Merrill Lynch and Co. v. City of Waterbury, 12097

• Decision Date: 05 April 1994
• Docket Number: No. 12097,12097
• Citation: 640 A.2d 122,34 Conn.App. 11
• Court: Connecticut Court of Appeals
• Parties: MERRILL LYNCH AND COMPANY, et al. v. CITY OF WATERBURY.

Page 122

640 A.2d 122

34 Conn.App. 11

MERRILL LYNCH AND COMPANY, et al. v. CITY OF WATERBURY.

No. 12097.

Appellate Court of Connecticut.

Argued Dec. 7, 1993.

Decided April 5, 1994.

Michael P. Kaelin, with whom, on the brief, were Taggart D. Adams and George C. Springer, Jr., Stamford, for the appellants (plaintiffs).

Thomas K. McDonough, Assistant Corporation Counsel, for the appellee (defendant).

Before DUPONT, C.J., and HEIMAN and FREDERICK A. FREEDMAN, JJ.

FREDERICK A. FREEDMAN, Judge.

The plaintiffs, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith (MLPF & S), Merrill Lynch Asset Management, Inc., Frederick M. Genung, and Edmund C. Hyland, appeal from the decision of the trial court staying the arbitration of the claims ruled arbitrable until after the completion of the judicial proceedings involving the nonarbitrable claims. ¹ The sole issue presented is whether a trial court, after finding certain claims to be arbitrable and compelling arbitration as to those claims, may then stay the arbitration proceedings until the nonarbitrable claims have been resolved by the court.

This appeal stems from a dispute between the city of Waterbury and the plaintiffs regarding the purchase of Colonial Diversified Zero Coupon Bonds with funds from the city's retirement account. The procedural history of this case is complicated. On April 16, 1991, the city, the defendant herein, commenced an action against all of the plaintiffs in this case (first action). ² The amended complaint contained five counts. The first three counts were directed against the plaintiffs, while the two remaining counts concerned other parties not involved in this appeal. On May 30, 1991, in the first action, the plaintiffs herein filed a motion to stay the judicial proceedings pursuant to General Statutes § 52-409 ³ and 9 U.S.C. § 3, ⁴ and a motion to compel arbitration pursuant to General Statutes § 52-410 ⁵ and 9 U.S.C. § 4. ⁶

On November 1, 1992, before the trial court made its decision in the first action, the plaintiffs commenced this action pursuant to General Statutes § 52-410 seeking to compel the city to arbitrate certain claims. ⁷ It is from this second action that the plaintiffs presently appeal. The trial court issued its memorandum of decision in the first action on November 30, 1992, finding that the plaintiffs had not filed a separate writ of summons and complaint as required by § 52-410. The trial court further found that KND Corporation v. Hartcom, Inc., 5 Conn.App. 333, 336-37, 497 A.2d 1038 (1985), sanctioned the use of a § 52-409 motion to compel arbitration when the issue of arbitration was injected into a case by a defendant. The trial court went on to find that the arbitration clause at issue applied only to the claims against MLPF & S and Genung, and, therefore, granted the motion to compel arbitration and the motion to stay the judicial proceedings as to those two parties only. The trial court, however, then went on to stay the arbitration of the claims ruled arbitrable until the completion of the judicial proceedings of the nonarbitrable claims. On December 18, 1992, the plaintiffs appealed from the decision in the first action, and, on December 23, 1992, they filed a motion in the trial court to consolidate the two actions. The trial court granted the motion to consolidate the two actions and ordered that its decision issued in the first action apply as well to this action.

On January 26, 1993, the plaintiffs filed this appeal from the decision of the trial court as it applied to this action. The city filed motions to dismiss both appeals on December 24, 1992, and February 5, 1993, respectively. On March 17, 1993, we granted the motion to dismiss the appeal from the first action for lack of a final judgment and denied the motion to dismiss the appeal from this action.

The question now before us is whether the trial court, after granting the motions to compel arbitration and to stay the judicial proceedings with respect to MLPF & S and Genung, improperly stayed the arbitration pending the termination of the judicial proceedings involving the other parties. It is important to note at the outset the issues that the plaintiffs are not challenging, which are, therefore, not before this court. The plaintiffs do not challenge the trial court's determination as to what claims are arbitrable and what claims are nonarbitrable, nor do they appeal the stay of judicial proceedings with respect to MLPF & S and Genung. They challenge only the propriety of the trial court's decision to stay the arbitration proceedings.

We are concerned with only the second action, the action to compel arbitration pursuant to General Statutes § 52-410. ⁸ The trial court found that the parties had agreed that their dealings involved interstate commerce and, thus, that the Federal Arbitration Act (FAA); 9 U.S.C. §§ 1 through 14; was applicable. In Volt Information Sciences, Inc., v. Stanford University, 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), the United State Supreme Court held that while the FAA preempts the application of state laws that render arbitration agreements unenforceable, it does not preempt the application of state law in a case where the parties have chosen in their arbitration agreement to abide by the law of a particular state. Id., at 472, 109 S.Ct. at 1252. "[B]ecause [t]he thrust of the federal law is that arbitration is strictly a matter of contract ... the parties to an arbitration agreement should be at liberty to choose the terms under which they will arbitrate." (Citations omitted; internal quotation marks omitted.) Id. Thus, in a situation where "the parties have chosen in their agreement to abide by the state rules of arbitration, application of the FAA to prevent enforcement of those rules would actually be inimical to the policies underlying state and federal arbitration law ... because it would force the parties to arbitrate in a manner contrary to their agreement." (Citations omitted; internal quotation marks omitted.) Id.

Here, the contract between the parties provided that it was to be governed by and construed in accordance with the laws of the state of New York. At trial neither party proceeded under the procedural laws of New York but chose instead the procedural laws of Connecticut. Where the parties try a case under a particular theory and the trial court decides the case under that theory, upon review, we will also apply that same theory. See Newington v. Mazzoccoli, 133 Conn. 146, 151-52, 48 A.2d 729 (1946); Brierley v. Johnson, 131 Conn. 675, 679, 42 A.2d 34 (1945); Freund v. Burns, 131 Conn. 380, 388, 40 A.2d 754 (1944); Ohlin v. Kowner, 96 Conn. 394, 401, 114 A. 117 (1921); New Haven Water Co. v. Russell, 86 Conn. 361, 364-65, 85 A. 636 (1912); Staub's Appeal from Probate, 66 Conn. 127, 134, 33 A. 615 (1895); Gemme v. Goldberg, 31 Conn.App. 527, 534, 626 A.2d 318 (1993): W. Maltbie, Connecticut Appellate Procedure (2d Ed.1957) § 42. The plaintiffs filed their motions to compel and stay, in the first action, pursuant to General Statutes §§ 52-409 and 52-410 as well as to 9 U.S.C. §§ 3 and 4. ⁹ In the action that is the subject of this appeal, the plaintiffs proceeded under § 52-410 only. The trial court found that both parties "seemingly have agreed that their dealings affect interstate commerce and come under the ... FAA" and the trial court decided the case under both the FAA and Connecticut law.

We, however, need not address the applicability of 9 U.S.C. §§ 3 and 4, as this action was brought pursuant to General Statutes § 52-410.

General Statutes § 52-410 provides a mechanism by which a party to a contract containing an arbitration clause, who desires arbitration of a dispute, "may apply to the trial court ... for an order directing the parties to proceed with arbitration." (Emphasis in original.) Success Centers, Inc. v. Huntington Learning Centers, Inc., 223 Conn. 761, 768, 613 A.2d 1320 (1992).

"[I]n granting or denying an order directing the parties to proceed with arbitration under § 52-410, the trial court must determine whether the contract between the parties provides for arbitration." Id., 768-69. Once that determination is made, however, the statute requires that the trial court "either grant the order or deny the application according to the rights of the parties." General Statutes § 52-410.

Here, the trial court did just that: it granted the order to proceed with arbitration. The trial court went further, however, and granted a stay of the claims ruled arbitrable until the completion of the judicial proceedings of the nonarbitrable claims. Nothing in the plain language of the statute authorizes the trial court to do more than grant the order or deny the application. In fact, staying the arbitration is contrary to the intent of the legislature in enacting the arbitration statutes. The language of § 52-410 "demonstrates that the legislature, like the courts, favor[s] arbitration as a means of settling differences and expediting the resolution of disputes." (Internal quotation marks omitted.) Fishman v. Middlesex Mutual Assurance Co., 4 Conn.App. 339, 346, 494 A.2d 606, cert. denied, 197 Conn. 806, 499 A.2d 57 (1985). Thus, the decision by the trial court...