Marsh v. Loffler Housing Corp.

• Decision Date: 01 September 1994
• Docket Number: No. 186,186
• Citation: 648 A.2d 1081,102 Md.App. 116
• Parties: H. Brandis MARSH, et ux. v. LOFFLER HOUSING CORPORATION. ,
• Court: Court of Special Appeals of Maryland

Page 116

102 Md.App. 116

648 A.2d 1081

H. Brandis MARSH, et ux. v. LOFFLER HOUSING CORPORATION.

No. 186, Sept. Term, 1994.

Court of Special Appeals of Maryland.

Oct. 27, 1994.

Robert X. Perry, Jr. (Karin M. Ryan and Wilkes, Artis, Hedrick & Lane, Chartered, on the brief), Washington, DC, for appellants.

Robert C. Douglas (Piper & Marbury, on the brief), Baltimore, for appellee.

Argued before WENNER, CATHELL and HARRELL, JJ.

HARRELL, Judge.

Appellants, H. Brandis and Jo Ann K. Marsh (Marshes), appeal from an Order of the Circuit Court for St. Mary's County (Raley, J.) granting the motion of appellee, Loffler Housing Corporation (Loffler), to modify an arbitrator's award in a contract dispute so as to include costs and attorneys' fees. ¹ We have re-ordered appellants' issues as follows:

Issues

I. Did the lower court have the authority to award Loffler attorneys' fees where the Uniform Arbitration Act authorizes attorneys' fees only if so provided in the arbitration agreement between the parties?

II. Did the lower court have authority to modify the arbitrator's award to reallocate the costs of the arbitration and to include attorneys' fees incurred by Loffler where none of the three enumerated bases set forth in the Uniform Arbitration Act for modification of an award by a court were satisfied by the facts of this case?

Facts

In September 1988, appellants purchased a three-story house on Knight Road, Leonardtown, Maryland in St. Mary's County. Appellants decided to renovate and expand their house, and solicited bids from various contractors for the renovation. Appellants ultimately selected appellee to serve as general contractor on the project.

On 4 October 1989, appellants and appellee entered into an American Institute of Architects (AIA) standard construction contract (AIA Contract), with the attendant AIA General Conditions of the Contract for Construction (General Conditions). Article 16.1.7 of the AIA Contract, entitled "Other Documents, if any, forming part of the Contract Documents are as follows:", provided:

It is agreed that the documents listed below and attached to this contract routinely used by Loffler Housing Corporation, shall be executed by the appropriate respective parties to this agreement and shall become part of this agreement. Where there are conflicts between this document and those listed below, this document shall supersede those listed below....

The first document listed and attached was the Home Improvement Contract, duly signed and executed by appellants at the same time as the AIA Contract. The Home Improvement Contract provided, in pertinent part, that:

In the event that payment under this contract is enforced through legal action, or other collection action, homeowner agrees to pay contractor's costs and attorney's fees related to said action.

Article 4.5 of the General Conditions set forth the agreement to arbitrate any dispute arising out of or relating to the AIA Contract. It stated:

Any controversy or claim arising out of or related to the contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association....

Paragraph six of the Construction Industry Arbitration Rules (Rules) in effect at the time the contract was executed stated that the initiating party shall provide written notice setting forth the nature of the dispute to the other party. Paragraph eight explained that once a claim is filed, any new or different claims or counterclaims shall also be made in writing.

Once the contract was executed, appellee began construction on appellants' home. Subsequently, a dispute developed regarding the final three payments remaining to be made by appellants to appellee pursuant to the AIA Contract. On 15 April 1992, appellee filed a mechanic's lien petition in the circuit court against appellants' property, seeking $3993.38, plus interest. In response, appellants, among other things, filed a petition for arbitration based on the arbitration clause in the General Conditions. On 22 May 1992, the circuit court stayed the mechanic's lien action and ordered the parties to arbitrate their dispute.

In July 1992, appellants filed a written claim against appellee with the American Arbitration Association (AAA) alleging that appellee performed defective workmanship and requested improper and excessive charges for the work performed. ² Appellants requested $151,000 in damages. Appellee counterclaimed, seeking $50,000 for an unpaid balance, lost revenue, and items not previously billed. During twelve days of hearings, both sides presented substantive evidence regarding their written issues submitted to the arbitrator. Appellee also apparently offered documentation of its attorneys' fees. ³ Both sides were then granted leave to file post-hearing briefs. On 12 August 1993, the arbitrator awarded appellee $2791 and denied appellants' claims in their entirety. Specifically, the award stated: 1) all subcontractor warranties would be honored; 2) the parties would split administrative fees and expenses of the AAA as well as the compensation and expenses of the arbitrator; and 3) the award was in full settlement of all claims and counterclaims submitted by the parties. There was no mention of attorneys' fees.

On 3 September 1993, appellants filed with the arbitrator a motion to clarify his award as to three issues: 1) what was included in "administrative fees and expenses;" ⁴ 2) which defective workmanship was to be covered by "warranties;" and 3) whether appellee was required to submit "as-built" plans as provided for in the AIA Contract. Appellee filed a response to the motion to clarify, generally opposing appellants' motion, but also requesting that the award be clarified to order appellants to pay costs and expenses plus appellee's attorneys' fees. Citing Md.Code Ann., Cts. & Jud.Proc. § 3-221, ⁵ appellee renewed its argument that because the clause in the Home Improvement Contract awarded costs and attorneys' fees if appellee enforced payment via legal action or other collection action, the arbitrator should have included costs and attorneys' fees in his award. On 5 October 1993, the arbitrator filed a clarified award generally reaffirming his award of 12 August 1993. Again, however, the award was silent as to attorneys' fees.

On 17 September 1993, while the motions to clarify were pending, appellants filed in the Circuit Court for St. Mary's County a motion to vacate the arbitrator's award, arguing that the award was "completely irrational when viewed against the twelve days of hearings and thousands of pages of documentation presented by the parties and the substantive contract provisions." On 20 October 1993, appellee filed an opposition to the motion to vacate and a petition to correct or modify the award. Appellee's motion to correct or modify the award argued, pursuant to Md.Code Ann., Cts. & Jud.Proc. § 3-223(b)(2) (1989 Replacement Volume & 1993 Supp.) and Bernard v. Kuhn, 65 Md.App. 557, 501 A.2d 480 (1985), ⁶ that the circuit court must modify the arbitrator's award to include appellee's costs and attorneys' fees. Appellants filed an opposition to appellee's petition to correct or modify and a reply to appellee's opposition to the petition to vacate the award. Appellants argued that none of the statutory bases set forth in § 3-223(b)(2) was met in this case, and that Bernard was distinguishable because in that case the issue of attorneys' fees was not submitted to the arbitrator for consideration. Therefore, argued appellants, because the issue of costs and attorneys' fees was submitted to the arbitrator, § 3-223(b)(2) and Bernard were inapplicable to the case sub judice.

On 15 November 1993, the circuit court held a hearing on the various motions. At the close of oral argument, the court denied appellants' motion to vacate and granted appellee's motion to modify. The court found that § 3-223(b)(2) empowered it to modify the award in accordance with the Home Improvement Contract language, because the arbitrator ruled on an issue not submitted for arbitration, namely costs and attorneys' fees. Because this issue was never formally submitted to the arbitrator, the court ruled that the award must be modified to include attorneys' fees as per the agreement between the parties. The court then conducted an evidentiary hearing on the amount of attorneys' fees incurred by appellee and the costs of arbitration, and awarded appellee $53,676.48 plus costs. Appellants filed a timely appeal to this Court.

Discussion

The Maryland Uniform Arbitration Act (Act), Md.Code Ann., Cts. & Jud.Proc. §§ 3-201 to 3-234 (1989 Replacement Volume & 1993 Supp.), was enacted in 1965 as an alternative method of dispute resolution. The Act embodies a legislative policy favoring enforcement of executory agreements to arbitrate. Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 103, 468 A.2d 91 (1983). The arbitration process, in turn, provides a speedy, informal, relatively inexpensive, and private procedure for resolving controversies arising out of commercial transactions. Bel Pre Medical Ctr., Inc. v. Frederick Contractors, Inc., 21 Md.App. 307, 315, 320 A.2d 558 (1974), rev'd on other grounds, 274 Md. 307, 334 A.2d 526 (1975). Indeed, the General Assembly has established a policy in favor of the settlement of disputes through arbitration, and thus has severely limited the role of the courts in this process. O-S Corp. v. Samuel A. Kroll, Inc., 29 Md.App. 406, 409, 348 A.2d 870 (1975).

The Act does provide, however, that once a court obtains jurisdiction over an arbitration, it retains jurisdiction to correct or modify the award or to vacate the award. C.W. Jackson & Assocs. v. Brooks, 289 Md. 658, 426 A.2d 378 (1981). Modification of an arbitrator's award is governed by § 3-223(b). If the petition to correct or modify is granted, then § 3-223(c) requires the court to modify or...