C.R. Klewin Northeast v. City of Bridgeport

• Decision Date: 17 April 2007
• Docket Number: No. 17590.,17590.
• Citation: 919 A.2d 1002,282 Conn. 54
• Parties: C.R. KLEWIN NORTHEAST, LLC v. CITY OF BRIDGEPORT. City of Bridgeport v. C.R. Klewin Northeast, LLC.
• Court: Connecticut Supreme Court

919 A.2d 1002

282 Conn. 54

C.R. KLEWIN NORTHEAST, LLC v. CITY OF BRIDGEPORT.

City of Bridgeport v. C.R. Klewin Northeast, LLC.

No. 17590.

Supreme Court of Connecticut.

Argued November 30, 2006.

Decided April 17, 2007.

Brian J. Donnell, with whom were Robert M. Barrack, and, on the brief, Steven J. O'Neill, Hartford, for the appellant-cross appellee (defendant in the first case and plaintiff in the second case).

Daniel J. Klau, with whom were Timothy T. Corey and Richard F. Wareing, Hartford, for the appellee-cross appellant (plaintiff in the first case and defendant in the second case).

Richard Blumenthal, attorney general, and Robert B. Teitelman, assistant attorney general, filed a brief for the state of Connecticut as amicus curiae.

Marvin P. Bellis filed a brief for the Connecticut Conference of Municipalities as amicus curiae.

Michael N. Lavelle filed a brief for the Connecticut Association of Municipal Attorneys as amicus curiae.

NORCOTT, KATZ, PALMER, VERTEFEUILLE and ZARELLA, Js.

NORCOTT, J.

In this appeal, we consider whether an arbitration panel acting pursuant to the dispute resolution clause of a municipal public works contract has jurisdiction over a claim that the contract is void ab initio because it was procured illegally, and also the extent to which such corruption may form a public policy basis for the subsequent vacatur of an arbitration award. The city of Bridgeport (city), the defendant in the first case and the plaintiff in the second case appeals, and C.R. Klewin Northeast, LLC (Klewin), the plaintiff in the first case and the defendant in the second case, cross appeals, from the judgment of the trial court in a consolidated proceeding granting Klewin's application to confirm pursuant to General Statutes § 52-417,¹ and denying the city's application to vacate pursuant to General Statutes § 52-418(a),² an arbitration award resulting from a dispute concerning a contract to build a new sports arena for the city.³ On appeal,⁴ the city claims that the trial court improperly confirmed, and should have vacated, the arbitration award because: (1) its claim that the arbitration panel (panel) lacked subject matter jurisdiction because the contract containing the arbitration clause was illegally procured, and therefore void ab initio, is committed to the trial court, and not the panel, in the first instance; (2) even if the panel did have subject matter jurisdiction over the contract illegality claims, it failed to address them, rendering the award incomplete and defective; (3) confirmation of an arbitration award enforcing an illegally procured contract would violate public policy; (4) the city was deprived of its due process right to an evidentiary hearing with respect to the illegality issues raised on its application to vacate the award, and subsequent motion to reargue; and (5) the panel lacked subject matter jurisdiction because a vacancy had resulted in a panel of only two arbitrators, when the parties had agreed on three. In its cross appeal, Klewin claims that the trial court improperly failed to grant its request for offer of judgment interest pursuant to General Statutes § 52-192a.⁵ We affirm the judgment of the trial court.

The record reveals the following facts and procedural history. In March, 2000, the city and Klewin entered into a public works contract, known as the "CM agreement," whereby Klewin would manage the construction of a sports arena, parking garage and other transportation facilities. The CM agreement set forth a guaranteed maximum price of $44,524,515 for the construction of the arena, which was to be used as a minor league hockey facility and a basketball court for Fairfield University. Thereafter, a dispute arose between the city and Klewin, wherein Klewin claimed entitlement to an increase in the guaranteed maximum price as a result of changes to the arena design.

On June 1, 2001, pursuant to the dispute resolution procedure set forth in § 11.7 of the CM agreement,⁶ Klewin filed a demand for arbitration with the American Arbitration Association (association), claiming damages resulting from numerous alleged breaches of contract by the city. The city filed an answer to Klewin's subsequently amended demand for arbitration that denied the allegations therein, and also posed two counterclaims for liquidated damages stemming from a delay in the project's completion, and actual damages for other alleged breaches of the contract.

Thirty-seven days of hearings took place before the panel, which initially had consisted of three members, including a construction attorney, a construction professional and a design professional. During the pendency of the hearings, one member of the panel became ill and was unable to complete his service, creating a vacancy on the panel. Over the continued objection of the city, which had desired a panel of three members the two remaining arbitrators finished the proceedings.⁷ On the twentieth day of the arbitration proceedings, the city attempted to raise a defense that the CM agreement had been procured illegally. The panel determined that the defense was not raised in a timely manner, and the merits of that claim were never presented to the panel. Ultimately, the panel rendered an award of $6,020,231, including interest, in Klewin's favor.⁸

Thereafter, Klewin filed an application to confirm the award in the judicial district of New London at Norwich, and the city filed an application to vacate the award in the judicial district of Fairfield. Both applications were consolidated before the complex litigation docket in the judicial district of Waterbury.⁹ In support of its motion to vacate the award, the city claimed that the panel improperly: (1) proceeded with only two arbitrators after the third member became unable to serve due to illness; (2) continued the hearings, despite the fact that it lacked subject matter jurisdiction because the entire CM agreement was void ab initio as a result of corruption surrounding its procurement; (3) rendered an award that violated public policy by enforcing a contract that was obtained in violation of policies prohibiting contingent fee lobbying agreements, as well as the city's own ethics ordinance; and (4) committed misconduct by refusing to consider certain issues or to admit certain evidence.

The trial court, Alander, J., rejected all of the city's claims in a thoughtful and comprehensive memorandum of decision. The court first concluded that the parties' agreement and the applicable association rules had authorized the panel to proceed with two, rather than three, arbitrators, after the vacancy arose. The trial court also concluded that the city had waived its objection to the arbitrability of Klewin's claims, and specifically the city's defense that the CM agreement had been obtained illegally, by not raising that issue until the twentieth day of the arbitration proceedings, which was almost two and one-half years after the federal indictment of the city's former mayor, Joseph Ganim, on corruption related charges.¹⁰ The trial court determined that allowing the city to assert its illegality claim in an application to vacate the award would undermine the essential purposes of arbitration and "the fundamental principle which underlies the waiver doctrine of not permitting parties to await a hoped-for favorable decision on the merits, reserving the right to attack should it go against them."¹¹ The trial court further concluded that the city had waived its claim that the award violated public policy because that claim did not arise from the award itself, but rather from the waived defense that the underlying contract itself was illegally procured. Accordingly, the court rendered judgment denying the city's application to vacate the award, and granting Klewin's application to confirm the award. The trial court subsequently denied the city's motion for reargument. This appeal and cross appeal followed.

On appeal, the city claims that the trial court improperly: (1) determined that the city had waived its right to claim that the panel lacked subject matter jurisdiction because the CM agreement had been procured illegally, and therefore, was void ab initio; (2) disregarded the panel's conclusion that it lacked subject matter jurisdiction over the city's contract illegality claims, which rendered the award fatally defective because it was not "final or definite"; (3) concluded that the city had waived its right to claim that confirmation of the arbitration award enforcing the illegally procured CM agreement would violate public policy; (4) failed to grant the city's request for an evidentiary hearing with respect to the jurisdictional issues raised in its application to vacate and motion to reargue; and (5) failed to conclude that the panel lacked subject matter jurisdiction because it had consisted of two, rather than the agreed upon three, arbitrators. Additional relevant facts and procedural history will be set forth in the context of each claim on appeal.

I WHETHER THE COURT OR THE ARBITRATION PANEL HAD JURISDICTION OVER THE ISSUES ARISING FROM THE ALLEGED ILLEGALITY IN THE PROCUREMENT OF THE CM AGREEMENT

For the sake of clarity, we begin by organizing and summarizing our resolution of the somewhat intermingled nature of the jurisdictional and public policy issues in this case. First, we must consider the nature of the city's claim that the entire CM agreement was illegally procured, and therefore, void ab initio. Guided by our decision in Nussbaum v. Kimberly Timbers, Ltd., 271 Conn. 65, 856 A.2d 364 (2004), and the United States Supreme Court's recent decision in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), we conclude that this claim presents a defense of contract illegality, which is an issue that is firmly committed to the arbitration panel in the first instance. We also conclude that the panel's failure to reach this issue,...