Nussbaum v. Kimberly Timbers, Ltd.

Decision Date14 September 2004
Docket Number(SC 17070).
Citation856 A.2d 364,271 Conn. 65
CourtConnecticut Supreme Court

Borden, Norcott, Palmer, Vertefeuille and Zarella, Js.

Everett E. Newton, with whom, on the brief, were Miles F. McDonald and Sonia T. Larossa, for the appellants (plaintiffs).

Eric D. Grayson, with whom, on the brief, was Juris V. Zauls, for the appellee (defendant).



The plaintiffs, Martin Nussbaum and Kathleen Nussbaum, appeal from the judgment of the trial court denying their application for an order to stay arbitration proceedings instituted by the defendant contractor, Kimberly Timbers, Ltd. The defendant commenced arbitration following the plaintiffs' failure to pay the balance allegedly due on a contract between the parties for the construction of a new home in Greenwich. On appeal, the plaintiffs claim, first, that the issue of whether the contract is unenforceable because it is contrary to public policy is not an issue within the scope of the arbitration clause contained in the contract, to be decided initially by the arbitrator, and, second, that the trial court improperly determined that the contract and the arbitration clause are enforceable despite the defendant's failure to comply with all of the provisions of General Statutes § 20-417d pertaining to new home construction contractors. We conclude that the trial court had jurisdiction to determine whether the arbitration clause is enforceable, that the arbitration clause is, in fact, enforceable, and, therefore, that the issue of whether the contract is unenforceable because it violated public policy was one for the arbitrator to decide in the first instance.

The following facts and procedural history guide our resolution of this appeal. In 1999, Public Acts 1999, No. 99-246, otherwise known as the New Home Construction Contractors Act (act),1 was enacted to regulate the activities of new home construction contractors. The act became effective on October 1, 1999, and is codified at General Statutes § 20-417a et seq. Prior to 1999, there was no requirement in Connecticut that a new home construction contractor be licensed. The defendant, an experienced contractor who had constructed nearly forty homes in the Greenwich area, obtained a license pursuant to the newly adopted statutory scheme on April 14, 2000.

The plaintiffs and the defendant entered into negotiations to construct a new home before the defendant obtained a license. At some point in the negotiations, a contract dated March 10, 2000, and a contract rider dated May, 2000, were drafted, but the parties did not execute and sign the contract and rider until May, 2000. The contract included an arbitration provision.

After the contract was fully performed, a dispute arose as to the remaining amount of money that the plaintiffs owed to the defendant. In accordance with the contract's arbitration provision, the defendant filed a demand for arbitration with the American Arbitration Association seeking to recover the amount allegedly due, which consisted of the final 10 percent of the contract price. Thereafter, the plaintiffs filed an application for an order to stay the arbitration proceedings and an order to show cause on the ground that the defendant had failed to comply with General Statutes § 20-417d2 and that the contract, therefore, was void and unenforceable. The plaintiffs specifically alleged that the defendant had (1) held itself out as a new home contractor without a license while the parties were engaged in negotiations, and (2) failed to comply with the mandatory notice provisions of § 20-417d. In response, the defendant filed a motion to compel arbitration.

On January 13, 2003, the trial court held a hearing on the defendant's motion to compel and the plaintiffs' application to stay.3 Following the hearing, the court issued a ruling from the bench denying the plaintiffs' application to stay the arbitration proceedings and directed the parties to resume arbitration.4 Although the court found that the contract did not contain the notice provisions described in § 20-417d, it rejected the plaintiffs' claim that the contract was automatically "void." The court rendered judgment in accordance with its ruling.

The plaintiffs appealed from the judgment of the trial court to the Appellate Court, and we transferred the appeal to this court pursuant to General Statutes § 51-199 (c) and Practice Book § 65-1.5 During oral argument in this court, the panel questioned the parties in an effort to distinguish between the issue of the contract's enforceability, which the parties had briefed, and the issue of whether the contract's enforceability was an issue within the scope of the arbitration clause, to be decided by the arbitrator. Thereafter, the parties were ordered to file simultaneous supplemental briefs addressing the following question: "Is the issue of the enforceability of the contract under . . . [§] 20-417a et seq. . . . a question within the scope of the arbitration clause, to be decided in the first instance by the [arbitrator]?"

We begin by noting that Connecticut has adopted a clear public policy in favor of arbitrating disputes. The policy is expressed in General Statutes § 52-408, which provides in relevant part: "An agreement in any written contract, or in a separate writing executed by the parties to any written contract, to settle by arbitration any controversy thereafter arising out of such contract, or out of the failure or refusal to perform the whole or any part thereof . . . shall be valid, irrevocable and enforceable, except when there exists sufficient cause at law or in equity for the avoidance of written contracts generally." To enforce such agreements in cases in which there is no action pending between the parties and the parties' contract contains an arbitration clause, General Statutes § 52-410 (a) further provides that "[a] party to a written agreement for arbitration claiming the neglect or refusal of another to proceed with an arbitration thereunder may make application to the superior court for the judicial district in which one of the parties resides . . . for an order directing the parties to proceed with the arbitration in compliance with their agreement. . . ."

The plaintiffs claim that, because they alleged that the underlying contract is illegal, the court, rather than the arbitrator, had sole jurisdiction to decide whether there is a valid and enforceable agreement to arbitrate pursuant to § 52-408. The defendant responds that a distinction must be made between contracts that are "void" because they are not properly formed, and thus have no legal effect, and legally valid contracts that are "voidable" because they are subject to substantive defects that are not related to contract formation. The defendant argues that although a claim that a contract is void is a threshold determination for the court to decide, a claim that a contract is voidable is more properly submitted to an arbitrator. The defendant contends that the plaintiffs' claim that the contract is illegal because it does not comply with the notice requirements of § 20-417d pertains to the voidability of the contract and, thus, is a claim that should be decided by the arbitrator. The defendant nonetheless argues that the plaintiffs "waived the submission" of their claim regarding the illegality of the contract to the arbitrator when they submitted that claim to the court, and that the arbitrator now "is bound by the law of the case to follow [the trial court's] ruling that the contract is not voidable." We agree with the defendant that the arbitrator is required in the first instance to decide the issue of whether the contract is enforceable.

It is well established that "[a]rbitration is a creature of contract. . . . It is designed to avoid litigation and secure prompt settlement of disputes . . . . [A] person can be compelled to arbitrate a dispute only if, to the extent that, and in the manner which, he has agreed so to do. . . . No one can be forced to arbitrate a contract dispute who has not previously agreed to do so." (Citations omitted; internal quotation marks omitted.) A. Dubreuil & Sons, Inc. v. Lisbon, 215 Conn. 604, 608, 577 A.2d 709 (1990); see also Hottle v. BDO Seidman, LLP, 268 Conn. 694, 701, 846 A.2d 862 (2004); Levine v. Advest, Inc., 244 Conn. 732, 744, 714 A.2d 649 (1998). Moreover, "[i]t is the province of the parties to set the limits of the authority of the arbitrators, and the parties will be bound by the limits they have fixed. . . . The arbitration provision in an agreement is, in effect, a separate and distinct agreement. Courts of law can enforce only such agreements as the parties actually make." (Internal quotation marks omitted.) Success Centers, Inc. v. Huntington Learning Centers, Inc., 223 Conn. 761, 772, 613 A.2d 1320 (1992); accord Connecticut Union of Telephone Workers, Inc. v. Southern New England Telephone Co., 148 Conn. 192, 197, 169 A.2d 646 (1961). Accordingly, "because an arbitrator's jurisdiction is rooted in the agreement of the parties . . . a party who contests the making of a contract containing an arbitration provision cannot be compelled to arbitrate the threshold issue of the existence of an agreement to arbitrate. Only a court can make that decision." (Citations omitted; emphasis in original; internal quotation marks omitted.) Three Valleys Municipal Water District v. E.F. Hutton & Co., 925 F.2d 1136, 1140-41 (9th Cir. 1991); see also I.S. Joseph Co. v. Michigan Sugar Co., 803 F.2d 396, 400 (8th Cir. 1986) ("the enforceability of an arbitration clause is a question for the court when one party denies the existence of a contract with the other").6

In the present case, the parties' contract contains the following arbitration provision: "Any controversy or claim arising out of or relating to this Contract, or breach thereof,...

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