Beacon Towers Condominium Trust v. Alex , 473 Mass. 472 ( 2016 )

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SJC-11880
BEACON TOWERS CONDOMINIUM TRUST vs. GEORGE ALEX.
Suffolk. October 5, 2015. - January 7, 2016.
Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, &
Hines, JJ.
Arbitration, Attorney's fees.
Civil action commenced in the Superior Court Department on
November 14, 2013.
The case was heard by Frances A. McIntyre, J.
The Supreme Judicial Court on its own initiative
transferred the case from the Appeals Court.
J. Mark Dickison (Ryan A. Ciporkin with him) for the
defendant.
Mark A. Rosen for the plaintiff.
GANTS, C.J. Under G. L. c. 251, § 10, attorney's fees may
not be awarded in arbitration proceedings "[u]nless otherwise
provided in the agreement to arbitrate." The issue presented in
this case is whether an arbitration panel applying the
commercial arbitration rules of the American Arbitration
2
Association (AAA rules), having found that the arbitration
agreement did not authorize an award of attorney's fees,
nonetheless may award attorney's fees based on its finding that
"substantially all of the defenses were wholly insubstantial,
frivolous and not advanced in good faith." The appellant,
George Alex, contends that the arbitration panel may award
attorney's fees in these circumstances for either of two
1
reasons: first, because AAA rule 47(a) authorizes an
arbitrator to "grant any remedy or relief that the arbitrator
deems just and equitable and within the scope of the agreement
of the parties"; or second, because AAA rule 47(d)(ii) provides
that an arbitrator may award attorney's fees if "it is
authorized by law," and the award of attorney's fees in these
circumstances is authorized by G. L. c. 231, § 6F. We conclude
that an arbitrator lacks the authority to award attorney's fees
based on a finding that all the claims or defenses were wholly
insubstantial, frivolous, and not advanced in good faith unless
the parties have agreed that an arbitrator may award attorney's
fees in these circumstances. We therefore affirm the Superior
Court judge's order vacating the arbitration panel's award of
attorney's fees.
1
In October, 2013, following the arbitration of this
matter, the commercial arbitration rules of the American
Arbitration Association (AAA rules) were amended. At that time,
AAA rule 43 was renumbered as AAA rule 47. To avoid confusion,
we shall refer to the AAA rules as currently numbered.
3
Background. The appellee, Beacon Towers Condominium Trust
(trust), is the unit owners' organization for the Beacon Towers
Condominium (condominium), an entity created pursuant to G. L.
c. 183A, § 17. The condominium is comprised of three adjacent
buildings in the Back Bay section of Boston, with the addresses
of 479, 481, and 483 Beacon Street. The board of trustees for
the trust (trustees) is the governing body of the trust,
responsible for operating, maintaining, and managing the common
areas and facilities of the condominium and the business of the
trust. Alex was the owner of two units -- one at 479 Beacon
Street and one at 481 Beacon Street.
In 2010, there was a major electrical fire at 483 Beacon
Street that caused substantial damage throughout the building,
rendering it uninhabitable. The other two buildings were not
affected. Under G. L. c. 183A, § 17, and the trust's bylaw, the
trustees were obligated to certify whether the fire damage
exceeded ten per cent of the value of the condominium prior to
undertaking any rebuilding. If the damage exceeded ten per cent
of the condominium's value, the trustees were required under
§ 17 to submit their restoration plan to a vote and obtain the
approval of seventy-five per cent of the unit owners before
proceeding with the repairs.
The trustees undertook the repairs without certifying that
the fire damage was less than ten per cent of the value of the
4
condominium and without obtaining the approval of seventy-five
per cent of the unit owners, and charged each unit owner his or
her share of the costs in a special common expense assessment.
The trustees assessed Alex $62,995 for the two units that he
owned. Alex paid the assessment under protest.
The trust's bylaw requires that disputes regarding any
determination or action of the trustees be submitted to
arbitration. Alex commenced an arbitration action challenging
the propriety of the trustees' conduct regarding the fire damage
repairs and the imposition of the assessment. After a two-day
arbitration, the arbitration panel found that the fire damage to
the common areas and facilities exceeded ten per cent of the
value of the condominium, and that the trustees committed a
breach of their obligations under G. L. c. 183A, § 17, and the
bylaw by restoring the common areas and facilities without a
vote of the unit owners. A majority of the panel declared that
the special assessment against Alex was void and awarded him
restitution of the amount he had already paid in special
assessments. A majority of the panel also awarded Alex
attorney's fees in the amount of $48,750.2 The majority
recognized that "[t]he arbitration agreement here does not
2
One member of the arbitration panel dissented from that
part of the arbitration decision that ruled that the special
assessment was void and that George Alex should be awarded
restitution and attorney's fees.
5
provide for an award of fees," but reasoned that AAA rule
47(d)(ii) allows an award of fees where "authorized by law" and
that G. L. c. 231, § 6F, authorizes an award of reasonable
attorney's fees where, as the majority determined in this case,
substantially all of the defenses were wholly insubstantial,
frivolous, and not advanced in good faith.
The trust filed suit in the Superior Court, claiming that
the arbitrators' award of attorney's fees exceeded the scope of
the parties' arbitration agreement, and therefore was barred by
G. L. c. 251, § 10. A judge vacated the award of attorney's
fees, concluding that such an award is not authorized by G. L.
c. 231, § 6F, when ordered by an arbitrator because § 6F does
not authorize an arbitrator to award attorney's fees.3 Alex now
appeals from that order. We transferred the case from the
Appeals Court on our own motion.
Discussion. "[A]n arbitration award is subject to a narrow
scope of review." Superadio Ltd. Partnership v. Winstar Radio
Prods., LLC, 446 Mass. 330, 333 (2006) (Superadio). We do not
review an arbitration award for errors of law or errors of fact.
See Plymouth-Carver Regional Sch. Dist. v. J. Farmer & Co., 407
Mass. 1006, 1007 (1990); Concerned Minority Educators of
3
Beacon Towers Condominium Trust (trust) also challenged
the arbitrators' award of restitution to Alex. The Superior
Court judge affirmed that award, and the trust has not filed a
cross appeal challenging that part of the judge's decision.
6
Worcester v. School Comm. of Worcester, 392 Mass. 184, 187
(1984). As set forth in G. L. c. 251, § 12, we review an
arbitration award only to determine whether it "was procured by
corruption, fraud or other undue means," whether the arbitrator
was evidently partial, or whether the arbitrator exceeded the
scope of his or her authority. Superadio, supra at 334, quoting
G. L. c. 251, § 12. "An arbitrator exceeds his authority by
granting relief beyond the scope of the arbitration agreement
. . . by awarding relief beyond that to which the parties bound
themselves . . . or by awarding relief prohibited by law."
Superadio, supra, quoting Plymouth-Carver Regional Sch. Dist.,
supra. The trust here contends that the arbitrators exceeded
the scope of their authority for each of these reasons.
As a general rule, we have interpreted G. L. c. 251, § 10,
to prohibit the award of attorney's fees in arbitration
proceedings unless the parties have entered into an agreement
authorizing the award of such fees. See Floors, Inc. v. B.G.
Danis of New England, Inc., 380 Mass. 91, 91-92 (1980).4
However, we have previously recognized two circumstances where
an arbitrator may award monetary sanctions such as attorney's
4
General Laws c. 251, § 10, states, "Unless otherwise
provided in the agreement to arbitrate, the arbitrators'
expenses and fees, together with other expenses, not including
counsel fees, incurred in the conduct of the arbitration, shall
be paid as provided in the award."
7
fees despite the broad prohibition contained in G. L. c. 251,
§ 10.
First, an arbitrator may award attorney's fees where a
party prevails on a statutory claim in which the statute
mandates the recovery of attorney's fees by the prevailing
party. See Drywall Sys., Inc. v. ZVI Constr. Co., 435 Mass.
664, 673 (2002) ("We conclude that the directive that a
prevailing party be awarded attorney's fees under G. L. c. 93A,
§ 11, applies to arbitration awards of claims under § 11 despite
the normal unavailability of attorney's fees in arbitration").
In such a situation, the statutory requirement that attorney's
fees be recovered "overrides the effect of G. L. c. 251, § 10."
Id.
Second, in Superadio, 446 Mass. at 338-339, we held that
where the parties agreed that their arbitration shall be
governed by the AAA rules, an arbitrator could award monetary
sanctions to a party for discovery violations and noncompliance
with discovery orders. We reasoned that AAA rule 235 authorized
an arbitrator to direct the production of documents and other
information, and "to resolve any disputes concerning the
5
Our opinion in Superadio Ltd. Partnership v. Winstar Radio
Prods., LLC, 446 Mass. 330 (2006) (Superadio), referred to
certain language then in AAA rule 23. Language regarding the
arbitrator's authority to direct the production of documents and
other information is now found in AAA rules 22, 23, and 44 and
is substantially similar to the language referred to in
Superadio.
8
exchange of information." Id. at 338. We concluded that the
authority to award such sanctions for discovery violations and
noncompliance with discovery orders was implicit in the
authority granted to an arbitrator under this rule because "[t]o
give arbitrators control over discovery and discovery disputes
without the authority to impose monetary sanctions for discovery
violations and noncompliance with appropriate discovery orders,
would impede the arbitrators' ability to adjudicate claims
effectively in the manner contemplated by the arbitration
process." Id. at 339.
Alex contends that his award of attorney's fees may stand
because the parties "otherwise agree[d]" to award counsel fees
by incorporating the AAA rules, including AAA rule 47(a), which
allows the arbitrator to "grant any remedy or relief that the
arbitrator deems just and equitable and within the scope of the
agreement of the parties," and AAA rule 47(d)(ii), which permits
an award of counsel fees where "authorized by law."
We begin by addressing Alex's argument that AAA rule 47(a)
authorizes the award of attorney's fees where the arbitration
panel found that substantially all of the trust's defenses were
wholly insubstantial, frivolous, and not advanced in good faith.
Alex claims that, in awarding fees based on this finding, the
arbitration panel was granting relief that it deemed "just and
equitable," as permitted under AAA rule 47(a).
9
There are two flaws in this argument. First, AAA rule
47(a) contains two requirements for the granting of "any remedy
or relief": the remedy or relief must be "just and equitable,"
and it must be within the scope of the arbitration agreement.
Alex overlooks the second requirement, as he points to no
provision of the parties' agreement that authorizes the award of
attorney's fees. Indeed, the arbitration panel determined, and
we agree, that the trust's bylaw contains no such provision.
In addressing this same argument, and likewise finding no
agreement among the parties to award attorney's fees, the court
in Asturiana De Zinc Mktg., Inc. v. LaSalle Rolling Mills, Inc.,
20 F. Supp. 2d 670, 675 (S.D.N.Y. 1998), quoting Matter of
Arbitration Between Prudential-Bache Sec., Inc., & Depew, 814 F.
Supp. 1081, 1083 (M.D. Fla. 1993) (Prudential-Bache), reasoned
that "[t]he reference in the parties' agreement to arbitration
before the AAA is . . . not a sufficient contractual basis for
an award of fees, because although AAA [rule 47(a)] allows
arbitrators to grant 'any remedy or relief that the arbitrator
deems just and equitable and within the scope of the agreement
of the parties,' this [r]ule merely 'refers back to the parties'
contract and limits the scope of the arbitrator['s] authority to
the contract's express terms.'" See Prudential-Bache, supra at
1084 (under AAA rule 47[a], arbitrators may award attorney's
10
fees only where contract "includes an express authorization"
[emphasis in original]).
Second, if AAA rule 47(a) were interpreted to permit an
arbitrator to award attorney's fees whenever it is "just and
equitable," no matter whether the parties agreed to such an
award, the effect would be to render superfluous AAA rule
47(d)(ii), the more specific AAA rule governing the award of
attorney's fees. AAA rule 47(d)(ii) states, "The award of the
arbitrator(s) may include . . . an award of attorney's fees if
all parties have requested such an award or it is authorized by
law or their arbitration agreement." An AAA rule, like a
statute or regulation, must "be 'construed so that effect is
given to all its provisions, so that no part will be inoperative
or superfluous.'" Wolfe v. Gormally, 440 Mass. 699, 704 (2004),
quoting Bankers Life & Cas. Co. v. Commissioner of Ins., 427
Mass. 136, 140 (1998). Cf. Biogen IDEC MA, Inc. v. Treasurer &
Receiver Gen., 454 Mass. 174, 190 (2009) ("Principles governing
statutory construction and application also apply to
regulations"). Moreover, as with statutes and regulations,
general language in the AAA rules "must yield to that which is
more specific." See Silva v. Rent-A-Center, Inc., 454 Mass.
667, 671 (2009), quoting TBI, Inc. v. Board of Health of N.
Andover, 431 Mass. 9, 18 (2000). Under the AAA rules, rule
47(a) is the general rule setting forth the permissible scope of
11
an arbitration award. AAA rule 47(d)(ii) is the specific rule
governing when an award may include attorney's fees.
Alex contends that, just as we recognized an arbitrator's
authority in Superadio to award monetary sanctions for discovery
violations and noncompliance with discovery orders, so should we
recognize an arbitrator's authority to award attorney's fees
where it is just and equitable because the defense was not made
in good faith. The key difference, however, lies in the AAA
rules concerning the specific sanctions at issue: the version
of rule 23 at issue in Superadio, governing discovery, broadly
authorized the arbitrator "to resolve any disputes concerning
the exchange of information," whereas rule 47(d)(ii) expressly
limits the availability of attorney's fees in arbitration
awards, allowing fees only where they are requested by the
parties or authorized by law or agreement. In Superadio, 446
Mass. at 338-339, we emphasized the broad authority conferred by
AAA rules 23 and 47(a),6 reasoning that
"[n]oteworthy in these rules is the absence of any language
limiting the means by which an arbitrator or arbitration
panel may resolve discovery disputes, or language
restricting the application of the broad remedial relief
of [AAA] rule [47](a) to final awards (and precluding the
grant of broad remedial relief to interim awards). The
rules, construed together, and supported by the broad
arbitration provision in the agreement and the absence of
any limiting language prohibiting a monetary sanction for
6
Our opinion in Superadio, 446 Mass. 330, referred to
certain language then in AAA rule 45 that is now found in rule
47. See note 1, supra.
12
discovery violations, authorized the panel to resolve
discovery dispute[s] by imposing monetary sanctions."
AAA rule 47(d)(ii), in contrast, includes precisely such
limiting language. We cannot therefore import the reasoning of
Superadio to this case, where a specific AAA rule exists
restricting the availability of attorney's fees. Such reasoning
would undermine the statutory purpose of G. L. c. 251, § 10,
which is to prohibit arbitrators from awarding attorney's fees
unless the parties expressly agree otherwise. We shall not
infer such an agreement merely from the parties' agreement to
AAA rule 47(a), when the parties also agreed to AAA rule
47(d)(ii), which expressly limits when attorney's fees may be
awarded. To do so would invite the risk that the parties
unwittingly allowed the arbitrator to award attorney's fees.
Where the parties have incorporated the AAA rules into their
arbitration agreement, AAA rule 47(d)(ii) exclusively governs
the scope of authority for awards of attorney's fees.
We now turn to Alex's argument that the arbitrators' award
of attorney's fees was authorized by AAA rule 47(d)(ii) because
it was "authorized by law," specifically G. L. c. 231, § 6F,
which allows a "court" to award attorney's fees where
"substantially all of the defenses . . . were wholly
insubstantial, frivolous and not advanced in good faith."
Section 6F is the statutory codification of the bad faith
13
exception, recognized at common law, to the "American Rule" that
counsel fees are not among the costs awarded to a successful
litigant. See Wong v. Luu, 472 Mass. 208, 215 (2015); Preferred
Mut. Ins. Co. v. Gamache, 426 Mass. 93, 95 (1997).
An arbitrator, however, is not a "court" that may award
attorney's fees under § 6F. General Laws c. 231, § 6E, supplies
the definitions that apply to § 6F, and it defines "court" as
"the supreme judicial court, the appeals court, the superior
court, the land court, any probate court and any housing court,
and any judge or justice thereof." The Legislature's omission
of the District Court and Boston Municipal Court suggests its
intention to restrict the applicability of § 6F to proceedings
in the specific courts that are enumerated. See Tilman v.
Brink, 74 Mass. App. Ct. 845, 852-854 (2009) (District Court
cannot award attorney's fees under § 6F because it is not
included in statutory definition of "court" under § 6E). See
also Monahan Corp. N.V. v. Whitty, 319 F. Supp. 2d 227, 231 (D.
Mass. 2004) (when Legislature limited application of § 6F to
specific courts, it "said what it meant and meant what it
said").
Our review of the legislative history shows that the
omission of the Boston Municipal Court and the District Court
from the statutory definition of "court" in § 6E was not a
legislative oversight, but the result of a deliberate
14
legislative act. The original version of the bill that
eventually was enacted as § 6E originated in the House, and
provided that the word "'Court' shall include the Supreme
Judicial Court, the Appeals Court, the Superior Court, the Land
Court, the Municipal Court of the City of Boston and any Probate
Court, District Court and Housing Court, and any judge or
justice thereof." 1976 House Doc. No. 1315. The Senate then
amended the bill by, among other things, removing "the Municipal
Court of the City of Boston" and "the District Court" from the
definition of "court." See 1976 House J. 2733. The House
concurred in the Senate amendments, and this version of the bill
was then adopted and signed by the Governor, enacting G. L.
c. 231, §§ 6E-6G. 1976 House J. 2733. See St. 1976, c. 233,
§ 1. The removal of two of the trial court departments from the
definition of "court" demonstrates the Legislature's intention
to limit the applicability of § 6F to cases in only some trial
court departments. Where the word "court" was not even meant to
include all courts, it would be absurd for us to interpret the
term even more broadly to include arbitrators.
Nor was it irrational for the Legislature to exclude
arbitrators from the definition of "court" under § 6E and
thereby, in the absence of agreement, deprive arbitrators of the
authority to award attorney's fees where substantially all of
the claims or defenses "were wholly insubstantial, frivolous and
15
not advanced in good faith." If the Legislature had granted
arbitrators this authority, they potentially could exercise it
without restraint, because an arbitrator's finding that
substantially all of a party's claims or defenses "were wholly
insubstantial, frivolous and not advanced in good faith" is a
composite finding of fact and law that, absent fraud, is not
subject to review by a court. See Plymouth-Carver Regional Sch.
Dist., 407 Mass. at 1007.
Conclusion. The judgment of the Superior Court vacating
the arbitrators' award of attorney's fees is affirmed.
So ordered.