207 A.3d 265
N.J. Super. Ct. App. Div.2019Background
- Medford Township School District (District) contracted with Schneider Electric under a Performance Assurance Support Services Agreement (PASS) and later an Energy Services Construction Contract (ESCC) to implement an energy savings improvement program (ESIP).
- PASS Agreement (preexisting) contained a governing-law/venue clause requiring disputes be resolved in courts serving the county where services were performed; PASS also stated its terms control where conflicts exist with later ESCC terms.
- The District issued an RFP that required the successful bidder to litigate any disputes in Burlington County Superior Court; the RFP preceded the ESCC.
- The ESCC (later contract) contained a dispute-resolution clause stating disputes "may be settled by binding arbitration" under AAA rules and that arbitration location shall be the county where the project is located; ESCC also contains a merger clause.
- Schneider completed work, claimed payment; District withheld substantial funds and sued for defective work. Schneider demanded arbitration under the ESCC; District sought and obtained an injunction dismissing the arbitration.
- The trial court found the ESCC arbitration clause permissive (use of "may") and, read together with the mandatory court-forum provisions in the RFP and PASS Agreement, concluded the District was not bound to arbitrate; Appellate Division affirmed.
Issues
| Issue | Plaintiff's Argument (District) | Defendant's Argument (Schneider) | Held |
|---|---|---|---|
| Whether the ESCC arbitration clause requires arbitration | ESCC uses permissive "may" and, read with RFP/PASS mandatory forum clauses, does not waive right to litigate; arbitration optional | The clause permits either party to invoke arbitration; once Schneider invoked arbitration, District should be compelled to arbitrate | Held: Arbitration clause is permissive; District not compelled to arbitrate absent clear mutual intent to waive court forum |
| Whether extrinsic evidence (RFP, PASS) may be considered despite ESCC merger clause | RFP and PASS govern ESIP and show parties intended litigation; extrinsic evidence may illuminate integrated agreements | Schneider argued merger clause bars parol evidence; ESCC terms control | Held: Extrinsic evidence admissible to interpret agreement; merger clause does not bar consideration of surrounding circumstances when contracts conflict |
| Whether public policy favoring arbitration mandates broader construction of clause | Court should read arbitration clauses liberally but cannot force arbitration without mutual assent | Schneider relied on strong policy favoring arbitration and parties’ sophistication to justify enforced arbitration | Held: Policy favors arbitration but courts require clear mutual assent; permissive language plus prior mandatory forum clauses preclude compelled arbitration |
| How to resolve ambiguous contract language drafted by Schneider | District argued ambiguity should be construed against drafter | Schneider argued clause sufficient and should be enforced | Held: Any ambiguity construed against Schneider (drafter); supports permissive interpretation |
Key Cases Cited
- Kernahan v. Home Warranty Admin. of Fla., Inc., 236 N.J. 301 (discusses that arbitration is enforceable only where parties intended to arbitrate)
- Atalese v. U.S. Legal Servs. Grp., LP, 219 N.J. 430 (requires clear mutual assent for arbitration clauses that waive judicial remedies)
- Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124 (waiver of statutory judicial rights must be clear and unmistakable)
- Riverside Chiropractic Grp. v. Mercury Ins. Co., 404 N.J. Super. 228 ("may" language can be permissive; an insurer could be bound only if clause allows either party to demand arbitration)
- Local 771, I.A.T.S.E. v. RKO Gen., Inc., 546 F.2d 1107 (contract language allowing submission to arbitration can be construed to make arbitration mandatory when either party may demand it)