Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc.Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc.
delivered the opinion of the Court.
In 1976, the appellant, Charles J. Frank, Inc. (contractor), and the appellee, Associated Jewish Charities of Baltimore, Inc. (owner), entered into a contract for the construction of a Jewish community center (project). The construction contract contained an arbitration clause providing, among other things, that "[a]ll claims, disputes and other matters in question arising out of, or relating to, [the] Contract ... shall be decided by arbitration in accordance with the ... Rules of the American Arbitration Association. . . .”
The contractor subcontracted the required earthwork to Consolidated Excavators, Inc. (subcontractor). The subcontract incorporated an arbitration clause identical to that contained in the construction contract.
A dispute arose between the subcontractor and the contractor as to whether the subcontractor’s removal of earth from the project’s football field was extra work entitling it to additional compensation. In the Circuit Court for Baltimore County, the subcontractor sued the contractor for $10,172.00 (Baltimore County case). The contractor pleaded to the merits and filed a third party claim against the owner alleging that the owner was liable to the contractor for any judgment the subcontractor might recover, as well as for an amount representing the contractor’s profit on that portion of the subcontractor’s work. The owner filed various pleadings to the third party claim, including a demurrer and an answer. Although the
Subsequently, the contractor demanded the balance of $139,579.11 due under the construction contract. The owner refused to pay because of alleged faulty construction work, unrelated to the earthwork involved in the Baltimore County case. On 31 March 1980, in accordance with the construction contract, the contractor filed a Demand for Arbitration with the American Arbitration Association.
On 15 May 1980, in the Circuit Court of Baltimore City, the owner filed a Petition to Stay Arbitration (Baltimore City case) contending that the contractor had waived its right to arbitration by litigating its third party claim against the owner in the Baltimore County case. Additionally, in the Superior Court of Baltimore City, the owner filed a declaration against the contractor, its surety, and Nelson/Salabes, Inc., the project architect (Superior Court case), seeking damages for alleged faulty construction, design, and supervision. The architect filed a third party claim against the mechanical and electrical engineers, the structural engineers, and the swimming pool designers.
On 20 April 1981, in the Superior Court case, the contractor filed a Motion to Stay Proceedings, alleging that the claims asserted by the owner were issues required to be resolved by arbitration. The contractor’s motion to stay was granted, pending resolution of the Baltimore City case. Because the contract between the architect and the owner did not contain an arbitration clause, the Superior Court case against the architect was not stayed. On the same day, 20 April 1981, in the Baltimore City case, the contractor filed a Petition to Order Arbitration.
On 3 June 1981, in the Baltimore City case, the trial court initially determined that the contractor had waived its right to arbitrate those issues resolved in the Baltimore County case. The trial court specifically found that the issues in the Baltimore County case "aside from .. . arising out of the
Moreover, the trial court acknowledged that were it to order arbitration of such unrelated issues, the owner might be compelled to arbitrate its claim against the contractor and to litigate its claim against the architect because, unlike the contract between the owner and the contractor, the contract between the owner and the architect did not contain an arbitration clause. Emphasizing that the owner had voluntarily entered into these particular contractual arrangements, the trial court specifically concluded that the prospect of duplicative proceedings with a potential for inconsistent results was not an appropriate basis upon which to stay arbitration. Nevertheless, having determined that the contractor had waived its right to arbitrate the unrelated issues raised in the Superior Court case, the trial court granted the owner’s petition to stay arbitration and denied the contractor’s petition to order arbitration.
The contractor appealed to the Court of Special Appeals. We issued a writ of certiorari before consideration by that Court. We shall reverse the judgment of the Circuit Court of Baltimore City.
The initial question here is whether the contractor, by participating as a party in a judicial proceeding that resulted in a final judgment on an issue arbitrable under its contract with the owner, has waived the right subsequently to arbitrate unrelated issues arising under the contract. Additionally, if the contractor did not waive that right, the remaining question would be whether the owner, then
I
Arbitration is the process whereby parties voluntarily agree to substitute a private tribunal for the public tribunal otherwise available to them. The Maryland Uniform Arbitration Act, enacted in 1965,
1
now Maryland Code (1974, 1980 Repl. Vol.) §§ 3-201 through 3-234 of the Courts and Judicial Proceedings Article, embodies a legislative policy favoring enforcement of executory agreements to arbitrate.
Aetna Casualty & Sur. Co. v. Insurance Comm’r,
This Court has recognized that arbitration is a matter of contract which the parties should be allowed to conduct in accordance with their agreement.
C. W. Jackson & Assocs. v. Brooks,
We have frequently considered the criteria applicable to the waiver of a contractual right.
E.g., Chertkof v. Southland Corp.,
"A waiver is the intentional relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right, and may result from an express agreement or be inferred from, circumstances. '[A]cts relied upon as constituting a waiver of the provisions’ of a contract must be inconsistent with an intention to insist upon enforcing such provisions.” Bargale,275 Md. at 643 ,343 A.2d at 533 .
The intention to waive must be clearly established and will not be inferred from equivocal acts or language.
Bargale Indus., Inc., 275
Md. at 644,
This Court has not previously considered the question whether participation as a party in a judicial proceeding constitutes a waiver of the right to arbitrate issues raised and/or decided in that proceeding. Courts in other jurisdictions that have considered the question are divided with respect to the degree of participation necessary to constitute such a waiver.
2
Under the circumstances here, however, we
While courts in many jurisdictions have decided that some degree of participation in a judicial proceeding constitutes a waiver, only a few courts have considered whether such a waiver is limited to those issues raised and/or decided in the judicial proceeding, or extends to other unrelated issues arising under the contract. Courts in New York have frequently concluded that although a party waives the right to arbitrate contractual issues raised and/or decided in a judicial proceeding, the waiver does not extend to other unrelated issues also arbitrable under the contract.
E.g.,
In
Denihan v. Denihan,
The Court of Appeals of New York considered "whether by commencing several actions against other parties to the shareholders’ agreement on causes arising therefrom, the [shareholders] waived [their] right to arbitrate different issues arising under the same agreement.”
Denihan,
"While the claims encompassed in the various arbitrations and actions brought by the respondent may have arisen from the shareholders’ agreement, it is not disputed that the claims are separate and distinct. As to the claims sought to be redressed in judicial proceedings, there can be no question but that the respondent has waived his right to arbitrate. But as to claims separate and distinct, no waiver of arbitration may be implied from the fact that resort has been made to the courts on other claims arising under a common agreement which remains in full force and effect.” Denihan, 34N.Y.2d at 310, 313 N.E.2d at 760-61 ,357 N.Y.S.2d at 456 (citations omitted) (emphasis added).
The Supreme Court of Louisiana has reached the same conclusion. In
Standard Company of New Orleans v. Elliott Construction Co.,
While the Supreme Court of Louisiana offered several reasons to support its conclusion that the contractor had not waived its right to arbitrate unrelated issues, it placed primary reliance upon the fact that the issues in the judicial proceeding were separate and distinct from those raised in the arbitration proceeding. There the Court said:
’’First, the issues in the suit and the claim for equitable adjustment are separate and distinct. The claims in suit 1802, 491 involved issues of liability and damages in connection with the original roofing and subsequent re-roofing of the Minidome. The claims for equitable adjustment involve issues of liability and damages in connection with interference with construction method and sequence, change in proposal for floorslab delay, misrepresentation about sub-surface conditions, synthetic flooring, and excusable delays necessitating extensions of time.” Standard Co.,363 So.2d at 675-76 (emphasis added).
Thus, the Louisiana Court adopted the New York Court’s approach and determined, in essence, that although a party to a judicial proceeding involving issues arising under a contract waives the right to arbitrate those issues, the
We recognize that courts in some jurisdictions have decided that when some degree of participation in a judicial proceeding constitutes a waiver of the right to arbitrate a part of a dispute arising under a contract, the waiver extends to the entire dispute.
E.g., Midwest Window Systems, Inc.,
Maddy v. Castle,
"In a dispute such as this it is impossible to separate the claim for money by respondent from the counterclaims which are the defense to this money claim. The claim is in actuality part of one basic issue — whether the work was properly completed — and cannot be separated from other claims or the issue itself.” Maddy,58 Cal.App.3d at 722 ,130 Cal.Rptr. at 163 (emphasis added).
Thus, the Court held that waiver of a part of the dispute
In our view, even when participation in a judicial proceeding involving arbitrable issues arising under a contract constitutes a waiver of the right to arbitrate those issues raised and/or decided in the judicial proceeding, such conduct is not necessarily inconsistent with an intention to enforce the right to arbitrate unrelated issues arising under the same contract. Such conduct, in and of itself, is too equivocal to support an inference of an intentional relinquishment of the right to arbitrate issues other than those raised and/or decided in the judicial proceeding. We are persuaded that when a party waives the right to arbitrate an issue by participation in a judicial proceeding, the waiver is limited to those issues raised and/or decided in the judicial proceeding and, absent additional evidence of intent, the waiver does not extend to any unrelated issues arising under the contract. Our conclusion that waiver of the right to arbitrate cannot be inferred in the absence of a clear expression of intent is consonant with Maryland’s legislative policy favoring enforcement of executory agreements to arbitrate.
Here the record shows that in the Baltimore County case, the contractor did not demand arbitration, but rather participated as a party in a judicial proceeding that resulted in a final judgment on issues concerning certain earthwork performed by a subcontractor, issues arbitrable under the contract between the contractor and the owner. While such conduct constituted a waiver of the right to arbitrate those issues, it was not necessarily inconsistent with an intention to enforce the right to arbitrate other unrelated issues arising under the same contract with the owner. Such con
The record further shows that after final judgment was entered in the Baltimore County case, the contractor demanded arbitration, and was sued by the owner in the Superior Court case, on issues unrelated to the earthwork involved in the Baltimore County case. Accordingly, the contractor did not waive the right to arbitrate those issues raised in the Superior Court case.
II
Having determined that the contractor has not waived the right to arbitrate issues arising under the contract unrelated to those raised and decided in the Baltimore County case, the question remaining is whether the owner is otherwise entitled to an order staying arbitration. The record here shows that the owner’s contract with the contractor contained an arbitration clause, while its contract with the architect did not. Indeed, provisions requiring arbitration of disputes, appearing in the contract between the owner and the architect, were intentionally deleted. In the Superior Court case, the owner sued the contractor, its surety, and the architect. The architect filed a third party claim against the mechanical and electrical engineers, the structural engineers, and the swimming pool designers. As a result of the owner’s voluntary actions, if arbitration were not stayed and the owner were compelled to arbitrate its claim against the contractor, the owner would be required to participate in duplicative arbitration and judicial proceedings with a potential for inconsistent results. Thus, the question to be determined is whether, under these circumstances, the owner was
Only a few courts in other jurisdictions have considered the same or similar questions. Some courts have concluded that, under such circumstances, arbitration should be stayed.
E.g., County of Jefferson v. Barton-Douglas Contractors, Inc.,
"The prospect of multiple proceedings carrying a potential for inconsistent findings provides a basis for overriding the freedom to contract for arbitration.
"Multiple proceedings with a potential for inconsistent results are inevitable unless arbitration is stayed. The policies favoring arbitration and joinder would be subverted rather than served.” County of Jefferson,282 N.W.2d at 159 .
This rationale was further explicated in
Prestressed Concrete, Inc.
v.
Adolfson & Peterson, Inc.,
"The basis for the favored status which arbitration usually enjoys in this court — that it generally expedites the settlement of disputes simply, clearly, and inexpensively —just is not present in this case. Where arbitration would increase rather than decrease delay, complexity, and costs, it should not receive favored treatment.” Prestressed Concrete, Inc., 308 Minn, at 24,240 N.W.2d at 553 (emphasis added).
Courts in other jurisdictions have concluded that
The first rationale is that the public policy in favor of arbitration would be frustrated if agreements to arbitrate were not enforced. As stated in
Town of Danvers v. Wexler Construction Co.,
1981 Mass.App.Ct.Adv.Sh. 765,
"[T]he strong policy in favor of arbitration usually necessitates a stay [of a third party claim pending arbitration] despite the fact that some judicial inefficiency might result. ... 'If a claim of right to arbitration could be foreclosed whenever a dispute between the parties to the contract derives from another person’s claim against one of the parties, the utility of broad arbitration agreements would be undermined.’ ” Town of Danvers,422 N.E.2d at 785 (footnote omitted) (citations omitted).
The second rationale is that the enactment of the Uniform Arbitration Act evidences a legislative intent that arbitration not be enjoined to prevent multiplicity of actions. This rationale was explicated by the United States Court of Appeals in
Galt v. Libbey-Owens-Ford Glass Co.,
376 F.2d
"Under the Uniform Arbitration Act, as shown by its history, 'the problem of judicial interference with the question of arbitrability was intended to be governed by § 2 Section 2(b) of the Illinois Act permits a court to stay an arbitration proceeding 'on a showing that there is no agreement to arbitrate’ (Ill.Rev.Stats. 1965, c.10, § 102(b)). Section 2(d) of the Act provides:
'Any action or proceeding involving an issue subject to arbitration shall be stayed if an order for arbitration or an application therefor has been made under this Section or, if the issue is severable, the stay may be with respect thereto only.’
Section 2(d) of the Illinois Act shows that the Legislature contemplated multiplicity of actions. In enacting the Uniform Arbitration Act, the Legislature has not eradicated a chancellor’s inherent powers, but the Legislature has determined in Section 2 that it is no longer equitable to enjoin arbitration to prevent multiplicity of actions.” Galt,376 F.2d at 715, 716 (citation omitted) (additional emphasis added).
The third rationale is that it is unfair to deprive a party to an arbitration agreement of its right to arbitrate when the burden of the potential for duplicative proceedings and inconsistent results was created by the voluntary actions of the party that would bear that burden. This rationale was succinctly articulated by the United States Court of Appeals in
Travel Consultants, Inc.
v.
Travel Management Corp.,
"Consultants complains of the burden of pursuing two actions concurrently in two different forums, and asks for a ruling that either all or none of the actions be referred to arbitration. That burden falls on Consultants because it signed two different agreements with the same party, one requiring arbitration, and the other containing no arbitration provision. Consultants shouldered that burden voluntarily, and we see no basis for judicial interposition.”Travel Consultants, Inc., 367 F.2d at 339 (emphasis added).
We are persuaded that ordinarily arbitration should not be stayed in order to prevent the prospect for duplicative proceedings with the potential for inconsistent results created by the voluntary actions of a complaining party. We reach this result because it fosters the legislative policy favoring enforcement of executory agreements to arbitrate
3
and is consonant with the legislative policy against enjoining arbitration for the purpose of preventing duplicative, multiple actions.
4
Moreover, to enjoin arbi
In view of our determination that the contractor did not waive its right to arbitrate the issues raised in the Superior Court case, and that the owner was not entitled to a stay of arbitration in order to prevent the prospect of multiple proceedings with the potential for inconsistent results, we shall reverse the judgment of the trial court that stayed arbitration, and direct that court to enter an order compelling arbitration.
Judgment of the Circuit Court of Baltimore City reversed.
Case remanded to that Court for the entry of an order in accordance with this opinion.
Costs to be paid by appellee.
Notes
. 1965 Md.Laws, eh. 231, § 2.
. Courts in some jurisdictions have determined that the filing of a complaint and/or an answer without a demand for arbitration is inconsistent with the right subsequently to demand arbitration and, therefore, is conduct that ordinarily is sufficient, in and of itself, to establish such a waiver.
E.g.,
Galion Iron Works & Mfg. Co. v. J.D. Adams Mfg. Co.,
. Md. Code (1974, 1980 Repl.Vol.) § 3-207 of the Cts. & Jud. Proc. Art. provides in pertinent part:
"(a) ... If a party to an arbitration agreement . .. refuses to arbitrate, the other party may file a petition with a court to order arbitration.
"(c) ... If the court determines that the [arbitration] agreement exists, it shall order arbitration.” (Emphasis added.)
. § 3-208 provides in pertinent part:
"(a) ... If a party denies existence of the arbitration agreement, he may petition a court to stay commenced or threatened arbitration proceedings.
"(c) ... 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 find for the petitioner. If the court finds for the adverse party, it shall order the parties to proceed with arbitration.”
§ 3-209 (b) provides:
"(b) Severability of issue. — If the issue subject to arbitration is severable, the court may order the stay with respect to this issue only.” (Emphasis added.)