Barclay Townhouse Associates v. Stephen L. Messersmith, Inc.

• Decision Date: 01 September 1985
• Docket Number: No. 1034,1034
• Citation: 67 Md.App. 493,508 A.2d 507
• Parties: BARCLAY TOWNHOUSE ASSOCIATES v. STEPHEN L. MESSERSMITH, INC., et al. ,
• Court: Court of Special Appeals of Maryland

Page 493

67 Md.App. 493

508 A.2d 507

BARCLAY TOWNHOUSE ASSOCIATES v.STEPHEN L. MESSERSMITH, INC., et al.

No. 1034, Sept. Term, 1985.

Court of Special Appeals of Maryland.

May 13, 1986.

Certiorari Granted August 26, 1986.

Timothy L. Mullin, Jr.(Miles & Stockbridge on brief), Baltimore, for appellant.

Ronald M. Miller(Paul M. Nussbaum, Sheldon L. Gnatt and Reichelt, Nussbaum, Brown, Dukes & LaPlaca, on brief), Greenbelt, for appellee, Messersmith.

Robert O. Johnston and Shulman, Rogers, Gandal, Tobin & Ecker, Silver Spring, on brief, for appellee, H.A. Knott, Limited, Inc.

Argued before MOYLAN, ROSALYN B. BELL and ROBERT M. BELL, JJ.

MOYLAN, Judge.

The appellant, Barclay Townhouse Associates(Barclay), petitioned the Circuit Court for Prince George's County to vacate an arbitration award granted in favor of the appelleeStephen L. Messersmith, Inc.(Messersmith).The circuit court denied the petition to vacate the award and granted Messersmith's motion for summary judgment.Judgment was entered in favor of the appellee Messersmith in the amount of $63,395.13 plus costs and interest.Barclay has filed this appeal.

In May, 1981, Barclay, a developer, entered into an agreement with the Henry A. Knott Remodeling Company, Inc.(Knott) for the latter to be the construction manager of a rehabilitation project.Knott then entered into negotiations with Messersmith for the drywall and metal stud work on the project.Knott and Messersmith exchanged several drafts of contracts, but whether the final version was ever agreed upon is unclear.¹

Messersmith commenced work on the project.Sometime thereafter, disagreements arose between Messersmith and Knott regarding the scope of the work Messersmith was to perform, the materials to be used, and the quality of the work.

Messersmith filed a Demand for Arbitration, seeking an award for $108,267.62 against Knott and Barclay.Both Knott and Barclay objected to the jurisdiction of the arbitration panel to hear the dispute, claiming that there was no written agreement to arbitrate.The arbitration panel overruled the objections, and a full hearing followed.The arbitrators awarded Messersmith $63,395.13 against Barclay.

Barclay filed a petition to vacate the arbitration award in circuit court.The parties agreed to submit the dispute to the circuit court by way of cross-motions for summary judgment.

The circuit court denied Barclay's motion for summary judgment and petition to vacate and granted Messersmith's motion.The court stated:

"In reviewing the determination of an arbitration panel, this Court's function in confirming or vacating an award is 'severely limited.'... A court has authority to vacate an award that is based on a completely irrational interpretation of the contract....Applying this standard, this Court does not have grounds to vacate the award under § 3-224(b)(5).The record supports the arbitration panel's finding that a valid arbitration clause existed.We can find no error of fact or law made by the arbitration panel that would render their decision completely irrational."

On appeal, Barclay contends that the circuit court erred in using the "completely irrational" standard of review when reviewing the arbitration panel's threshold decision of whether a written agreement to arbitrate even existed.We agree and remand the case to the circuit court.

This is a case of first impression in Maryland.Previous arbitration cases have dealt with the issues of whether the subject matter of the dispute fell within the scope of an extant arbitration agreement, Wilson v. McGrow, Pridgeon & Co., 298 Md. 66, 467[508 A.2d 509] A.2d 1025 (1983);Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 468 A.2d 91(1983); or what the appropriate standard of review was when a court reviewed an award arising out of an agreed-to arbitration.Southern Maryland Hospital Center v. Edward M. Crough, Inc., 48 Md.App. 401, 427 A.2d 1051(1981);O-S Corp. v. Samuel A. Kroll, Inc., 29 Md.App. 406, 348 A.2d 870(1975).This case presents a fundamentally different issue.When the dispute arose, Barclay was notified by Messersmith of Messersmith's intent to submit to arbitration.Barclay responded by denying the existence of any agreement between the parties to arbitrate.Barclay challenges the very jurisdiction of the arbitration panel.This brings into question the standard of review courts are to use in reviewing an arbitration panel's decision regarding its own jurisdiction.

Arbitration is the process whereby parties voluntarily agree to substitute a private tribunal for a court proceeding.When the parties agree to arbitrate, they give up some rights, among them the alternative of seeking redress in the courts, in exchange for a speedier, less formal, less expensive private procedure.Because the parties have agreed to arbitrate, once an arbitrator's award is obtained, the courts review the arbitrator's award using the austerely limited "completely irrational" standard of review, and generally thereby enforce the award.Nelley v. Baltimore City, 224 Md. 1, 166 A.2d 234(1960);Mayor and City Council of Baltimore v. Clark, 128 Md. 291, 97 A. 911(1916).

Arbitration is essentially a matter of contract.United Steelworkers of America v. American Manufacturing Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403(1960).Parties are only required to arbitrate those disputes which they have agreed to submit to arbitration.Flood v. Country Mutual Ins. Co., 41 Ill.2d 91, 242 N.E.2d 149(1968);J. Brodie & Sons, Inc. v. George A. Fuller Co., 16 Mich.App. 137, 167 N.W.2d 886(1969).It would be fundamentally unfair as well as illogical to bind a party to the results of a process to which it had never agreed.The arbitrator, moreover, derives his or her power from the arbitration agreement itself.If no agreement to arbitrate exists, the arbitrator has no power to act.Waterford Assoc. of Educational Secretaries v. Waterford School District, 95 Mich.App. 107, 290 N.W.2d 95(1980).

Because an arbitrator has no power to act in the absence of an agreement to arbitrate, the "completely irrational" standard of review used for reviewing arbitration awards on the merits is totally inappropriate on the threshold issue.Courts must make the decision regarding the existence of an agreement to arbitrate, not the arbitrator.This conclusion finds support in the statutory scheme of the Maryland Arbitration Act.Md.Cts. & Jud.Proc.Code Ann., § 3-201, et seq. Section 3-208(a) provides:

"s 3-208.Stay of arbitration.

(a)Petition to stay.--If a party denies existence of the arbitration agreement, he may petition a court to stay commenced or threatened arbitration...