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Beware of the Arbitration Clause in Maryland Tort Cases

Many savvy corporations and other entities in Maryland are slyly slipping in arbitration clauses in agreements between parties. Many times these arbitration clauses force victims of personal injury to forgo their right to a jury trial and and undergo binding arbitration. Many times consumers do not even realize what they have agreed to because the arbitration clause is buried in the fine print of a document or contract.

History of Arbitration in Maryland:

In 1973, the Maryland Legislature adopted the Maryland Uniform Arbitration Act (hereinafter, “MUAA”). See MD. CODE ANN. CRTS. & JUD. PROC. §§ 3-201, et seq. (West 2010). Arbitration is the process whereby parties voluntarily agree to substitute a private tribunal (e.g. the arbitrators) for the public tribunal (e.g. the courts) otherwise available to them. Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 103, 468 A.2d 91, 95 (1983). Parties may agree to arbitrate disputes pursuant to a contract between them, commonly known as an Arbitration Agreement. Id.

Matters which fall within the scope of an Arbitration Clause are subject to the procedures for arbitration set out in the agreement between the parties and the MUAA. “Where there is a broad arbitration clause, calling for the arbitration of any and all disputes arising out of the contract, all issues are arbitrable unless expressly and specifically excluded by the agreement.” Id. at 104. When the language of the agreement is ambiguous or unclear as to whether a matter falls within the scope of the Arbitration Clause, the Court of Appeals of Maryland has held that the initial determination of whether a matter is arbitrable or not, should be left to the arbitrator and not the courts. See id. at 105 (“Question of substantive arbitrability initially should be left to the decision of the arbitrator, not the courts.”).

When a dispute arises between the parties to an Arbitration Agreement, a party may be compelled by the Courts to submit the matter to arbitration if it falls within the scope of the Arbitration Clause. See MD. CODE ANN. CRTS. & JUD. PROC. § 3-207; see also Bel Pre Med. Ctr., Inc. v. Frederick Contractors, Inc., 21 Md. App. 307, 321, 320 A.2d 558, 566 (1974). The scope and application of an Arbitration Clause is decided on a case-by-case basis, and the determination of whether a particular claim falls within the scope of the clause turns on the factual allegations encompassed in the complaint, rather than the legal causes of action asserted. See The Redemptorists v. Coulthard Services, Inc., 145 Md. App. 116, 150-51, 801 A.2d 1104, 1124-25 (Md. Ct. Spec. App. 2002).

Once a party files a Petition to Order Arbitration under § 3-207(a), the sole issue for the court is whether there is “an agreement to arbitrate the subject matter of a particular dispute” between the parties. Gold Coast, 298 Md. at 104, 468 A.2d at 95; see also MD. CODE ANN. CRTS. & JUD. PROC. § 3-207. However a party cannot be compelled to submit matters to arbitration which do not fall within the scope of the Arbitration Clause, as they have not previously agreed to do so under the agreement. See Gold Coast, 298 Md. at 103, 468 A.2d at 95. “Arbitration is ‘consensual; a creature of contract. As such, only those who consent are bound. . . . In the absence of an express arbitration agreement, no party may be compelled to submit to arbitration in contravention of its right to legal process.” The Redemptorists v. Coulthard Services, Inc., 145 Md. App. 116, 134, 801 A.2d 1104, 1115 (2002) (quoting Hartford Accident & Indemn. Co. v. Scarlett Harbor Assocs. Ltd. P’ship, 346 Md. 122, 127, 695 A.2d 153 (1997)).

When a Complaint contains both causes of action which do and do not fall within the scope of an Arbitration Clause, the litigation of matters which are not themselves subject to Arbitration, may be stayed by the court pending the outcome of the arbitratable claims, when the outcome of arbitration may “ultimately foreclose” the remaining non-arbitratable claims. See The Redemptorists, 145 Md. App. at 125, 801 A.2d at 1109; see also Md. Code Ann. Crts & Jud Proc. § 3-209. The reason for the stay of non-arbitratable claims is the res judicata effect which the outcome of the arbitratable claims may potentially have. See The Redemptorists, 145 Md. App. at 125, 801 A.2d at 1109.

In The Redemptorists, a contract was entered into between The Redemptorists, owners and operators of cemeteries located in Maryland, and Coulthard Services, Inc. (“CSI”), regarding the terms of cemetery service provided by CSI to The Redemptorists. Id. Pursuant to the contract, the agreement between the parties could be terminated “for cause” by the Redemptorists. Id. The contract further provided for an Arbitration Clause, which stated, “[i]n the event CSI disputes the cause associated with any such discharge [of the agreement], then the parties agree to submit such dispute to binding arbitration in Baltimore, Maryland, pursuant to the provisions of the [MUAA].” Id. at 128, 801 A.2d at 1111.

Subsequently, The Redemptorists filed a Complaint against CSI alleging breach of contract and conversion, and named individually as defendants, Thomas Coulthard and Lee Dorman, two of CSI’s principals, alleging, among other things, fraud, constructive fraud, fraudulent conveyance and unjust enrichment. Id. at 129, 801 A.2d at 1111. CSI and Coulthard filed a Petition to Order Arbitration, asserting that the arbitration provision in the contract covered all of The Redemptorists’ claims against them, which the Circuit Court granted, ordering arbitration of all claims against those defendants. Id. at 130, 801 A.2d at 1112. The Redemptorists appealed the Circuit Court’s decision, arguing that the trial court erred in granting Coulthard’s petition to order arbitration of the claims against him since Coulthard, as an individual, was not a party to the contract between CSI and The Redemptorists which contained the arbitration provision. Id. at 134, 801 A.2d at 1114.

The Court of Special Appeals of Maryland (hereinafter, “CSA”) held that “the trial court erred in granting Coulthard’s petition to compel arbitration of The Redemptorists’ claims against him, because there was no agreement between The Redemptorists and Coulthard to arbitrate, only an agreement between The Redemptorists and CSI.” Id. at 135, 801 A.2d at 1115; see also Curtis G. Testerman Co. v. Buck, 340 Md. 569, 579-80, 667 A.2d 649 (1995)(holding the trial court erred in forcing president of contracting company to arbitrate homeowners’ claims against him individually when he was not party to contract between homeowners and company that contained arbitration provision). The CSA further held that “[o]n remand, the court should consider whether a stay of The Redemptorists’ claims against Coulthard, pending arbitration with CSI, is appropriate.” Id. (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 20 n. 23, 103 S.Ct. 927, 939 n. 23, 74 L.Ed.2d 765 (1983)(“In some cases, . . . it may be advisable to stay litigation among the non-arbitrating parties pending the outcome of the arbitration.”)

The CSA went on to discuss and dissect the individual counts which were brought against CSI and whether they fell within the narrow arbitration clause. See id. at 152-57, 801 A.2d at 1125-27. The CSA ordered that all issues, which were arbitratable, proceed to arbitration pursuant to the agreement and stay the remaining non-arbitratable issues pending resolution of arbitration, as the arbitration decision may “ultimately foreclose” the remaining claims. See id. at 157, 801 A.2d at 1127. Therefore, any non-arbitratable issues which relate to, and may be “ultimately foreclosed” by the outcome of the arbitration, may be stayed by the court. However, if the issue that is subject to arbitration is severable, the court may order the stay with respect to only those issues. See Md. Code Ann. Crts. & Jud. Proc. § 3-209(b).

For more information on the enforcement and litigation of Maryland Arbitration Agreements, please contact us for a complimentary consultation.