Charles Const. Co., Inc. v. Derderian

• Decision Date: 24 February 1992
• Citation: 586 N.E.2d 992,412 Mass. 14
• Parties: CHARLES CONSTRUCTION CO., INC. v. James DERDERIAN, trustee 1 (and a companion case 2 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 992

586 N.E.2d 992

412 Mass. 14

CHARLES CONSTRUCTION CO., INC. v. James DERDERIAN, trustee ¹ (and a companion

case ²).

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Nov. 6, 1991.

Decided Feb. 24, 1992.

Vincent Galvin, Wilmington, for Charles Const. Co., Inc.

Dennis Ryan, Boston, for James Derderian.

Before LIACOS, C.J., and WILKINS, ABRAMS, NOLAN and LYNCH, JJ.

WILKINS, Justice.

Because the applicable arbitration rules did not authorize them to do so, arbitrators had no authority to enter an interim order directing a party to provide security toward the payment of any award the arbitrators might eventually enter. We, therefore, affirm Superior Court judgments vacating the arbitrators' interim order for security. That award had directed James Derderian, as trustee of Parkman Realty Trust, to furnish a $1,000,000 irrevocable letter of credit, payable on demand, to the American Arbitration Association, as security for the payment of any arbitration award that might be entered against Derderian, as trustee, in the arbitration proceeding.

The issue before us is one of law. There is an extensive procedural history to the proceedings that we need not recite. The course of the arbitration seems atypical because it commenced in September, 1987, and, after seventy-three hearing days, suspended early in 1990. Charles Construction Co., Inc., seeks enforcement of the interim arbitration award in one of the actions before us, and Derderian seeks an order vacating that award in the other. We transferred Charles's appeal to this court on our own motion.

In October, 1984, Derderian, as owner of property in Brookline (owner), and Charles, as construction manager (contractor), entered into an associated general contractors' standard form of agreement pursuant to which a condominium and parking garage were to be constructed. That agreement provided for the arbitration of certain claims, disputes, and other matters arising out of the agreement "in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining."

Disputes did arise, and they were submitted to arbitration. The owner asserted claims for more than $2,800,000, and the contractor for more than $1,170,000. Hearings commenced in September, 1987, and continued intermittently until January, 1990, when the contractor requested the panel to issue an order for interim security. On February 16, 1990, in an interim order, the arbitrators, purporting to act under § 34 of the construction industry arbitration rules, ordered the owner to provide the security that we have previously described. There is no contractual provision apart from the arbitration rules on which the contractor relies. He points to no statutory authorization for the arbitrators' award of interim relief. The owner contends first that, if Charles is to obtain relief before the arbitration proceeding is concluded, it must come from a court.

We reject the owner's claim that the contractor's only avenue for obtaining interim relief is through a court order independent of the arbitration proceeding. We have indeed upheld the entry of protective court orders even though a dispute between the parties is subject to arbitration. See Hull Mun. Lighting Plant v. Massachusetts Mun. Wholesale Elec. Co., 399 Mass. 640, 648-649, 506 N.E.2d 140 (1987) (preliminary injunction upheld requiring contractual payments to continue while dispute is arbitrated pursuant to court order); Salvucci v. Sheehan, 349 Mass. 659, 663, 212 N.E.2d 243 (1965) (bill to reach and apply fraudulently conveyed property may be maintained before arbitration proceeding is concluded). If, however, there is an express agreement that authorizes an arbitrator to grant interim relief, including any authorization set forth in arbitration rules incorporated by agreement of the parties, there is no reason why an arbitrator may not act under that authority. Indeed, in such an instance, the court might be obliged both to defer to the parties' agreement to submit the matter of interim relief to arbitration and to give any subsequent interim order the same deferential treatment that must be accorded to an arbitrator's final order. Of course, a statute could authorize an arbitrator to grant interim relief. Therefore, if the arbitrators had contractual or statutory authority to issue an interim order, the contractor properly could have sought such an order from them and was not limited to asking for interim relief from a court.

There is little authority on the question whether, absent any controlling statute or agreement of the parties, an arbitrator has implicit authority to order a party to provide security, during the pendency of the arbitration, against the possibility of a decision adverse to that party. Where there is no contractual or statutory guidance, authorities that have considered the question have not agreed on the answer. In Konkar Maritime Enter., S.A. v. Compagnie Belge d'Affretement, 668 F.Supp. 267, 271 (S.D.N.Y.1987), and in Compania Chilena de Navegacion Interoceanica, S.A. v. Norton, Lilly & Co., 652 F.Supp. 1512, 1517 (S.D.N.Y.1987), the District Court confirmed an arbitrator's order for predetermination security similar to the order in this case, concluding that an arbitrator's right to grant interim relief was implied in the submission of the main dispute to arbitration. ³ On the other hand, in Swift Indus., Inc. v. Botany Indus., Inc., 466 F.2d 1125, 1134 (3d Cir.1972), the court held that an arbitrator lacked authority to order a cash surety bond. ⁴

We agree in general that, in the absence of an agreement or statute to the contrary, an arbitrator has inherent authority to order a party to provide security while the arbitration is continuing. See Pacific Reinsurance Management Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1022-1023 (9th Cir.1991) ("Temporary equitable relief in arbitration may be essential to preserve assets or enforce performance which, if not preserved or enforced, may render a final award meaningless"); Island Creek Coal Sales Co. v. Gainesville, 729 F.2d 1046, 1049 (6th Cir.1984) (nothing in the contract or State law prevents the award of interim injunctive relief); Sperry Int'l Trade, Inc. v. Government of Israel, 689 F.2d 301, 306 (2d Cir.1982) ("Under New York law arbitrators have power to fashion relief that a court might not properly grant"). It is reasonable to assume that parties, in agreeing to arbitration, implicitly intended that the arbitration not be fruitless and that interim orders to preserve the status quo or to make meaningful relief possible would be proper. In such a circumstance, the...