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Adams v. Barr

Supreme Court of Vermont

February 2, 2018

Lesley Adams, William Adams and Adams Construction VT, LLC
Russell D. Barr and Barr & Associates, P.C. d/b/a Barr Law Group

         On Appeal from Superior Court, Lamoille Unit, Civil Division

          Thomas Z. Carlson, J. Richard Cassidy of Rich Cassidy Law, South Burlington, and Michael Palmer, Middlebury, for Plaintiffs-Appellants.

          Chandler W. Matson, Stowe, for Defendants-Appellees.

          PRESENT: Reiber, C.J., Robinson, Eaton and Carroll, JJ., and Wesley, Supr. J. (Ret.), Specially Assigned

          ROBINSON, J.

         ¶ 1. The critical question in this case is whether a party who participates extensively and without objection in an arbitration proceeding for nearly seven months prior to the actual arbitration hearing waives an objection to the validity of the arbitration agreement. Lesley Adams, William Adams, and Adams Construction VT, LLC (collectively Adams Construction) appeal the trial court's denial of their application to vacate an arbitration award in favor of Russell Barr and the Barr Law Group (collectively Barr Law Group) and against Adams Construction. Because we conclude that Adams Construction waived its challenge to the validity of the arbitration agreement, we affirm.

         ¶ 2. The procedural history of this case is not disputed.[1] On February 24, 2016, Barr Law Group filed a demand for arbitration against Adams Construction with the American Arbitration Association claiming that Adams Construction had failed to pay Barr Law Group more than $40, 000 in fees for legal services. On March 8, 2016, Adams Construction filed an answer denying all claims and counterclaimed for $97, 000, alleging various breaches by Barr Law Group. Both parties actively participated in the arbitrator selection process, submitting their objections and preferred arbitrators. Both parties participated in preliminary conferences. Barr Law Group requested a one-day hearing for its claims on the merits; Adams Construction requested three. The arbitrator scheduled the matter for a three-day hearing.

         ¶ 3. Over the next five months, the parties engaged in reciprocal discovery and motions practice. Adams Construction served over thirty discovery requests on Barr Law Group, and responded to sixty discovery requests from Barr Law Group, followed by at least two sets of supplemental responses to a substantial number of questions. Barr Law Group served its own discovery requests on Adams Construction and responded to Adams Construction's requests. In addition, Adams Construction conducted an in-person inspection of records held by Barr Law Group at the Barr Law Group offices. Both parties filed motions and responses relating to discovery disputes and Barr Law Group's multiple requests to dismiss Adams Construction's counterclaims for lack of evidence. And they both participated in at least one telephonic case management conference during which the arbitrator ruled on various pending discovery and procedural matters.

         ¶ 4. On October 4, 2016, one week before the beginning of the scheduled three-day hearing, Adams Construction filed an objection to arbitration and a motion to dismiss the arbitration proceeding. Adams Construction argued, for the first time, that the arbitration provision in Adams Construction's fee agreement with Barr Law Group was unenforceable. Adams Construction cited legal authority from Vermont and across the country suggesting that an attorney's fiduciary duty and ethical obligations require that the lawyer take certain steps to ensure that a client's consent to a pre-dispute, binding arbitration agreement is fully informed. These steps may include fully disclosing the risks of binding, pre-dispute arbitration clauses, identifying the legal rights a client forgoes in signing such an agreement, and giving the client a chance to consult with independent counsel before signing the agreement. Adams Construction alleged that nobody from Barr Law Group explained the legal implications of the arbitration agreement to Mr. or Ms. Adams before or after they signed it, or advised them to get independent legal advice before signing the fee agreement.[2] Nor did Barr Law Group explain to Adams Construction that the Vermont Bar Association provides a free arbitration service for resolution of attorney-client fee disputes. For these reasons, Adams Construction contended that the arbitration agreement was invalid and sought dismissal of the arbitration proceeding.

         ¶ 5. With respect to the delay in raising the issue, Adams Construction, which had no counsel of record through the arbitration proceeding, indicated that it only learned of this legal basis for objecting to the arbitration shortly before it made the objection.

         ¶ 6. The arbitrator denied Adams Construction's motion at the beginning of the hearing. After several days of hearings, in a January 2017 order, the arbitrator awarded Barr Law Group the full measure of fees that it sought, plus interest; dismissed all of Adams Construction's counterclaims, which the arbitrator found to be unsupported by the evidence; and ordered Adams Construction to pay half of Barr Law Group's legal fees on the ground that Adams Construction pursued its counterclaims in bad faith.

         ¶ 7. In February 2017, Adams Construction filed a timely application in the superior court to vacate the arbitration award, reiterating its argument that the pre-dispute arbitration clause that gave rise to the arbitration proceeding was invalid and unenforceable because Barr Law Group violated its fiduciary and ethical duties in securing the agreement, and fraudulently induced Adams Construction's agreement. In its opposition to the application, the Barr Law Group reviewed the course of the arbitration proceedings, attached copies of arbitration pleadings, and argued that by actively participating in the arbitration proceedings for many months, and pursuing its counterclaims, Adams Construction waived any objection to the arbitration proceedings. The trial court agreed, concluding that Adams Construction's active participation in the arbitration proceeding for months before their last-minute objection, and then continuing through four days of hearings, constituted a waiver of Adams Construction's challenges to the validity of the arbitration agreement.

         ¶ 8. On appeal, Adams Construction focuses much of its argument on the merits, and its argument that because Barr Law Group induced Adams Construction to enter into the fee agreement with a pre-dispute, mandatory arbitration provision fraudulently and in violation of its fiduciary and ethical duties, the arbitration provision is unenforceable. With respect to the waiver question, Adams Construction relies on the language of the Vermont Arbitration Act, as well as policy considerations. Specifically, Adams Construction emphasizes that Vermont's Arbitration Act allows a court to vacate an arbitration award where there was no actual arbitration agreement if "the party did not participate in the arbitration hearing without raising the objection." 12 V.S.A. § 5677(a)(5). Pursuant to Vermont's statute, Adams Construction argues that as long as a party raises an objection to the validity of the arbitration agreement before the arbitration hearing, the objection is preserved, and that a contrary rule would be inconsistent with the statutory language, vague, and difficult to apply. We review the legal question of whether a court may conclude that a party has waived an objection to the enforceability of an arbitration agreement if the party makes the objection before the arbitration hearing without deference to the trial court. Garbitelli v. Town of Brookfield, 2011 VT 122, ¶ 5, 191 Vt. 76, 38 A.3d 1133.

         ¶ 9. Our analysis of the waiver issue turns on the language of the Vermont Arbitration Act, this Court's established caselaw involving waiver of objections to arbitration, and persuasive authority from other jurisdictions. Although we acknowledge that these sources send mixed signals, we conclude that on facts such as these-where a party files counterclaims, chooses an arbitrator, engages in extensive reciprocal discovery over a period of five months, participates in several prehearing conferences, makes a specific request as to the amount of time needed for the hearing, and engages in motion practice-that party may be deemed to have ...

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