Stephen L. Messersmith, Inc. v. Barclay Townhouse Associates

• Decision Date: 01 September 1986
• Docket Number: No. 83,83
• Citation: 313 Md. 652,547 A.2d 1048
• Parties: STEPHEN L. MESSERSMITH, INC. v. BARCLAY TOWNHOUSE ASSOCIATES et al. ,
• Court: Maryland Court of Appeals

Page 652

313 Md. 652

547 A.2d 1048

STEPHEN L. MESSERSMITH, INC. v. BARCLAY TOWNHOUSE ASSOCIATES et al.

No. 83, Sept. Term, 1986.

Court of Appeals of Maryland.

Oct. 11, 1988.

Ronald M. Miller (Paul N. Nussbaum, Sheldon L. Gnatt and Reichelt, Nussbaum, Brown, Dukes & LaPlaca, on the brief), Greenbelt, for petitioner.

Timothy L. Mullin, Jr. (Miles & Stockbridge, on the brief), Baltimore, for respondent.

Argued before MURPHY, C.J., ELDRIDGE, COLE, RODOWSKY, COUCH ^* and McAULIFFE, JJ., and CHARLES E. ORTH, Jr., Associate Judge of the Court of Appeals of Maryland (retired), Specially Assigned.

COLE, Judge.

In this case we shall determine the proper standard of review when a party to an arbitration proceeding moves to vacate the arbitration panel's award, claiming that because the parties never agreed to arbitrate, the panel lacked jurisdiction to decide the dispute. Specifically, we must decide whether the circuit court was correct in deferring to the arbitrators' decision to assert jurisdiction unless it was "completely irrational." In addition, we shall address the meaning of a de novo review, and lastly, whether the right to such a review was waived by proceeding by cross-motions for summary judgment in the circuit court.

The Maryland Uniform Arbitration Act, Md.Cts. & Jud.Proc. Code Ann. §§ 3-201 through 3-234 (1974, 1984 Repl.Vol.), embodies the law we must construe to answer these questions. More particularly, we shall focus on two sections, § 3-208, entitled "Stay of arbitration," and § 3-224, entitled "Vacating award." Section 3-208 provides in pertinent part:

(a) Petition to stay.--If a party denies existence of the arbitration agreement, he may petition a court to stay commenced or threatened arbitration proceedings....

(c) Determination of existence of arbitration agreement.--If the court determines that existence of the arbitration agreement is in substantial and bona fide dispute, it shall try this issue promptly and order a stay if it finds for the petitioner. If the court finds for the adverse party, it shall order the parties to proceed with arbitration.

Section 3-224 provides in pertinent part:

(b) Grounds.--The court shall vacate an award if: ...

(5) There was no arbitration agreement as described in § 3-206, the issue was not adversely determined in proceedings under § 3-208, and the party did not participate in the arbitration hearing without raising the objection.

In order to appreciate the context in which these issues arise, we set forth the facts fully. Barclay Townhouse Associates (Barclay), a developer, contracted the Henry A. Knott Remodeling Co., Inc. (Knott), a general contractor, to manage the construction of a rehabilitation project in Baltimore City; Knott was authorized to conduct negotiations with subcontractors. Knott's representative and Project Manager for the Barclay Townhouse job, Larry Ellison, entered into negotiations with Stephen L. Messersmith, President of Stephen L. Messersmith, Inc., for the project's drywall and metal stud work. Ellison accepted Messersmith's final bid by telephone.

Messersmith asserts that Ellison's acceptance of the bid was made conditional upon the inclusion of several provisions, one of which was binding arbitration of disputes arising under the contract. Furthermore, Ellison promised Messersmith that Messersmith would be sent the final contract and instructed him, in the meantime, to begin work on the project. Messersmith received a contract from Ellison and made some revisions. Messersmith contends that Ellison orally agreed to the changes but did not return the contract to Messersmith. After Messersmith complained of his failure to receive a signed contract, a meeting was held in Barclay's project site trailer on April 6, 1982, among representatives of all parties. At this meeting Ellison made handwritten interlineations onto the typed "Trade Contract," including provisions requiring binding arbitration of disputes between the parties. These provisions were initialed by Ellison and Messersmith; however, with the exception of Messersmith's signature, the signature lines at the end of the contract were left blank. ¹ The contract provided that Messersmith's work began on November 1, 1981 and was to be completed on May 1, 1982.

Subsequent to the April 6th meeting, disputes arose between Messersmith and Knott regarding the scope and quality of Messersmith's work, and his failure to be paid for same. Consequently, Messersmith instituted arbitration proceedings, seeking $108,267.62 against Knott and Barclay. At the hearing, both defendants challenged jurisdiction on the basis that no written agreement to arbitrate existed. Following brief oral argument on the issue, the arbitration panel deliberated for ten minutes, decided that it had jurisdiction, and the hearing continued with Barclay's full participation.

At the arbitration hearing both Stephen Messersmith and Larry Ellison testified. Messersmith testified that his company commenced and continued its work on the project because he and Ellison reached an understanding that Messersmith Inc. had a binding agreement with Knott and Barclay. According to Messersmith, Ellison instructed him to begin work with the assurance that a fully executed contract, containing the terms agreed to by Messersmith and Ellison, would be forthcoming. On the other hand, Ellison denied ever indicating to Messersmith that any contract terms were agreed upon or that a signed contract would be forwarded. Ellison's testimony was consistent with the position maintained by Barclay that, although several contract drafts were exchanged, no draft of a contract containing an arbitration agreement was ever agreed to among, or signed by, the parties. After apparently resolving any witness credibility determinations in favor of Messersmith, the arbitrators awarded Messersmith $63,395.13 plus costs and interest against Barclay.

Barclay petitioned the Circuit Court for Prince George's County to vacate the arbitration award on the basis that it had never agreed to submit to arbitration. Messersmith and Barclay agreed to proceed by cross-motions for summary judgment. The circuit court denied Barclay's motion for summary judgment and petition to vacate and granted Messersmith's motion for summary judgment. The court stated:

In reviewing the determination of an arbitration panel, this Court's function in confirming or vacating an award is "severely limited".... A court has authority to vacate an award that is based on a completely irrational interpretation of the contract.... Applying this standard, this Court does not have grounds to vacate the award.... The record supports the arbitration panel's finding that a valid arbitration clause existed. We can find no error of fact or law made by the arbitration panel that would render their decision completely irrational.

Barclay appealed this result to the Court of Special Appeals, which reversed, Barclay Townhouse v. Messersmith, Inc., 67 Md.App. 493, 508 A.2d 507 (1986), reasoning that because an arbitrator has no power to act in the absence of an agreement to arbitrate, the "completely irrational" standard of review utilized by the intermediate appellate court for reviewing arbitration awards on the merits is totally inappropriate on the threshold issue of whether there is an agreement to arbitrate. 67 Md.App. at 497, 508 A.2d at 509. That court remanded the case with instructions that the circuit court undertake a de novo review to determine whether an agreement to arbitrate existed. 67 Md.App. at 498, 508 A.2d [547 A.2d 1051] at 510. We then granted Messersmith's petition for a writ of certiorari.

It is axiomatic that an arbitration panel derives its authority to decide a given dispute from the disputing parties themselves. As this Court noted more than forty years ago: " 'The question is one of intention, to be ascertained by the same tests that are applied to contracts generally. * * * No one is under a duty to resort to ... [arbitration] tribunals, however helpful their processes, except to the extent that he has signified his willingness.' " (Citation omitted). Continental Milling & Feed Co. v. Doughnut Corp., 186 Md. 669, 675, 48 A.2d 447, 450 (1946). Thus, it is beyond dispute that, absent an arbitration agreement between the parties, an arbitration panel cannot validly assert jurisdiction to decide a dispute between them. Accord Arrow Overall Supply Co. v. Peloquin Enterprises, 414 Mich. 95, 323 N.W.2d 1 (1982) (" 'Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.' ... It follows that a valid agreement must exist for arbitration to be binding.").

In the case at bar, Barclay participated in the arbitration only after duly noting its objection to the panel's jurisdiction on the ground that no agreement to arbitrate existed. The panel briefly considered this threshold issue prior to hearing any testimony and summarily concluded that it had jurisdiction. However, the arbitrators made clear to the parties that their ruling asserting jurisdiction was "made without prejudice to any legal remedy that you may desire to take in court." Nevertheless, on appeal, the panel's decision to assert jurisdiction was given great deference by the circuit court's application of the "completely irrational" standard of review.

That standard, which permits the court to vacate only those arbitration awards it views as "completely irrational," was applied by the Maryland Court of Special Appeals in O-S Corp. v. Samuel A. Kroll, Inc., 29 Md.App. 406, 348 A.2d 870 (1975). As that court explained it, a completely irrational award "is inferentially opprobrious, i.e., '[e]xpressing or carrying a sense of disgrace or contemptuous scorn', [footnote omitted] causing it to be suspect in its conception." 29 Md.App. at 409, 348 A.2d at 872. The O-S Corp. court thus authorized judicial relief "from...