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Benistar Employer Services Trust Co. v. Benincasa

Court of Appeals of Connecticut

April 23, 2019


          Argued December 10, 2018

         Procedural History

         Application to vacate an arbitration award, brought to the Superior Court in the judicial district of Hartford, where the defendants filed a motion to confirm the award; thereafter, the matter was tried to the court, Noble, J.; judgment denying the application to vacate and granting the motion to confirm, from which the plaintiffs appealed to this court. Affirmed.

          Daniel J. Krisch, with whom were Logan A. Car-ducci and, on the brief, Daniel P. Scapellati, for the appellants (plaintiffs).

          Mark J. Kallenbach, pro hac vice, with whom was Jerome Patger, for the appellees (defendants).

          Lavine, Alvord and Prescott, Js.


          LAVINE, J.

         The plaintiffs, Benistar Employer Services Trust Company (BESTCO) and Benistar Admin Services, Inc. (BASI), appeal from the judgment of the trial court denying their application to vacate and granting a motion to confirm an arbitration award in favor of the defendants, James J. Benincasa and Jody L. Benincasa. On appeal, the plaintiffs claim that the court improperly denied the application to vacate the arbitration award because the award was (1) not timely issued, (2) predicated on a manifest disregard of the law, (3) not mutual, final and definite, and (4) in violation of public policy. We disagree and affirm the judgment of the trial court.

         The following undisputed facts, as found by the trial court, and procedural history are relevant to this appeal. ‘‘The dispute which brought the parties to arbitration involved the purchase of two $16 million individual whole life insurance policies on the lives of the [defendants], who were the president and vice president, respectively, and sole owners of [Mortgages Unlimited, Inc. (MUI)], an S corporation. The policies were purchased by the Benistar 419 Plan and Trust (plan), a multiple employer welfare benefit plan. The funding for the purchase of the policies came from MUI's participation in, and contributions to, the plan. BESTCO was the plan sponsor, and BASI was the administrator of the plan. The Plan was designed to comply with Internal Revenue Code, 26 U.S.C. § 419A (f) (6). In its conception, the plan was to provide tax deductions to participating employers, such as MUI, for contributions paid by them to the plan's trust fund. The contributions, in turn, funded the premiums for preretirement life insurance policies for key employees under the plan. The Plan issued a certificate of coverage to the employer, MUI, listing the participants as the [defendants], each of whom was to receive $16 million in death benefits. In this case, MUI contributed [$700, 000] annually to fund the policies between 2001 and 2004, totaling $2.8 million. The contributions to the plans were, in fact, claimed as tax deductions by MUI.

         ‘‘In 2004, MUI transferred the benefits and life insurance policies from the plan to the Grist Mill Trust Welfare Benefit Plan out of concern that the plan would no longer support tax free contributions to the life insurance policies. Benistar 419 Plan Services, Inc., was the Grist Mill [Trust Welfare Benefit] Plan's sponsor and administrator. The [defendants], as participants, and MUI, as employer, shortly thereafter, terminated their participation in the Grist Mill Trust [Welfare Benefit Plan], and the [defendants] took possession of the policies in their own names. The [defendants] were charged $33, 546.90 for the surrender of the policies.

         ‘‘The Commissioner of Internal Revenue (commissioner) challenged the validity of the tax deductions and ultimately issued the [defendants] a notice of deficiency on their personal income taxes on the basis that the contributions to the plan were payments on their personal behalf and were not ordinary and necessary business expenses of their employer, MUI, under 26 U.S.C. § 162 (a). The commissioner also asserted that the distribution of the two life insurance policies resulted in taxable income to the [defendants], which they failed to report. In addition, the commissioner imposed underpayment penalties pursuant to 26 U.S.C. § 6662A. . . .

         ‘‘The [defendants] filed a claim for arbitration against the [plaintiffs][1] on November 29, 2007, asserting, among other theories of liability, breach of contract for their failure to provide a tax exempt vehicle to purchase the life insurance policies. The arbitration was sought in accordance with identical provisions found in the plan Administration Agreement and the Grist Mill Trust Welfare Benefit Plan Administration Fee Agreement, which provided in relevant part: ‘Any dispute or controversy arising under or in connection with this Agreement or with respect to the Employer's participation in the Plan shall be settled by Arbitration, conducted by a single arbitrator in New York City in accordance with the rules of the American Arbitration Association [(AAA)] then in effect. . . .' The [defendants] submitted, inter alia, breach of contract and fiduciary duty claims to arbitration.

         ‘‘Evidence in the arbitration was taken on March 5 and 6, 2013, [before Arbitrator Jeffrey G. Stein]. The arbitrator's award dated May 15, 2013, was transmitted to AAA on May 17, 2013. The award recited a prearbitration request by the [plaintiffs] to add a cross claim in the context of the pending arbitration submittal, which Stein had denied on the basis that the AAA rules required them to file a separate arbitration and then consolidate the cases. Stein declared in the award that ‘[o]n or about April 18, 2013 . . . the record was closed.' Substantively, Stein made the specific finding that the [plaintiffs] ‘breached their promises and obligations to [the defendants] in numerous ways.' Pertinently, this included a breach of the [plaintiffs'] ‘contractual fiduciary duties [by] failing to provide a compliant 26 U.S.C.§ 419A (f) (6) plan and, most specifically, by not determining the maximum amount of contributions that could be contributed. . . . [The plaintiffs] . . . failed to provide a tax free transfer of the policy out of the plan to the [defendants].' Stein awarded the [defendants] the following damages: (1) taxes, including 26 U.S.C. § 6662A taxes, as of the date of the award attributable to ‘the transfer of the [life insurance] polic[ies] as part of the exit strategy from the failed Plan'; (2) ‘the $33, 546.90 transfer fee' for the surrender of the policies; (3) the attorney's fees for ‘the legal defense of the [Internal Revenue Service (IRS)] assessment' . . . and (4) any state taxes assessed for the transfer of the policies. Because the amount of the federal and state taxes and penalties had not yet been determined, and no findings as to such were made by Stein, he retained jurisdiction to interpret and resolve any disputes concerning the award. The parties moved for clarification of the award. In the clarification, Stein explained that the [defendants] had ‘not [yet] settled with the IRS and, therefore, there [could be] no set amount of taxes and penalties that could be awarded.' Stein observed that his award detailed ‘each component of the ultimate settlement [the defendants] [would] reach with the IRS and which party is responsible for that component. [Stein] believe[d] that [the award was] specific and clear enough.' '' (Footnotes added and omitted.) Additional facts will be set forth as needed.

         Before reaching the plaintiffs' claims on appeal, we underscore that the policy behind arbitration compels a deferential standard of review of arbitration awards. ‘‘[T]he law in this state takes a strongly affirmative view of consensual arbitration. . . . Arbitration is a favored method to prevent litigation, promote tranquility and expedite the equitable settlement of disputes. . . . As a consequence of our approval of arbitral proceedings, our courts generally have deferred to the award that the arbitrator found to be appropriate. . . . The scope of review for arbitration awards is exceedingly narrow. . . . Additionally, every reasonable inference is to be made in favor of the arbitral award and of the arbitrator's decisions. . . .

         ‘‘Despite the wide berth given to arbitrators and their powers of dispute resolution, courts recognize three grounds for vacating arbitration awards. . . . As a routine matter, courts review de novo the question of whether any of those exceptions apply to a given award. . . . The first ground for vacating an award is when the arbitrator has ruled on the constitutionality of a statute. . . . The second acknowledged ground is when the award violates clear public policy. . . . Those grounds for vacatur are denominated as common-law grounds and are deemed to be independent sources of the power of judicial review. . . . The third recognized ground for vacating an arbitration award is that the award contravenes one or more of the statutory proscriptions of . . . [General Statutes] § 52-418. . . .

         ‘‘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 [ground] that . . . the interpretation of the agreement by the arbitrators was erroneous. Courts will not review the evidence nor, where the submission is unrestricted, [2]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. . . . Furthermore, in applying this general rule of deference to an arbitrator's award, [e]very reasonable presumption and intendment will be made in favor of the [arbitral] award and of the arbitrators' acts and proceedings.'' (Citations omitted; footnote altered; internal quotation marks omitted.) Board of Education v. Local R1-126, National Assn. of Government Employees, 108 Conn.App. 35, 39-41, 947 A.2d 371 (2008).


         The plaintiffs claim that the trial court improperly denied their application to vacate the arbitration award because the award was not timely issued. Specifically, the plaintiffs argue that the award was not made within thirty days from the close of the hearing and, thus, pursuant to General Statutes § 52-416 (a), the arbitration award has ‘‘no legal effect.'' We disagree.

         The standard of review for statutory interpretation is well settled. ‘‘When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature. . . . In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply. . . .

         ‘‘Moreover, [t]his court will not reverse the factual findings of the trial court unless they are clearly erroneous. . . . A finding of fact is clearly erroneous when there is no evidence in the record to support it . . . or when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. . . . In making this determination, every reasonable presumption must be given in favor of the trial court's ruling.'' (Citation omitted; internal quotation marks ...

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