law." (quoting San Martine Compania de Navegacion, SA v. Saguenay Terminals, Ltd. , 293 F.2d 796 , 801 (9th Cir. 1961) ) ). *²⁵⁶ In Downey v. Sharp , 428 Md. 249 , 51 A.3d 573 (2012), we again recognized manifest disregard as a means of vacatur available at common law but declined to go so far as to say that the statutory grounds enumerated at CJP § 3-224(b) permitted such a method of review. Id. at 265 , 51 A.3d 573 ("[W]e shall not in the present case reach the issue of whether an award subject to § 3-224 of the Uniform Arbitration Act may properly be vacated by a reviewing court on the ground[ ] that it ... demonstrates a 'manifest disregard of the ²⁶² law.' "). Yet again in 2012, we acknowledged "manifest disregard" as a common-law ground for vacating an arbitration award.

Baltimore Cty. Fraternal Order of Police Lodge No. 4 v. Balt. Cty. , 429 Md. 533 , 564, 57 A.3d 425 (2012). 4 Considering this line of cases, it is safe to repeat that Maryland recognizes manifest disregard of the law as a permissible common-law ground for vacating an arbitration award. The question we face in this appeal however, is whether the General Assembly, by adopting the MUAA, abrogated the common law in this respect.

The MUAA The General Assembly adopted the Uniform Arbitration Act in 1965. 1965 Md. Laws ch. 231 § 2, at 243-49. We recently explored the purpose of the MUAA in American Bank Holdings, Inc. v. Kavanagh , 436 Md. 457 , 471-72, 82 A.3d 867 (2013), where we said: Enactment of the MUAA was intended to eviscerate the "well-established" common law rule that "unless an agreement *²⁵⁷ to arbitrate has been consummated by an award, it will not bar a suit at law or in equity with respect to the question agreed to be arbitrated." .... [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. (Citations omitted). Before the adoption of the MUAA, Maryland common law allowed parties who had already agreed to submit a dispute to arbitration, to change their minds and refuse to participate or withdraw from the arbitration process prior to issuance of an award.

See, e.g. , Maietta v. Greenfield, 267 Md. 287 , 293 n.4, 297 A.2d 244 (1972). The Legislature adopted the MUAA to prevent such outcomes. The preamble to the legislation states: AN ACT 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, to provide procedures by which arbitration may be had in this State and for vacation, modification, correction or confirmation of awards and for entries of judgment or decree under arbitration, and to relate generally to regulation of arbitration in the State. 1965 Md. Laws ch. 231, § 2, at 243. This preamble demonstrates that the General Assembly intended to make agreements to arbitrate judicially enforceable.

See Allstate Ins. Co. v. Stinebaugh , 374 Md. 631 , 641, 824 A.2d 87 (2003) ("[The MUAA] expresses the legislative policy favoring enforcement of agreements to arbitrate."). WSC argues that the adoption of the MUAA in 1965 did not abrogate any then-existing common-law vacatur grounds. ²⁶³ Statutory abrogation of the common law is a familiar concept for this Court. "The General Assembly is authorized to change or abrogate the common law as it may think most *²⁵⁸ conducive to the general welfare, provided it does not in the process run afoul of the federal and state constitutions." Jones v. State , 303 Md. 323 , 343-44, 493 A.2d 1062 (1985) (Cole, J., concurring).

Although the Legislature may abrogate the common law through statutory enactments, we have also required a strong pronouncement from the Legislature as evidence of an intention to do so. For abrogation to occur, "the statutory language must indicate an express abrogation or an abrogation by implication by adoption of a statutory scheme that is so clearly contrary to the common law right that the two cannot occupy the same space." Nickens v. Mt. Vernon Realty Grp., LLC , 429 Md. 53 , 74, 54 A.3d 742 (2012) holding superseded by statute 2013 Md. Laws ch. 515 § 2, at 4690-91, see also Suter v. Stuckey , 402 Md. 211 , 232, 935 A.2d 731 (2007) ("In construing a statute, it is a long-standing rule of statutory interpretation that the common law will not be repealed by implication."); 3 Norman J. Singer & J.D. Shambie Singer, Sutherland Statutes and Statutory Construction § 61:1 (7th ed. 2017) ("A statute may take away a common-law right, but courts presume the legislature has no such purpose. If a common-law right is to be taken away, it must be noted clearly by the legislature.").

WSC points out-correctly-that the MUAA contains no such pronouncement of an intention to expressly abrogate the common-law vacatur grounds. We also agree that CJP § 3-224(b), although stating five grounds upon which a circuit court must vacate an arbitration award, does not indicate that these vacatur grounds are exclusive. Indeed, CJP § 3-224(c), which states the circumstances in which a circuit court cannot vacate an arbitration award, makes no mention of the common-law vacatur grounds. But legislative abrogation of common law need not be express.

Although abrogation by implication is highly disfavored, it is possible in two situations: field preemption and conflict preemption. Field preemption occurs if a new enactment repeals and replaces the entirety of the prior law on a comprehensive basis. *²⁵⁹ Genies v. State , 426 Md. 148 , 155, 43 A.3d 1007 (2012) (citing Robinson v. State , 353 Md. 683 , 728, 728 A.2d 698 (1999) ). Conflict preemption occurs when the new legislation has a clear incompatibility and disharmony with the common law, such that both the common law and the statutes cannot coexist. Id.

(quoting Lutz v. State , 167 Md. 12 , 15, 172 A. 354 (1934) ). Although CJP § 3-224(b) lists several grounds upon which a circuit court must vacate an arbitration award, these grounds do not clash with the common law "manifest disregard" ground. The common-law ground and the statutory grounds can live in harmony--recognizing "manifest disregard" as a valid reason for vacating an arbitration award will not conflict with any of the statutory grounds or render them nugatory. Without clear incompatibility or disharmony between the common law and the statute, conflict preemption does not apply.

This leaves only field preemption. In Genies , we held that a statute did not abrogate the common law through field preemption because it did not apply to all potentially affected individuals. 426 Md. at 155 -56 , 43 A.3d 1007 . There, a defendant argued that a statute penalizing indecent exposure to "authorized personnel" in a prison preempted the entire common-law field of indecent exposure. Id. at 156 , 43 A.3d 1007 .

We held that the statute did not ²⁶⁴ preempt the common-law doctrines relating to indecent exposure because the statute only mentioned "authorized personnel" and did not apply to other potential victims of indecent exposure such as visitors or others who are regularly present at correctional facilities. Id. at 159 , 43 A.3d 1007 . Cf. Robinson v. State , 353 Md. 683 , 695-96, 728 A.2d 698 (1999) (assault and battery statute abrogated common law by "subsuming and combining" all statutory forms of assault and the common law forms of assault and battery into a single and comprehensive statutory scheme).

The MUAA, although extensive, makes no mention of an intent to preempt the field of arbitration. Nor has Trio pointed us to any manifestation of any such intention in the legislative history of the MUAA. Further, the MUAA is not universally applicable. For example, the MUAA specifically *²⁶⁰ declares that employment contracts with arbitration clauses are exempt from the statute unless the employment agreement specifies that the MUAA shall apply.

See CJP § 3-206(b). As we held in Prince George's Cty. Educators' Ass'n , exempt employment agreements are subject to common-law rules and not the MUAA. 309 Md. at 98 , 522 A.2d 931 . The MUAA's lack of universal applicability necessarily means that the General Assembly did not preempt the entire field of arbitration common law.

The common-law ground of manifest disregard of the law has existed in Maryland for centuries. The General Assembly did not expressly or impliedly preempt this provision of the common law when it enacted the MUAA. For these reasons, we hold that an arbitration award subject to the MUAA may be vacated for manifest disregard of the law. In our next section, we examine that elusive standard.

Manifest Disregard-The Standard This Court applied the "manifest disregard" standard in Prince George's Cty. Educators' Ass'n , 309 Md. at 102 , 113 , 522 A.2d 931 . The arbitration in that case arose from a dispute between the Prince George's County Board of Education and the teachers' union. The Board of Education established a driver's education program, which paid teachers below the rate required by their collective bargaining agreement ("CBA").

Id. at 88-90 , 522 A.2d 931 . The teachers challenged this reduction in pay and argued that their CBA required a higher payment, even for time spent teaching the driver's education program. Id. at 90 , 522 A.2d 931 . The arbitrator concluded that because the new driver's education program was separate from the Board of Education, the CBA did not compel payment at a higher rate.

Id. at 90-91 , 522 A.2d 931 . We assessed the award to determine whether the arbitrator made a "palpable mistake of law or fact ... apparent on the face of the award ...." Id. at 105 , 522 A.2d 931 . Importantly though, we recognized the long-held principle that "mere errors of law or fact would not ordinarily furnish grounds for a *²⁶¹ court to vacate or to refuse enforcement of an arbitration award." Id. at 99 , 522 A.2d 931 ; see also Downey , 428 Md. at 266 , 51 A.3d 573 . Quoting from Roberts Bros. v. Consumers' Can Co. , 102 Md. 362 , 368-69, 62 A. 585 (1905), we said: Whenever the parties to an arbitration have had a full and fair hearing, the award of the arbitrators, will be expounded favorably and every reasonable intendment made in its support ....

In such cases it is conceded that the Court will not look into the merits of the matter and review the findings of law or fact made by the arbitrators nor substitute its opinion or judgment for theirs, but ²⁶⁵ will require the parties to submit to the judgment of the tribunal of their own selection and abide by the award. Prince George's Cty. Educators' Ass'n , 309 Md. at 99 , 522 A.2d 931 (cleaned up). We acknowledged that the arbitrator purported to follow applicable principles of Maryland's successorship doctrine in labor disputes.

Id. at 110-111 , 522 A.2d 931 . Yet, we required