Bumbolow v. Foreman

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THERESA BUMBOLOW v. THERESA
FOREMAN ET AL.
(AC 35770)
Gruendel, Lavine and West, Js.
Argued April 10—officially released July 1, 2014

(Appeal from Superior Court, judicial district of
Ansonia-Milford, Hiller, J. [motion to dismiss];
Matasavage, J. [motions to confirm, vacate; judgment].)
William T. Blake, Jr., for the appellants (defendants).
Donald B. Powers, Jr., for the appellee (plaintiff).
Opinion

GRUENDEL, J. The defendant, Theresa Foreman,
appeals from the judgment of the trial court granting
the motion to confirm an arbitration award in favor
of the plaintiff, Theresa Bumbolow.1 On appeal, the
defendant claims that the court erred in (1) denying
her motion to dismiss because the plaintiff lacked stand-
ing to assert, in her individual capacity, claims belong-
ing to a limited liability company, and (2) confirming
the arbitration award, which was issued beyond the
thirty day time limit set forth in General Statutes § 52-
416. We disagree and, accordingly, affirm the judgment
of the trial court.
The following facts are relevant to the resolution of
the defendant’s claims. The plaintiff and the defendant
founded Equinox Home Care, LLC (Equinox), a limited
liability company providing home health care to
patients, in July, 2002. As the sole members and manag-
ers, they entered into an operating agreement, which
contained a clause to arbitrate future disputes. This
clause, § 11.4 of the operating agreement, provides in
relevant part: ‘‘Any controversy or claim arising out of
or relating to this [a]greement shall only be settled by
arbitration in accordance with the rules of the American
Arbitration Association [(association)], one arbitrator,
and shall be enforceable in any court having compe-
tent jurisdiction.’’
When the parties created Equinox, both served an
active role in the company. As time progressed, the
plaintiff became more of a nonactive investor, whereas
the defendant worked full-time in the daily operations,
management, and administration of the company. It
was in this capacity that the plaintiff alleged that the
defendant wrote monthly checks to herself and to her
husband, as well as transferred large sums of money
to a bank account to which the plaintiff lacked access.
The plaintiff also alleged that the defendant refused her
the opportunity to conduct a full review of the financial
records. She subsequently brought the matter to arbitra-
tion by filing a demand with the association pursuant
to the parties’ operating agreement.
The parties thereafter arbitrated the dispute with
Attorney Ronald C. Sharp from the association. On Sep-
tember 28, 2012, he issued a written award, first stating
that ‘‘[t]he arbitration submission is unrestricted
. . . .’’2 Within his powers as arbitrator, he then
required the plaintiff to sell all of her membership inter-
est in Equinox for the purchase price of two million
dollars.
The plaintiff then filed a motion to confirm the arbi-
tration award, and the defendant filed an objection to
that motion as well as a motion to vacate the arbitration
award. The court granted the motion to confirm the
award, and denied the motion to vacate. The defendant
thereafter filed a motion to dismiss the plaintiff’s action
on the ground that the arbitrator and the court lacked
subject matter jurisdiction because the plaintiff did not
have standing to bring suit. The court denied that
motion. This appeal followed.
The standard of review for arbitration disputes is
well settled. ‘‘Judicial review of arbitral decisions is
narrowly confined. . . . When the parties agree to arbi-
tration and establish the authority of the arbitrator
through the terms of their submission, the extent of
our judicial review of the award is delineated by the
scope of the parties’ agreement. . . . When the scope
of the submission is unrestricted, the resulting award
is not subject to de novo review even for errors of law
so long as the award conforms to the submission. . . .
Because we favor arbitration as a means of settling
private disputes, we undertake judicial review of arbi-
tration awards in a manner designed to minimize inter-
ference with an efficient and economical system of
alternative dispute resolution. . . .
‘‘Where the submission does not otherwise state, the
arbitrators are empowered to decide factual and legal
questions and an award cannot be vacated on the
grounds that . . . the interpretation of the agreement
by the arbitrators was erroneous. Courts will not review
the evidence nor, where the submission is unrestricted,
will they review the arbitrators’ decision of the legal
questions involved. . . . In other words, [u]nder an
unrestricted submission, the arbitrators’ decision is
considered final and binding; thus the courts will not
review the evidence considered by the arbitrators nor
will they review the award for errors of law or fact.’’
(Internal quotation marks omitted.) Zelvin v. JEM
Builders, Inc., 106 Conn. App. 401, 406, 942 A.2d 455
(2008).
I
The defendant claims that the court erred in denying
her motion to dismiss. She first argues that despite the
deferential standard given to arbitrators in unrestricted
submissions, the arbitration award should not be
enforced because it is in violation of public policy. The
conflict with public policy, the defendant contends, is
that the arbitrator and the trial court both lacked subject
matter jurisdiction because the plaintiff lacked standing
to assert, in her individual capacity, claims belonging
to the limited liability company. We are not persuaded.
In its memorandum of decision addressing the defen-
dant’s motion to dismiss, the court found that the broad
language used in § 11.4 of the operating agreement ‘‘is
of the caliber that [our] Supreme Court has found dem-
onstrates the parties’ intent to have the issue of arbitra-
bility determined by an arbitrator. As it is undisputed
that the issue of the plaintiff’s standing was submitted
to the arbitrator and that the arbitrator found that the
plaintiff had standing to prosecute the claims . . . it
would be inappropriate for the court to interfere with
this determination.’’3 (Citations omitted; internal quota-
tion marks omitted.)
It is undisputed that the submission to arbitration
was voluntary and unrestricted. However, ‘‘[t]he long-
standing principles governing consensual arbitration
are . . . subject to certain exceptions. Although we
have traditionally afforded considerable deference to
the decisions of arbitrators, we have also conducted a
more searching review of arbitral awards in certain
circumstances. In Garrity v. McCaskey, [223 Conn. 1,
6, 612 A.2d 742 (1992)], this court listed three recognized
grounds for vacating an award: (1) the award rules on
the constitutionality of a statute . . . (2) the award
violates clear public policy . . . or (3) the award con-
travenes one or more of the statutory proscriptions
of [General Statutes] § 52-418 (a).’’ (Internal quotation
marks omitted.) AFSCME, Council 4, Local 1565 v.
Dept. of Correction, 298 Conn. 824, 835, 6 A.3d 1142
(2010).
The question before us, therefore, is whether the
award falls within the public policy exception to the
general rule of deference to an arbitrator’s award made
pursuant to an unrestricted submission. ‘‘The public
policy exception applies only when the award is clearly
illegal or clearly violative of a strong public policy. . . .
A challenge that an award is in contravention of public
policy is premised on the fact that the parties cannot
expect an arbitration award approving conduct which
is illegal or contrary to public policy to receive judicial
endorsement any more than parties can expect a court
to enforce such a contract between them. . . . When
a challenge to the arbitrator’s authority is made on
public policy grounds, however, the court is not con-
cerned with the correctness of the arbitrator’s decision
but with the lawfulness of enforcing the award. . . .
Accordingly, the public policy exception to arbitral
authority should be narrowly construed and . . . is
limited to situations where the contract as interpreted
would violate some explicit public policy that is well
defined and dominant, and is to be ascertained by refer-
ence to the laws and legal precedents and not from
general considerations of supposed public interests.
. . . The party challenging the award bears the burden
of proving that illegality or conflict with public policy
is clearly demonstrated. . . . Therefore, given the nar-
row scope of the public policy limitation on arbitral
authority, the [defendant] can prevail in the present
case only if it demonstrates that the [arbitrator’s] award
clearly violates an established public policy mandate.’’
(Citations omitted; internal quotation marks omitted.)
South Windsor v. South Windsor Police Union Local
1480, Council 15, 255 Conn. 800, 815–16, 770 A.2d 14
(2001).
The defendant does not sufficiently demonstrate that
there is an explicit, well-defined and dominant public
policy that was violated in this case. Rather, she sets
forth a jurisdictional claim, arguing that ‘‘[a] member
may not sue in an individual capacity to recover for an
injury the basis of which is a wrong to the limited
liability company.’’ (Internal quotation marks omitted.)
Although she mentions in her brief an underlying public
policy justification for such rule, she does not articulate
that policy or analyze how it has been violated. She
simply concludes that ‘‘[i]f the plaintiff would not have
been allowed to bring her claims in a court due to lack
of standing, this court should not enforce an arbitration
award that suffers from the very same fatal defect.’’
This bald assertion does not satisfy her ‘‘burden of
proving that illegality or conflict with public policy is
clearly demonstrated.’’ South Windsor v. South Wind-
sor Police Union Local 1480, Council 15, supra, 255
Conn. 816. We therefore conclude that the court prop-
erly denied the motion to dismiss the award.4
II
The defendant also claims that the court erred in
confirming the arbitration award, which was rendered
on September 28, 2012. She argues that the award is
not enforceable because it was issued beyond the thirty
day time limit set forth in § 52-416. We disagree.
The following additional facts and procedural history
are necessary for our review. After the association
appointed Sharp as arbitrator, the parties scheduled a
hearing and began to arbitrate the dispute. The last day
of evidence was June 7, 2012, and briefs were ordered
to be filed by July 20, 2012. Though a hearing generally
closes when the briefs are filed, Sharp indicated in the
arbitration award that he did not close the hearing until
August 31, 2012. The hearing was held open by Sharp
until the end of August in order to gather a complete
and adequate record. As stated in the arbitration award,
‘‘[d]uring evidence being presented to the [arbitrator,
the defendant] was asked if there were any contingent
liabilities obligating [Equinox]. The answer was none.
Thereafter, counsel for [the defendant] corrected that
answer and first brought to the attention of [the plain-
tiff] and the arbitrator the draft audit of Medicaid claims
by the State of Connecticut Department of Social Ser-
vices [(department)] which claims were paid to the
company during the period of July 1, 2008, through June
30, 2010. The audit disallowed claims of $2,231,708.76.
[The defendant’s] response was that the disallowance
amount will be reduced substantially and, until it
becomes final, is not an obligation. Thereafter, [the
defendant’s] attorney stated that any sale of a member-
ship interest would have to take into account a ‘substan-
tial amount of the [department] audit.’ ’’
Because the defendant’s and her attorney’s response
were inconsistent, Sharp informed the parties on July
18, 2012, that he was requesting additional evidence
regarding the pending department audit from Mariella
LaRosa, counsel representing Equinox. Despite Sharp’s
efforts to speak with her, LaRosa refused to testify at the
arbitration hearing, citing the attorney-client privilege.
Although Sharp acknowledged LaRosa’s position, he
sent an e-mail to the parties clarifying that ‘‘[h]is inquir-
ies will be of a general nature regarding the pending
[department audit].’’ He also disagreed that an attorney-
client privilege was at issue, so he informed the parties
that if a privilege existed, it could be waived. The plain-
tiff thereafter waived her right to any attorney-client
privilege, but the defendant refused to do so.
In his further attempt to gather a complete record,
Sharp sent yet another e-mail to the parties on July
26, 2012, stating that he was ‘‘not seeking additional
testimony,’’ but only that he needed ‘‘to become more
comfortable with the audit and to clear up statements
made by the [defendant] and then later by [the defen-
dant’s] counsel, both of which are diametrically
opposed to each.’’ In the award, Sharp stated that the
department audit would have a significant effect on the
value of a membership interest or on a dissolution and
liquidation of Equinox. He therefore needed the results
of the audit in order to render an award that accurately
reflected the value of Equinox. Thus, when he was
‘‘informed that a [department] response to its draft audit
was anticipated by the end of August, 2012,’’ he held the
arbitration hearing open until that date. He thereafter
confirmed with the parties that ‘‘the hearing in [this]
matter was completed on August 31, 2012, and declared
closed by the arbitrator on that date. . . . [T]he arbitra-
tor shall have [thirty] days from that date, or until Octo-
ber 1, 2012, to render the [a]ward.’’ Sharp then issued
the arbitration award on September 28, 2012.
The defendant claims that Sharp failed to render the
arbitration award within the thirty day time limit set
forth in § 52-416 and provided for under the rules of
the association. She argues that the hearings were com-
plete on July 20, 2012, the date the parties’ briefs were
due. The defendant thus concludes that the arbitration
award, rendered on September 28, 2012, is not enforce-
able because it was issued more than thirty days after
the hearings were completed. The plaintiff, in contrast,
asserts that Sharp appropriately extended the period
within which he was required to issue an award. He
made it clear to the parties that he was holding the
hearing open until he received the results of the depart-
ment audit, which were necessary for him to render a
decision. The plaintiff further argues that Sharp could
have rendered the award earlier had the defendant
waived her right to an attorney-client privilege. Because
she refused to do so, the plaintiff argues that the defen-
dant should not benefit from the informational delay
she caused.
We first set forth the applicable statutes and rules
that govern this case. Section 52-416 addresses the time
within which an award must be rendered. Subsection
(a) of § 52-416 provides: ‘‘If the time within which an
award is rendered has not been fixed in the arbitration
agreement, the arbitrator or arbitrators or umpire shall
render the award within thirty days from the date the
hearing or hearings are completed, or, if the parties
are to submit additional material after the hearing or
hearings, thirty days from the date fixed by the arbitra-
tor or arbitrators or umpire for the receipt of the mate-
rial. An award made after that time shall have no legal
effect unless the parties expressly extend the time in
which the award may be made by an extension or ratifi-
cation in writing.’’
In addition, the parties’ operating agreement provides
that any disputes would be submitted to arbitration
in accordance with the rules of the association. The
relevant rules are as follows. Rule 41 provides that
‘‘[t]he award shall be made promptly by the arbitrator
and, unless otherwise agreed by the parties or specified
by law, no later than [thirty] days from the date of
closing the hearing, or, if oral hearings have been
waived, from the date of the [association’s] transmittal
of the final statements and proofs to the arbitrator.’’
Rule 32, however, states in relevant part: ‘‘ If the parties
agree or the arbitrator directs that documents or other
evidence be submitted to the arbitrator after the hear-
ing, the documents or other evidence shall be filed with
the [association] for transmission to the arbitrator.’’
(Emphasis added.) Last, rule 35 provides in relevant
part: ‘‘The arbitrator shall specifically inquire of all par-
ties whether they have any further proofs to offer or
witnesses to be heard. Upon receiving negative replies
or if satisfied that the record is complete, the arbitrator
shall declare the hearing closed. If briefs are to be filed,
the hearing shall be declared closed as of the final
date set by the arbitrator for the receipt of briefs. If
documents are to be filed as provided in [rule 32] and
the date set for their receipt is later than that set for
the receipt of briefs, the later date shall be the closing
date of the hearing. The time limit within which the
arbitrator is required to make the award shall com-
mence, in the absence of other agreements by the par-
ties, upon the closing of the hearing.’’
Section 52-416 and the association’s rules applicable
in the present case permitted Sharp to extend the date
the hearing closed. Rule 32 of the association specifi-
cally states that the arbitrator must be satisfied that
the record is complete before closing the hearing and,
if not, the arbitrator may request additional documenta-
tion necessary for his decision. Because of the pending
department audit, which concerned a multimillion dol-
lar claim against the parties, Sharp was not satisfied that
the record was complete at the close of the evidence in
June or when the briefs were due in July. He therefore
requested additional information. After failed attempts
to gather such information from LaRosa, Sharp deter-
mined that he would have to wait for the audit results
to be released. Like the court, we conclude that ‘‘it was
reasonable and certainly necessary for the arbitrator
to receive the audit results in order for him to have full
information in order to render a decision’’ because the
audit results would ‘‘have a substantial effect on the
ultimate value of [Equinox] and any potential decision
by the arbitrator, which included ordering a purchase
and sale by the parties.’’ Pursuant to rule 32, then, Sharp
acted within his authority when he held the hearing
open until August 31, 2012.
Because Sharp needed additional documentation
before he could make his decision, the hearing did not
close until August 31, 2012. Rule 35 provides that if ‘‘the
date set for . . . receipt [of the documents referenced
in rule 32] is later than that set for the receipt of briefs,
the later date shall be the closing date of the hearing.’’
This rule requires the information the arbitrator
requested to be received before the hearing is closed.
The audit results were to be complete by August 31,
2012, the same date Sharp closed the hearing. He there-
fore appropriately closed the hearing when the docu-
ments referenced in rule 32 were received. In addition,
Sharp made clear to the parties through repeated
e-mails that he was waiting for the results of the depart-
ment audit before he would close the hearing.5
Rule 41 of the association and § 52-416 both provide
that the arbitrator shall render an award within thirty
days from the date the hearings are closed. Because
Sharp held the hearing open until August 31, 2012, he
had until October 1, 2012, to render the award. He
therefore complied with all applicable rules and time
limitations when he issued the award on September
28, 2012. Thus, we conclude that the court properly
confirmed the arbitration award.
The judgment is affirmed.
In this opinion the other judges concurred.
1
Equinox Home Care, LLC, was also named as a defendant. For ease of
reference, we refer only to Foreman as the defendant.
2
Neither party objects to the arbitrator’s statement or to the court’s finding
that the arbitration submission was unrestricted.
3
The court went on to address the merits of the defendant’s motion to
dismiss, addressing whether the plaintiff had standing to bring claims in
her individual capacity. Its discussion on this issue, however, is simply
advisory. The court properly applied the standard set forth for unrestricted
submissions in arbitration, and therefore it was not required to review the
merits of the defendant’s claim.
4
Even if the defendant were able to prove a conflict with public policy,
she would not prevail on the merits. The trial court specifically found that
‘‘even were the plaintiff to lack standing to assert other claims [under General
Statutes § 34-187 (b)], the plaintiff had standing to pursue [the sale and
dissolution of Equinox], as the operating agreement explicitly allows a mem-
ber to seek the dissolution of the company in arbitration.’’ We concur with
that conclusion.
5
Neither the plaintiff nor the defendant objected when Sharp requested
additional documentation or extended the hearing’s closing date. The defen-
dant objected after she believed the thirty day time period had lapsed, but
did not do so at the time Sharp informed the parties he was holding the
hearing open until August 31, 2012.