Fraser Lane Assocs. v. Chip Fund 7, LLC

• Docket Number: AC 45274
• Decision Date: 29 August 2023
• Parties: FRASER LANE ASSOCIATES, LLC v. CHIP FUND 7, LLC CHIP FUND 7, LLC v. FRASER LANEASSOCIATES, LLC
• Court: Connecticut Court of Appeals

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FRASER LANE ASSOCIATES, LLC
v.
CHIP FUND 7, LLC

CHIP FUND 7, LLC
v.
FRASER LANEASSOCIATES, LLC

No. AC 45274

Court of Appeals of Connecticut

August 29, 2023

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Argued February 6, 2023

Procedural History

Application, in the first case, to confirm an arbitration award and, in the second case, application to vacate an arbitration award, brought to the Superior Court in the judicial district of Fairfield, where the applications were consolidated and tried to the court, Hon. Dale W. Radcliffe, judge trial referee; judgments granting the application to confirm the award and denying the application to vacate the award, from which the defendant appealed to this court. Affirmed.

David C. Shufrin, for the appellant (defendant in the first case; plaintiff in the second case).

James J. Healy, with whom was Brennen Maki, for the appellee (plaintiff in the first case; defendant in the second case).

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Bright, C. J., and Cradle and Clark, Js.

OPINION

CLARK, J.

The defendant, Chip Fund 7, LLC, appeals from the judgments of the trial court confirming an arbitration award in favor of the plaintiff, Fraser Lane Associates, LLC, and denying the defendant's application to vacate an arbitration award.^[1] On appeal, the defendant argues that the trial court erred because (1) the arbitration award violates public policy, (2) the arbitrator exceeded his authority under the arbitration agreement, and (3) the arbitrator manifestly disregarded the law. We disagree and, accordingly, affirm the judgments of the trial court.

The following undisputed facts and procedural history are relevant to our disposition of this appeal. In March, 2016, the parties entered into a power purchase agreement pursuant to which the defendant agreed to install, operate, and maintain solar panels on the roofs of twenty condominiums in a residential development that the plaintiff was in the process of developing, and the plaintiff agreed to pay the defendant for all the electricity that the panels produce for twenty years (agreement). Section 23 (c) of the agreement provides in relevant part that "[a]ny [d]ispute that is not settled to the mutual satisfaction of the [p]arties [through negotiation or mediation] shall ... be settled by binding arbitration . . . ."

On September 30, 2020, the plaintiff filed a demand for arbitration with the American Arbitration Association pursuant to § 23 (c) of the agreement and served a copy of that demand on the defendant. The demand stated: "Installation of solar panel system on residential condominium development. After serious delays, [the defendant] agreed to a $200 per diem penalty for every day work was not completed after [January 28, 2018]. Work is still not completed."

The parties subsequently selected Attorney Louis R. Pepe as the arbitrator. At a preliminary hearing on December 7, 2020, the arbitrator noted that the arbitration clause in the agreement required each party to submit to him its "last best offer" to resolve the claims and required him to choose between the parties' proposals when issuing an award. He made clear that he would follow that procedure unless the parties agreed otherwise in writing.^[2]

On January 15, 2021, the defendant filed an objection to the plaintiffs arbitration demand, arguing that the demand failed to comply with the procedure set forth in § 23 (c) (2) of the agreement.^[3] On the same day, the defendant also submitted a counterclaim to the arbitrator, alleging that the plaintiff had failed to pay for the solar panels' electricity and that the plaintiff owed an ongoing obligation to pay for the electricity until the purchasers of each condominium executed a guarantee to assume the plaintiffs obligation. The

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counterclaim asserted, inter alia, claims of breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment.

On July 12, 2021, a five day arbitration hearing commenced, during which the parties introduced evidence that included live witness testimony and exhibits. There is no transcript of the arbitration hearing. At the conclusion of the hearing, the arbitrator reminded the parties of the agreement's last best offer provision, made clear his intention to follow it, and suggested that they be strategic in submitting their respective proposals for resolution. The arbitrator also reminded the parties in his July 19, 2021 scheduling order that, in accordance with the parties' agreement, they should submit with their briefs a "last best offer" for resolution of the plaintiffs claim and the defendant's counterclaim.

On August 9, 2021, the parties submitted their respective posthearing briefs and proposals for resolution of the dispute. The plaintiff argued in its brief that the $200 per day liquidated damages provision, which the parties agreed to verbally and subsequently set forth in an email, was valid and reasonable because the potential damages stemming from the delay-buyers walking away, reputational damage, and condominiums being less marketable-were uncertain in amount and difficult to prove. The plaintiff submitted a proposal of $210,000 to resolve its claim and $5348 to resolve the defendant's counterclaim. The defendant argued in its brief that the liquidated damages provision was a penalty, and therefore unenforceable, because $200 per day was not commensurate with the anticipated damages and that, even if the provision itself did not constitute an unenforceable penalty, enforcement of the provision would violate public policy because the plaintiff suffered no actual damages. The defendant submitted a proposal of $0 to resolve the plaintiffs claim and $294,211.49 to resolve its counterclaim, with postjudg-ment interest at a rate of 10 percent.

On September 2,2021, the arbitrator issued an award. Regarding the plaintiff's claim, the arbitrator found that the parties "amended [the agreement] to add a liquidated damages provision making [the defendant] liable for damages of $200 per day if the installation of [the] solar panels in question was not finished by an agreed-upon date." He also found "that the liquidated damages provision satisfies the requirements for enforceability under Connecticut law; that it required the solar panels in question to be installed and operable-not just installed; and that [the defendant] failed to meet its obligations thereunder." The arbitrator selected the plaintiffs proposal as "the one most consistent with [his] findings . . . ." Regarding the defendant's counterclaim, the arbitrator found that the plaintiff breached the agreement in one or more ways, but he ultimately selected the plaintiffs proposal for that claim as well

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because he determined that "[the plaintiffs] proposal more closely approximates the resulting damages sustained by [the defendant]." Thus, the arbitrator awarded $210,000 to the plaintiff and $5348 to the defendant, both without interest. The parties were also ordered to split evenly the administrative fees associated with the arbitration and the arbitrator's compensation.

On October 4, 2021, the defendant filed an application to vacate the arbitration award with the Superior Court, asserting that the arbitrator manifestly disregarded the law and exceeded his powers and that the arbitration award violates public policy. The defendant attached to its application a copy of the agreement, the arbitration award, and the arbitrator's July 19, 2021 scheduling order. The defendant also requested a show cause hearing as to why the application should not be granted. On October 12, 2021, in a separate action, the plaintiff filed an application to confirm the arbitration award. On October 27, 2021, the plaintiff moved for judgment in its favor. The defendant objected to that motion on November 8, 2021.

On November 9, 2021, the trial court, Stevens, J., issued an order consolidating the two separate actions. That order further stated: "The parties shall file briefs in support of their positions by December 3, 2021; the parties shall file reply briefs by December 17, 2021. Any surreply brief may be filed by January 14, 2022. Caseflow shall schedule the cases for oral argument for a date after January 14, 2022."

On November 12, 2021, the plaintiff filed a memorandum of law in support of its application to confirm the arbitration award, arguing that the arbitration had been conducted in accordance with the agreement and that, despite the defendant's claim in its application to vacate that the plaintiff failed to prove that it suffered the precise amount of damages that were awarded, a last best offer arbitration award does not need to reflect with precision the actual damages suffered. The plaintiff also argued that the defendant failed to articulate a basis for overturning the arbitrator's determination that the liquidated damages provision was enforceable. The appendix to the plaintiffs memorandum of law contained the agreement, each party's proposal for resolution, and the arbitration award.

On December 7, 2021, the defendant filed a memorandum of law in support of its application to vacate the arbitration award. The defendant argued that enforcement of the arbitration award would violate public policy because the liquidated damages provision of the agreement constituted an unenforceable penalty, the plaintiff suffered no actual damages and, even if the plaintiff had suffered some damages, the evidence did not support the amount that the arbitrator awarded the plaintiff. The defendant also argued that the manner in which the arbitrator solicited the parties' last best offers

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was improper because the arbitration provision of the agreement called for each party to submit one proposal, but the arbitrator required the parties to make one proposal for the plaintiffs claim and another for the defendant's counterclaim. The defendant argued in the alternative that, if the court found that the arbitrator did not err...