Beacon Towers Condo. Trust v. Alex

• Decision Date: 07 January 2016
• Docket Number: SJC–11880.
• Citation: 42 N.E.3d 1144,473 Mass. 472
• Parties: BEACON TOWERS CONDOMINIUM TRUST v. George ALEX.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

473 Mass. 472

42 N.E.3d 1144

BEACON TOWERS CONDOMINIUM TRUST

v.George ALEX.

SJC–11880.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Oct. 5, 2015.

Decided Jan. 7, 2016.

J. Mark Dickison, Boston (Ryan A. Ciporkin, Cambridge, with him) for the defendant.

Mark A. Rosen, Dedham, for the plaintiff.

Present: GANTS, C.J., SPINA, CORDY, BOTSFORD, DUFFLY, LENK, & HINES, JJ.

Opinion

GANTS, C.J.

Under G.L. c. 251, § 10, attorney's fees may not be awarded in arbitration proceedings “[u]nless otherwise provided in the agreement to arbitrate.” The issue presented in this case is whether an arbitration panel applying the commercial arbitration rules of the American Arbitration Association (AAA rules), having found that the arbitration agreement did not authorize an award of attorney's fees, nonetheless may award attorney's fees based on its finding that “substantially all of the defenses were wholly insubstantial, frivolous and not advanced in good faith.” The appellant, George Alex, contends that the arbitration panel may award attorney's fees in these circumstances for either of two reasons: first, because AAA rule 47(a)¹ authorizes an arbitrator to “grant any remedy or relief that the arbitrator

deems just and equitable and within the scope of the agreement of the parties”; or second, because AAA rule 47(d)(ii) provides that an arbitrator may award attorney's fees if “it is authorized by law,” and the award of attorney's fees in these circumstances is authorized by G.L. c. 231, § 6F. We conclude that an arbitrator lacks the authority to award attorney's fees based on a finding that all the claims or defenses were wholly insubstantial, frivolous, and not advanced in good faith unless the parties have agreed that an arbitrator may award attorney's fees in these circumstances. We therefore affirm the Superior Court judge's order vacating the arbitration panel's award of attorney's fees.

Background. The appellee, Beacon Towers Condominium Trust (trust), is the unit owners' organization for the Beacon Towers Condominium (condominium), an entity created pursuant to G.L. c. 183A, § 17. The condominium is comprised of three adjacent buildings in the Back Bay section of Boston, with the addresses of 479, 481, and 483 Beacon Street. The board of trustees for the trust (trustees) is the governing body of the trust, responsible for operating, maintaining, and managing the common areas and facilities of the condominium and the business of the trust. Alex was the owner of two units—one at 479 Beacon Street and one at 481 Beacon Street.

In 2010, there was a major electrical fire at 483 Beacon Street that caused substantial damage throughout the building, rendering it uninhabitable. The other two buildings were not affected. Under G.L. c. 183A, § 17, and the trust's bylaw, the trustees were obligated to certify whether the fire damage exceeded ten per cent of the value of the condominium prior to undertaking any rebuilding. If the damage exceeded ten per cent of the condominium's value, the trustees were required under § 17 to submit their restoration plan to a vote and obtain the approval of seventy-five per cent of the unit owners before proceeding with the repairs.

The trustees undertook the repairs without certifying that the fire damage was less than ten per cent of the value of the condominium and without obtaining the approval of seventy-five per cent of the unit owners, and charged each unit owner his or her share of the costs in a special common expense assessment. The trustees assessed Alex $62,995 for the two units that he owned. Alex paid the assessment under protest.

The trust's bylaw requires that disputes regarding any determination or action of the trustees be submitted to arbitration. Alex commenced an arbitration action challenging the propriety of the trustees' conduct regarding the fire damage repairs and the imposition of the assessment. After a two-day arbitration, the arbitration panel found that the fire damage to the common areas and facilities exceeded ten per cent of the value of the condominium, and that the trustees committed a breach of their obligations under G.L. c. 183A, § 17, and the bylaw by restoring the common areas and facilities without a vote of the unit owners. A majority of the panel declared that the special assessment against Alex was void and awarded him restitution of the amount he had already paid in special assessments. A majority of the panel also awarded Alex attorney's fees in the amount of $48,750.² The majority recognized that “[t]he arbitration agreement here does not provide for an award of fees,” but reasoned that AAA rule 47(d)(ii) allows an award of fees where “authorized by law” and that G.L. c. 231, § 6F, authorizes an award of reasonable attorney's fees where, as the majority determined in this case, substantially all of the defenses were wholly insubstantial, frivolous, and not advanced in good faith.

The trust filed suit in the Superior Court, claiming that the arbitrators' award of attorney's fees exceeded the scope of the parties' arbitration agreement, and therefore was barred by G.L. c. 251, § 10. A judge vacated the award of attorney's fees, concluding that such an award is not authorized by G.L. c. 231, § 6F, when ordered by an arbitrator because § 6F does not authorize an arbitrator to award attorney's fees.³ Alex now appeals from that order. We transferred the case from the Appeals Court on our own motion.

Discussion. “[A]n arbitration award is subject to a narrow scope of review.” Superadio Ltd. Partnership v. Winstar Radio Prods., LLC, 446 Mass. 330, 333, 844 N.E.2d 246 (2006) (Superadio ). We do not review an arbitration award for errors of law or errors of fact. See Plymouth–Carver Regional Sch. Dist. v. J. Farmer & Co., 407 Mass. 1006, 1007, 553 N.E.2d 1284 (1990) ; Concerned Minority Educators of Worcester

v. School Comm. of Worcester, 392 Mass. 184, 187, 466 N.E.2d 114 (1984). As set forth in G.L. c. 251, § 12, we review an arbitration award only to determine whether it “was procured by corruption, fraud or other undue means,” whether the arbitrator was evidently partial, or whether the arbitrator exceeded the scope of his or her authority. Superadio, supra at 334, 844 N.E.2d 246, quoting G.L. c. 251, § 12. “An arbitrator exceeds his authority by granting relief beyond the scope of the arbitration agreement ... by awarding relief beyond that to which the parties bound themselves ... or by awarding relief prohibited by law.” Superadio, supra, quoting Plymouth–Carver Regional Sch. Dist., supra. The trust here contends that the arbitrators exceeded the scope of their authority for each of these reasons.

As a general rule, we have interpreted G.L. c. 251, § 10, to prohibit the award of attorney's fees in arbitration proceedings unless the parties have entered into an agreement authorizing the award of such fees. See Floors, Inc. v. B.G. Danis of New England, Inc., 380 Mass. 91, 91–92, 401 N.E.2d 839 (1980).⁴ However, we have previously recognized two circumstances where an arbitrator may award monetary sanctions such as attorney's fees despite the broad prohibition contained in G.L. c. 251, § 10.

First, an arbitrator may award attorney's fees where a party prevails on a statutory claim in which the statute mandates the recovery of attorney's fees by the prevailing party. See Drywall Sys., Inc. v. ZVI Constr. Co., 435 Mass. 664, 673, 761 N.E.2d 482 (2002) (“We conclude that the directive that a prevailing party be awarded attorney's fees under G.L. c. 93A, § 11, applies to arbitration awards of claims under § 11 despite the normal unavailability of attorney's fees in arbitration”). In such a situation, the statutory requirement that attorney's fees be recovered “overrides the effect of G.L. c. 251, § 10.” Id.

Second, in Superadio, 446 Mass. at 338–339, 844 N.E.2d 246, we held that where the parties agreed that their arbitration shall be governed by the AAA rules, an arbitrator could award monetary sanctions to a party for discovery violations and noncompliance with discovery orders. We reasoned that AAA rule 23⁵ authorized an arbitrator to direct the production of documents and other information,

and “to resolve any disputes concerning the exchange of information.” Id. at 338, 844 N.E.2d 246. We concluded that the authority to award such sanctions for discovery violations and noncompliance with discovery orders was implicit in the authority granted to an arbitrator under this rule because “[t]o give arbitrators control over discovery and discovery disputes without the authority to impose monetary sanctions for discovery violations and noncompliance with appropriate discovery orders, would impede the arbitrators' ability to adjudicate claims effectively in the manner contemplated by the arbitration process.” Id. at 339, 844 N.E.2d 246.

Alex contends that his award of attorney's fees may stand because the parties “otherwise agree[d]” to award counsel fees by incorporating the AAA rules, including AAA rule 47(a), which allows the arbitrator to “grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties,” and AAA rule 47(d)(ii), which permits an award of counsel fees where “authorized by law.”

We begin by addressing Alex's argument that AAA rule 47(a) authorizes the award of attorney's fees where the arbitration panel found that substantially all of the trust's defenses were wholly insubstantial, frivolous, and not advanced in good faith. Alex claims that, in awarding fees based on this finding, the arbitration panel was granting relief that it deemed “just and equitable,” as permitted under AAA rule 47(a).

There are two flaws in this argument. First, AAA rule 47(a) contains two requirements for the granting of “any remedy or relief”: the remedy or relief must be “just and equitable,” and it must be within the scope of the arbitration agreement. Alex overlooks the second requirement, as he points to...