ENTRY ORDER


Bandler
and Bandler & Co., Inc. n/k/a MB & CO., Ltd.
v. Charter One Bank n/k/a Citizens Bank
 
2012 VT 83
 
[Filed 05-Oct-2012
 
NOTICE:  This opinion is
subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports. 
Readers are requested to notify the Reporter of Decisions by email at:
JUD.Reporter@state.vt.us or by mail at: Vermont Supreme Court, 109 State
Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections
may be made before this opinion goes to press.
 
 

2012 VT 83

 

No. 2011-249

 

Michael Bandler
  and Michael Bandler and Company, Inc. n/k/a MB
  & CO., Ltd.


Supreme Court


 


 


 


On Appeal from


     v.


Superior Court, Rutland Unit,


 


Civil Division


 


 


Charter One Bank n/k/a Citizens
  Bank


March Term, 2012


 


 


 


 


William
  D. Cohen, J.


 

Andrew D. Manitsky of Gravel and
Shea PC, Burlington, for Plaintiffs-Appellants.
 
Tavian M. Mayer of Mayer & Mayer, South Royalton, for Defendant-Appellee.
 
 
PRESENT:  Reiber, C.J.,
Dooley, Skoglund, Burgess and Robinson, JJ.
 
 
¶ 1.            
ROBINSON, J.   This case presents the question of
whether the superior court has authority to review questions regarding arbitrability in the midst of an
arbitration, and outside of the specific review provisions in the
Vermont Arbitration Act (VAA).  We conclude that it does not, and reverse
the superior court’s ruling concerning the arbitrability
of class claims in this case.
¶ 2.            
In July 2003, Michael Bandler and Michael Bandler & Company, Inc., (collectively “Bandler”) sued Charter One in Rutland Superior Court for
various claims based primarily on Charter One’s alleged failure to honor
advertising promises and other representations in connection with Bandler’s checking account at Charter One.[1]  Charter One
moved to dismiss the case on the ground that Bandler
had failed to exhaust his contractual remedy of arbitration before the American
Arbitration Association (AAA) as required by Bandler’s
depositor agreements with Charter One.  The trial court granted Charter
One’s motion to dismiss and indicated that the parties should arbitrate Bandler’s claims as agreed by contract.  The trial
court issued a final judgment in favor of Charter One in November 2003, and
subsequently denied Bandler’s post-judgment motions
for relief.
¶ 3.            
In November 2004, Bandler made a demand to
Charter One to arbitrate under the arbitration clauses in his depositor
agreement with Charter One, thereby initiating an arbitration proceeding before
the AAA.  Bandler’s initial arbitration demand
did not include any class-based claims.  
¶ 4.            
In September 2005, Bandler filed with the AAA
a motion to amend the arbitration demand to include a class-action demand; in
particular, he sought to include within the arbitration the claims of all
persons who opened “free checking” or other specified accounts with Charter One
and subsequently incurred various charges.  Bandler
supported his motion with a lengthy brief arguing that the arbitration clause
in the agreement between him and Charter One was silent as to the availability
of class arbitration, and that he was entitled to a construction of the clause
that permitted class arbitration.  Charter One opposed the motion, and
filed a brief of its own arguing that the clause did not permit class
arbitration.  
¶ 5.            
In September 2006, the arbitrator issued an order entitled “Class
Action, Clause Construction Partial, Final Arbitration Award,” (clause
construction award) in which he concluded that the arbitration clause in Bandler’s agreement with Charter One “permits the
arbitration to proceed on behalf of a class within the meaning of Section 3 of
the American Arbitration Association’s Supplementary Rules for Class
Arbitrations.”  The arbitrator concluded that the arbitration clause in
question “does not expressly forbid and, in fact, is wholly consistent with class
arbitration,” and construed any ambiguity in a manner permitting class
arbitrations.  The arbitrator drew liberally from a 2003 case in which the
United States Supreme Court considered whether an arbitration agreement, silent
as to class arbitration, permitted class arbitration.  See
Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444
(2003).  Upon issuing the order, pursuant to Rule 3 of the American
Arbitration Association’s Supplementary Rules for Class Arbitrations (as
effective Oct. 8, 2003), the arbitrator notified the parties that he was
staying the matter for thirty days from the date of the award “to permit the
parties to move a court of competent jurisdiction to confirm or vacate the
Clause Construction Award.”  Neither party went to court
to confirm or vacate the clause construction award, and the parties
proceeded with the arbitration process.[2]
¶ 6.            
In June 2009, the United States Supreme Court granted certiorari in a
Second Circuit case addressing whether class arbitration is available under the
Federal Arbitration Act where an arbitration agreement is silent concerning
class arbitration.  Stolt-Nielsen SA v. AnimalFeeds
Int’l Corp., 548 F.3d 85 (2d Cir. 2008), cert. granted, 129 S. Ct.
2793 (2009).  Charter One moved to stay the AAA
proceeding on the ground that the Supreme Court’s decision to grant certiorari
in Stolt-Nielsen called into question the viability of Green Tree
Financial, upon which the arbitrator had relied in the clause construction
award.  Over Bandler’s opposition, the
arbitrator granted the stay “in the interest of cost efficiency since the
outcome of Stolt-Nielsen could well have a significant impact on the
future conduct of this arbitration.”
¶ 7.            
The Supreme Court’s decision in Stolt-Nielsen, issued in April
2010, potentially affected the analysis of the arbitrability
of the class claims in this case.  See 130 S. Ct. 1758 (2010).  The
majority in Stolt-Nielsen emphasized that although a majority in Green
Tree Financial agreed on the disposition of that case, no single legal
proposition supporting that result enjoyed the support of a majority of the
justices.  Id. at 1772.  In Stolt-Nielsen,
a majority of the justices did support several legal propositions.  First,
“a party may not be compelled under the FAA to submit to class arbitration
unless there is a contractual basis for concluding that the party agreed
to do so.”  Id. at 1775.  Second, 
 
An implicit agreement to authorize class-action arbitration . . . is not a term
that the arbitrator may infer solely from the fact of the parties’ agreement to
arbitrate.  This is so because class-action arbitration changes the nature
of arbitration to such a degree that it cannot be presumed the parties
consented to it by simply agreeing to submit their disputes to an arbitrator.
 
 
Id.  The Court
concluded that “the differences between bilateral and class-action arbitration
are too great for arbitrators to presume, consistent with their limited powers
under the FAA, that the parties’ mere silence on the issue of class-action
arbitration constitutes consent to resolve their disputes in class
proceedings.”  Id. at 1776.
  The Court stopped short, however, of addressing the question of
what contractual basis might support a finding that the parties agreed to
authorize class-action arbitration, since in Stolt-Nielsen the parties
had stipulated that there had been “no agreement” on the issue of class-action
arbitration.  Id. at 1776 n.10.
¶ 8.            
 Even though the arbitrator had specifically stayed the arbitration
to allow for consideration of the Supreme Court’s anticipated ruling in Stolt-Nielsen,
following the Court’s decision, Charter One did not return to the arbitrator to
request reconsideration of its clause construction award in light of Stolt-Nielsen. 
Instead, it filed a motion to dismiss in Rutland Superior Court in May 2010
under the caption of the case the court had previously dismissed.  Charter
One argued that the arbitrator had, in 2006, improperly considered the question
of class arbitration in the first place, and had wrongly concluded, on the
ground that the arbitration clause did not expressly prohibit class
arbitration, that class arbitration could proceed. 
¶ 9.            
In response to Charter One’s filing, Bandler’s
counsel wrote the Rutland Superior Court clerk to request that the court take
no action on the motion.  Bandler argued that
the court had entered a final judgment dismissing Bandler’s
original lawsuit, that the AAA had ongoing jurisdiction over the case, and that
there was no actual matter pending before the Rutland Superior Court.  The
court set the matter for hearing, and Bandler’s
counsel entered a limited appearance for the purpose of participating in the proceedings
concerning the motion to dismiss, but without prejudice to Bandler’s
position that there was no active case pending in the Rutland Superior Court
for which a notice of appearance could be entered, nor for which relief could
be granted.
¶ 10.         At
the hearing, Bandler reiterated his position that the
court did not have authority to revive a long-closed court docket in the midst
of the ongoing arbitration for the purpose of revisiting the arbitrator’s
clause construction award.  He specifically argued that neither party had
moved to vacate or affirm the clause construction award when it was initially
issued, that the arbitrator had stayed the arbitration proceedings pending the
Supreme Court’s ruling in Stolt-Nielsen at the behest of Charter One,
and that the superior court had no basis at that juncture for stripping the AAA
of its jurisdiction over the case.  
¶ 11.         The
trial court granted Charter One’s motion to dismiss the clause construction
award and vacated that ruling by the arbitrator.  Its opinion focused on
analysis of the impact of Stolt-Nielsen on the question of the arbitrability of class-action claims in this case. 
With respect to the threshold question of its authority to step into the matter
at that stage, the court concluded that, just as the Supreme Court in Stolt-Nielsen
had reviewed a clause construction award following the arbitrator’s ruling, it
could do the same in this case.  The court acknowledged that the VAA
requires that a motion to vacate an award be made within thirty days after the
award, but indicated that the parties had not specifically raised and had
therefore waived any argument on that basis.  Having vacated the
arbitrator’s award allowing Bandler the opportunity
to pursue class-based arbitration, the court directed the parties to proceed
with their bilateral arbitration with the AAA.  Bandler
appealed.  
¶ 12.         On
appeal, Bandler argues that the clause construction
award does not qualify as an “award” subject to judicial review under the VAA
and that if it were subject to a motion to vacate, Charter One failed to file
such a motion within thirty days of the award.  Charter One argues that it
is not seeking to vacate an “award,” but is raising a general challenge to the
arbitrator’s jurisdiction.  Both parties make arguments about the impact
of Stolt-Nielsen on the arbitrability of the
class claims in this case.  
¶ 13.         Before
considering the impact, if any, of Stolt-Nielsen, we must first consider
the threshold question: Did the trial court properly assert authority to
dismiss the clause construction award in response to Charter One’s May 2010
motion?  
¶ 14.         The
VAA sets forth the circumstances under which Vermont courts are authorized to
take action with respect to matters subject to arbitration.  In
particular, a court may issue orders to compel or stay arbitration; to appoint
arbitrators and enforce subpoenas; to direct arbitrators to proceed with
proceedings or to make an award; to confirm, vacate or modify an award; and to
enter judgment on an award.  12 V.S.A. § 5671. 
Except under a narrow set of circumstances not applicable here, a party seeking
judicial intervention to vacate an arbitral award must file with the court a
motion to vacate within thirty days of delivery of the arbitration award. 
Id. § 5677(c).  The statutory grounds for
vacating an arbitration award include, among other bases, the arbitrators
exceeding their authority and the absence of an agreement to arbitrate.  Id.
§ 5677(a)(3), (5).[3]
¶ 15.         Charter
One disavows any reliance on this provision of the VAA in connection with its
request that the trial court dismiss the arbitrator’s clause construction
award.  Because it filed its motion with the court more than three years
after the arbitrator’s award concerning the arbitrability
of the class claims, a motion to vacate pursuant to § 5677 would have fallen
well outside of the thirty day window § 5677 provides for vacatur
motions, assuming for the sake of argument that a clause construction award is
subject to a motion to vacate.  See, e.g., La. Health
Serv. Indem. Co. v. Gambro A B, 756
F. Supp. 2d 760, 765 (W.D. La. 2010) (following Stolt-Nielsen decision,
trial court was powerless to hear party’s objection to arbitration panel’s pre-Stolt-Nielsen
clause construction award allowing class arbitration proceedings because party
had failed to file motion to vacate clause construction award within ninety day
period prescribed by Federal Arbitration Act); West Cnty.
Motor Co. v. Talley, No. 4:10CV01698 AGF, 2011 WL 4478826, at *3 (E.D. Mo.
Sept. 27, 2011) (same).[4] 

¶ 16.         Charter
One does not identify any alternate statutory hook in the VAA to support its
motion to the superior court.  Instead, it argues that it did not seek
to vacate an award at all; rather, it sought to raise before the court a
challenge to the arbitrator’s “subject-matter jurisdiction.”  Charter One
argues that the superior court has continuing jurisdiction over pending
arbitrations, and therefore has continuing legal authority to entertain motions
challenging the arbitrator’s rulings concerning arbitrability. 
The question presented, then, is whether the superior court had unfettered
authority to, at any time, consider and rule on the arbitrability
of class claims arising in the arbitration between Bandler
and Charter One independent of the statutory provisions for judicial review in
the VAA. 
¶ 17.         We
have previously rejected such a suggestion.  In Springfield Teachers Ass’n v. Springfield School Directors, a school board
raised various affirmative defenses to a teachers association’s motion to
confirm an arbitration award in the association’s favor.  167 Vt. 180, 187, 705 A.2d 541, 545 (1997).  One of the
school board’s defenses was based on its claim that the subject of the
arbitrator’s ruling was not arbitrable.  Lack of
arbitrability—whether articulated as a claim that an
arbitrator exceeded his or her authority or as a claim that the parties did not
ever agree to arbitrate a particular matter—is a basis for vacating an
arbitration award pursuant to § 5677, and the school board had failed to
file a motion to vacate within the thirty-day time period prescribed in
§ 5677(c).  The board argued that the time limit for seeking to
vacate the arbitrator’s decision did not apply to its claim that the arbitrator
exceeded her jurisdiction because a challenge to the arbitrator’s underlying
jurisdiction can be raised at any time.
¶ 18.         We disagreed. 
Noting that some of the listed grounds to vacate arbitration awards that were
expressly subject to the statutory time limit in § 5677(c) could be fairly
characterized as jurisdictional, we could not construe the statute to exempt
such jurisdictional challenges from the statutory time limit.  Id.
at 189, 705 A.2d at 547 (citing Schroud v.
Van C. Argiris & Co., 398 N.E.2d 103, 105-06
(Ill. App. Ct. 1979)).  In addition, we turned to an analogous case in
which we held that a party could not raise for the first time in this Court a
challenge to the Environmental Board’s jurisdiction in an Act 250 case. Id.
at 189-90, 705 A.2d at 547 (citing In re Denio,
158 Vt. 230, 234, 608 A.2d 1166, 1168 (1992)).   In Denio, we had noted the lack of any statutory authority
for special treatment of jurisdictional claims, and had concluded that the
omission was significant “because for an administrative board of limited
jurisdiction virtually any disagreement with its actions can be phrased in
jurisdictional terms.”  158 Vt. at 234, 608 A.2d at 1169. 
In Springfield Teachers Ass’n we concluded
that many of the same considerations discussed in Denio
apply in the context of arbitration.  In particular, “[m]any of the
challenges to an arbitration award can be characterized as
jurisdictional.”  167 Vt. at 190, 705 A.2d at 547. 
We concluded that “[t]he usefulness of arbitration is
undermined if issues can be withheld from the arbitrator and raised for the
first time in court long after the arbitration is over.”  Id. 

¶ 19.         Other
courts have reached the same conclusion analyzing both the statutory language
and the underlying purposes of similar arbitration statutes.  See, e.g., New
Med. Horizons II, Ltd. v. Jacobson, 317 S.W.3d 421, 429-31 (Tex. App. 2010)
(rejecting argument that decision of arbitrator that exceeds scope of
arbitration agreement is void and unenforceable even if aggrieved party fails
to timely file motion to vacate pursuant to Texas General Arbitration Act, and
noting that contrary view would undermine the benefits of arbitration as “an
efficient, economical system for resolving disputes” (quotation omitted)); see
also Choice Hotels Int’l Inc. v. Shiv Hospitality,
L.L.C., 491 F.3d 171, 176-78 (4th Cir. 2007) (affirming district court’s
confirmation of arbitration award despite party’s claim that arbitrator lacked
authority to issue the award where party had failed to timely move to vacate
arbitrator’s award pursuant to Federal Arbitration Act);  MBNA Am.
Bank, N.A. v. Hart, 710 N.W.2d 125, 129 (N.D. 2006) (pursuant to North
Dakota Arbitration Act, trial court properly refused to consider objection to
motion to confirm arbitration order based on claim that there was no valid
arbitration agreement where objector had failed to timely move to vacate the arbitrator’s
order); Local 589, Amalgamated Transit Union v. Mass. Bay Transp. Auth.,
491 N.E.2d 1053, 1055-57 (Mass. 1986) (rejecting claim that challenges to
arbitrator’s jurisdiction may be made at any time, and are not limited by the
time limit for motions to vacate an arbitrator’s decision, and recognizing that
a contrary rule would undermine the goal of reasonably promptly imbuing the
arbitration award with finality).  
¶ 20.         The
specific procedural postures of these various cases are different from this
one: the cases cited above involved challenges to arbitrators’ authority raised
in response to attempts to confirm or enforce arbitrators’ awards, and this
case involves a freestanding motion to the superior court to dismiss a claim
found arbitrable by the arbitrator.  However,
the reasoning underlying our decision in Springfield Teachers Ass’n, as well as the persuasive analysis of other
jurisdictions that have considered the issue, applies with equal force in this
context.  Vermont courts may consider the authority conferred on an
arbitrator by an enforceable arbitration agreement in the ways provided by the
VAA.  We do not recognize any separate, free-floating judicial authority
to intervene in arbitration matters for the purpose of reviewing an
arbitrator’s assertion of “jurisdiction” apart from the specific authority
outlined in that law.
¶ 21.         The
cases relied upon by Charter One do not support its position.  First,
Charter One cites an unpublished three-justice opinion in which we held that a
trial-court order compelling arbitration is not immediately appealable pursuant
to the VAA.  Brown v. Citation Mobile Homes, No.
2002-303, 2002 WL 34422297 (Vt. Dec. 19, 2002) (unpub.
mem.),
http://www.vermontjudiciary.org/d-upeo/upeo.aspx.  The analysis in
that opinion reinforces our holding today.  Although the Court
acknowledged that a civil action is stayed if a motion to compel arbitration
has been made, and that the trial court retains jurisdiction over the case
through the arbitration, the opinion specifically ties the trial court’s
ongoing authority during arbitration to the matters expressly enumerated in the
VAA.  Id. at *2.  In addition, even
though the appellants in that case challenged the arbitrator’s authority, we
declined to entertain the appeal; we followed the letter and spirit of the VAA
and directed the appellants to litigate their claims, including their
challenges to the arbitrator’s jurisdiction, before the arbitrator, noting that
they could seek appellate review of the arbitrator’s decision following the
arbitrator’s award.  Nothing in the Brown opinion suggests that
courts are authorized to consider challenges to an arbitrator’s jurisdiction at
any time; if anything, the opinion reinforces the notion that the VAA
determines the time and manner of courts’ review of challenges to an
arbitrator’s jurisdiction.
¶ 22.         Likewise,
Lamell Lumber Corp. v. Newstress
International, Inc. does not support the proposition that the superior
court may intervene to rule on the scope of an arbitrator’s jurisdiction at any
time during an arbitration.  2007
VT 83, 182 Vt. 282, 938 A.2d 1215.  In April 2003, Lamell Lumber sued Newstress on
the basis of alleged defects in a kiln designed and constructed for Lamell Lumber by Newstress. 
In its answer, Newstress listed among its affirmative
defenses the arbitration clause in the agreement between the parties. 
However, Newstress took no further action to enforce
the arbitration clause, and actively participated in discovery and court
proceedings.  In July 2005, a month before the jury draw, and over two
years after Lamell Lumber filed suit, Newstress filed a motion for summary judgment arguing that
the arbitration agreement deprived the court of its jurisdiction.  The
trial court ruled that it did retain its jurisdiction notwithstanding the
arbitration clause, and that Newstress had waived its
right to enforce the agreement to arbitrate.  We affirmed, explaining that
an arbitration agreement is a creature of contract, and as such may be
waived by a party.  2007 VT 83, ¶ 9. 
Nothing in Lamell supports Charter One’s
suggestion that a trial court has authority to rule on the arbitrator’s
jurisdiction at any time, notwithstanding the clear framework of the VAA. 
¶ 23.         For
the above reasons we conclude that the trial court improperly considered the
merits of Charter One’s motion to dismiss without any statutory basis in the
VAA to warrant the court’s intervention at that time.[5]
Reversed and remanded, and
the superior court is directed to dismiss Charter One’s motion to dismiss.
 
 

 


 


FOR THE COURT:


 


 


 


 


 


 


 


 


 


 


 


Associate
  Justice

 





[1] 
The arbitrator subsequently dismissed Michael Bandler’s
individual claim and later substituted MB & Co., Ltd. for Michael Bandler & Co., Inc.  We use the identifier “Bandler” to identify any and all of these entities without
distinction among them, and from now on refer to Bandler’s
claims and agreements with Charter One in the singular.  
 


[2] 
The AAA Rules for Class Arbitration include two provisions allowing for
interlocutory judicial review of an arbitrator’s decisions concerning class
arbitration.  Rule 3 provides for a stay of proceedings after the clause
construction award to allow parties to file motions in court to confirm or
vacate.  If an arbitrator concludes that a dispute is subject to class arbitration,
the arbitrator must then determine whether class arbitration is appropriate
based on a set of standards similar to those in Federal Rule of Civil Procedure
23 concerning class-action proceedings in court, which includes an additional
requirement that all members of the proposed class have signed substantially
similar arbitration agreements.  Supplementary Rules for Class
Arbitration, Rule 4.  Like Rule 3, Rule 5 provides for a stay of
arbitration proceedings for at least thirty days after the “class determination
award” to allow for motions to confirm or vacate the award in court.


[3] 
We do not consider the potential impact, if any, of the FAA on the specific
issue before us.  Neither party invoked the FAA, the trial court relied
solely upon the VAA in analyzing this case, and the
framework for judicial involvement in matters subject to arbitration under the
FAA is similar to Vermont’s framework under the VAA.
 


[4] 
Charter One argues, and the trial court found, that Bandler
waived any claim that Charter One’s motion was untimely because Bandler failed to specifically cite the thirty day time
limit on motions to vacate in § 5677 before the trial court. 
However, Bandler consistently objected to Charter
One’s failure to identify any basis for invoking the trial court’s
authority in the midst of the arbitration proceeding.  Given that Charter
One never pointed to § 5677 as a potential source of the court’s
authority, and to this day maintains that it is not seeking to vacate
the arbitrator’s order pursuant to § 5677, Bandler
cannot be faulted for not specifically invoking the thirty day time limit
applicable to vacatur motions.  Plus, twice
during the hearing on Charter One’s motion, Bandler
did specifically argue that neither party had moved to vacate or affirm the
clause construction agreement when it was initially issued.  For
these reasons, we reject the suggestion that Bandler
waived the argument that Charter One cannot rely on § 5677 as a basis for
its appeal to the superior court because it failed to timely move to vacate the
arbitrator’s clause construction award. 


[5] 
Because we conclude that the arbitrator’s decision on the arbitrability
of class claims is not subject to judicial review during the pendency of the
arbitration under the VAA, we need not decide whether the U.S. Supreme Court’s
analysis in Stolt-Nielsen applies to the arbitrability
decision in this case, nor whether, if so, the analysis would lead to a
different outcome.
 



