R. E. Bean Const. Co. v. Middlebury Associates

• Decision Date: 24 November 1980
• Docket Number: No. 8-80,8-80
• Citation: 428 A.2d 306,139 Vt. 200
• Parties: R. E. BEAN CONSTRUCTION CO. v. MIDDLEBURY ASSOCIATES and Middlebury Developers, Inc.
• Court: Vermont Supreme Court

Page 306

428 A.2d 306

139 Vt. 200

R. E. BEAN CONSTRUCTION CO. v. MIDDLEBURY ASSOCIATES and Middlebury Developers, Inc.

No. 8-80.

Supreme Court of Vermont.

Nov. 24, 1980.

Motion for Reargument Denied Jan. 30, 1981.

John H. Carnahan and J. Eric Anderson of Fitts, Olson, Carnahan, Anderson & Bump, Brattleboro, for plaintiff.

Karl W. Neuse, Middlebury, for amicus curiae Pitcher Associates.

John A. Kelley, Middlebury, and Peter S. Gilfillan and Philip Abramowitz of Gross, Shuman, Brizdle, Laub & Gilfillan, P. C., Buffalo, N. Y., for defendants.

Before BARNEY, C. J., and DALEY, LARROW, BILLINGS and HILL, JJ. BARNEY, Chief Justice.

This case involves the same construction project that was the subject of Pike Industries, Inc. v. Middlebury Associates, 136 Vt. 588, 398 A.2d 280 (1979), aff'd after remand, --- Vt. ---, --- A.2d ---- (1980) (decided this day). R. E. Bean Construction Co. was the general contractor retained by Middlebury Associates and Middlebury Developers, Inc., here treated as a single entity (Middlebury), to build a shopping center on Route 7 in the Town of Middlebury. Basically, their contract provided that, for a fee, Bean would provide for the building of the shopping center at a specified maximum cost to Middlebury. Any savings on that cost were to be shared. Changes in the development were permitted at cost plus ten per cent. The contract further provided for the arbitration of disputes arising from it under the American Arbitration Association Construction Industry Rules. Bean in turn entered into numerous subcontracts for completion of the work. In the fall of 1974 a dispute arose between Bean and Middlebury relating to their contractual obligations. Basically, Bean contended that Middlebury had breached its obligation to make progress payments and Middlebury asserted that Bean had failed to make adequate progress reports.

Bean first commenced litigation against Middlebury, and then filed a demand for arbitration with the American Arbitration Association. Middlebury counterclaimed.

At about this time the subcontractors filed litigation asserting contract claims against both Bean and Middlebury. Bean, Middlebury, and all of the subcontractors, except Pike Industries, Inc., agreed to seek resolution of their dispute through arbitration. See Pike Industries, Inc. v. Middlebury Associates, supra. Those parties entered stipulations submitting their disputes to arbitration, arbitrators were appointed, hearings held, and an award rendered. The award found Middlebury liable to Bean for $333,261.53 and Bean liable to the subcontractors for lesser amounts.

Middlebury challenged the award in superior court, relying on four basic grounds: (i) that two of the three arbitrators failed to disclose relationships with the parties and their attorneys, (ii) that the award was rendered after the arbitrators' jurisdiction over the case had expired, (iii) that the arbitrators failed to dispose of all the issues submitted, and (iv) that Bean submitted evidence after the close of the hearings. After hearings the court entered findings of fact and conclusions of law. As amended, the findings generally rejected Middlebury's contentions with one exception; the court found error in the arbitrators' express refusal to include in the award any amount "for any sum which might be due to Bean from Middlebury on account of work performed by Pike." This language is taken from the arbitration award. The court stated its view that an appropriate release by Bean would cure this defect. Bean executed a release and the court confirmed the award. Middlebury appeals, urging that each of the contentions it advanced in the superior court required that the award be vacated, and arguing some new grounds.

The parties in their stipulations for submission to arbitration agreed:

that any party hereto may apply to the court for an order vacating (,) ... modifying(,) or correcting the award as prescribed in the United States Arbitration Act of 1925, 9 U.S.C. Sections 1-14. The procedure as to such application and the order of the Court shall be as set forth in the United States Arbitration Act including but not limited to Sections 9, 10, 11, 12, and 13.

The superior court noted expressly in its conclusions of law that it considered itself bound by the Act. To the extent that the Act is part of the contract, the court was correct. However, the Act applies of its own force only to arbitration agreements relating to maritime transactions or involving interstate or foreign commerce. Cook v. Kuljian Corp., 201 F.Supp. 531, 535 (E.D.Pa.1962), aff'd sub nom., Cook v. Damodar Valley Corp., 317 F.2d 412 (3d Cir. 1963). Neither circumstance has been alleged or proved in this case. Therefore, the Act applies not as supreme federal law, but by consent of the parties. We are prepared to turn to it as we would to the rest of their contract. The decisions of other jurisdictions under the Act are persuasive statements of its meaning. However, if in conflict with our own state public policy, the Act in this context is without effect.

Vermont has a strong tradition of upholding arbitration awards whenever possible. See French v. Raymond, 82 Vt. 156, 72 A. 324 (1909) (award upheld despite assertion that it was based on perjured testimony). Awards are liberally construed and every possible intendment is made in their support. Batchelder v. Reynolds, 107 Vt. 439, 440, 180 A. 884, 885 (1935) (citing Rixford v. Nye, 20 Vt. 132, 138-39 (1848)). In reviewing awards, the Court is mindful of the importance of arbitration as an alternative to the courts for the speedy and relatively inexpensive resolution of disputes and of arbitration's long history in Vermont law. "These domestic tribunals are in the interest of peace, and the State has an interest that controversy should end. Such courts sometimes get aside of technical law, but ordinarily reach substantial justice." Morse v. Bishop, 55 Vt. 231, 234-35 (1882). Burgeoning litigation in recent years emphasizes the need to encourage such alternatives. To the extent that justified confidence in arbitration is established, it can only aid the courts in meeting the public's need for speedy, inexpensive and fair dispute resolution. The courts must respect an arbitrator's determinations; otherwise, those determinations will merely add another expensive and time consuming layer to the already complex litigation process. If the courts merely rubber-stamp arbitrators' decisions, however, litigants will hesitate to entrust their affairs to arbitration. It is this delicate balance which courts reviewing arbitration decisions must strive to attain.

I.

Middlebury points out that the superior court judgment denying Middlebury's motion to vacate the arbitration award and granting Bean's motion to confirm the award was entered on September 21, 1979. The award held that Middlebury had breached its contract with Bean. Later, on October 26, 1979, a superior court found that Bean, not Middlebury, had breached the contract. The parties concede that the subject of the two claims is the same. Middlebury argues that since the judgment orders conflict, the second must control, and that therefore the confirmation of the arbitration award must be reversed. It cites Cootey v. Remington, 108 Vt. 441, 189 A. 151 (1937), to support its contention. That case indeed indicates that as between two inconsistent judgments, the later in time prevails over the former. Id. at 444-45, 189 A. at 153. While correct, this principle does not demand the result contended for by Middlebury in the case at bar. It is but a specific application of the general doctrine of res judicata, and is more fully stated as follows:

Where in two successive actions between the same parties inconsistent judgments are rendered, the judgment in the second action is controlling in a third action between the parties.

Restatement of Judgments § 42 (1942) (emphasis added). This doctrine assumes a set of circumstances which are simply not the case here: that in the second action the defense of res judicata was waived because it was not asserted. Restatement, supra, Comment a. By its terms § 42 does not apply to this case because our case is not a third action testing the validity of two prior inconsistent judgments, but rather a direct challenge of one judgment in light of a later conflicting one. In such a case it is not § 42 but § 43 that applies. Section 43 provides:

A valid and final judgment rendered in one action is conclusive in another action between the parties although the other action was commenced before the rendition of the judgment or before the commencement of the action in which the judgment was rendered.

It is therefore not the judgment in this action which is controlled by the Pike judgment but vice versa. Although the first judgment was appealed, it was final for res judicata purposes. Firestone Tire & Rubber Co. v. Hart's Estate, 104 Vt. 197, 201, 158 A. 92, 94 (1932).

Furthermore, we have noted in the companion case to this one that the stipulation submitting the contract issue to arbitration bound Middlebury and Bean to the arbitration result. Pike Industries, Inc. v. Middlebury Associates, supra, --- Vt. at ---, --- A.2d at ----. Since the arbitration award was rendered first, Middlebury was bound to that result.

II.

Middlebury also argues that the trial court erred in failing to vacate the award in light of the failure of two of the arbitrators to disclose certain relationships with the parties. They point out that § 18 of the Construction Industry Arbitration Rules (under which this arbitration was conducted) provides:

A person appointed as a neutral arbitrator shall disclose any circumstances likely to create a presumption of bias or which might disqualify him as a neutral arbitrator, including any past or present relationship with the parties or their counsel. Upon receipt of such information from any source, the AAA shall...