692 A.2d 54 | N.J. Super. Ct. App. Div. | 1997
The opinion of the court was delivered by
This appeal requires us to consider the principles which govern the determination of whether a court or arbitrators should decide questions regarding the timeliness of a demand for arbitration or the satisfaction of other conditions of arbitration.
During the following months, the parties exchanged correspondence regarding the termination of the contracts. When the parties were unable to settle their dispute, DiMaria submitted a demand for arbitration on October 21,1994. Commerce then filed the first of the two actions involved in this appeal, seeking to enjoin the arbitration on the ground that DiMaria had failed to satisfy two conditions precedent to the right to arbitrate, namely, filing a claim within twenty-one days of the “occurrence” giving rise to its claim and obtaining a decision from the project architect. DiMaria responded by filing a motion to dismiss and a cross-motion for counsel fees. The trial court denied Commerce’s application to enjoin the arbitration and dismissed the counts of the complaint implicated in this appeal.
The arbitrators conducted hearings on twenty-two days over a six month period. Following the testimony of eleven witnesses and the introduction of more than 230 exhibits, the arbitrators rendered a decision, which concluded:
*13 A. It is the opinion of the Tribunal that this contract was ended in a wrongful manner by Commerce Bank, N.A., .... As a result of this wrongful dismissal the Contractor of record “Di Maria Construction, Inc.”, ... was harmed in a number of ways. Primarily they were placed in a position where other contracts were unavailable due to a lack of bonding ability and a lack of funds necessary to purchase material. Other harms were the loss of faith by subcontractors and material suppliers and the damage to the Corporate name relative to non-payment and suits against [Di Maria] by others related to this project.
B. This Tribunal has found that conditions precedent were not a factor in this case and therefore did not prevent the ease from proceeding to a decision.
Accordingly, the arbitrators awarded DiMaria $205,270 for the interior office and HVAC contracts, $49,650 “related to all other contractual topics” and $69,554.66 for counsel fees.
Following the award, Commerce filed its second action, which sought to vacate the arbitration award on the ground that it was the product of “fraud, corruption or similar wrongdoing,” and DiMaria filed a counterclaim seeking confirmation. The trial court rejected Commerce’s challenge and confirmed the arbitration award. The court also denied DiMaria’s application for counsel fees.
Commerce filed separate appeals from the dismissal of its actions seeking to enjoin the arbitration hearing and to vacate the arbitration award. DiMaria filed cross appeals from the denial of its claims for counsel fees. We consolidated the appeals.
I
On the appeal from the dismissal of its action seeking to enjoin arbitration, Commerce argues that the trial court erred in concluding that the arbitration clause in the contracts conferred responsibility upon the arbitrators to determine whether DiMaria satisfied the conditions precedent to arbitration.
However, once it is decided that the subject of a particular dispute is within the scope of an agreement to arbitrate, any question as to whether a party has satisfied the procedural preconditions of arbitration, such as the timeliness of a demand for arbitration, — sometimes referred to as a question of “procedural arbitrability,” Standard Motor Freight, Inc. v. Local Union No. 560 Int’l Bhd. of Teamsters, supra, 49 N.J. at 97, 228 A.2d 329—generally should be decided by arbitrators rather than a court.
We recognize that this court held in Moreira Constr. Co. v. Township of Wayne, 98 N.J.Super. 570, 238 A.2d 185 (App.Div.), certif. denied, 51 N.J. 467, 242 A.2d 15 (1968), that a trial court should decide whether a party demanded arbitration within the time required by the contract. However, the arbitration clause involved in Moreira conferred only limited powers upon the arbitrator; only one party to the contract could invoke arbitration and even that party’s right to arbitrate “rested on a carefully circumscribed set of conditions.” Id. at 576, 238 A.2d 185. We contrasted this narrow arbitration clause with “[cjlauses of that universality of coverage ... common in commercial agreements.” Ibid. Consequently, Moreira is consistent with our more recent decisions which hold that, absent an expression of a contrary
In its action to enjoin the arbitration, Commerce argued that DiMaria was barred from arbitrating any claim relating to the termination of the contracts because it did not file a claim with the project architect and failed to seek arbitration within twenty-one days of termination. Commerce relied upon section 4.3.2 of the contracts, which provides in pertinent part:
Claims, including those alleging an error or omission by the architect, shall be referred initially to the architect for action as provided in Paragraph 4.4. A decision by the architect, as provided in Subparagraph 4.4.4 shall be required as a condition precedent to arbitration ... of a claim between the contractor and owner.
Commerce also relied upon section 4.3.3, which provides:
Claims by either party must be made within twenty-one (21) days after occurrence of the event giving rise to such claim or within twenty-one (21) days after the claimant first recognizes the condition giving rise to the claim, whichever is later.
The contracts do not expressly indicate whether a dispute relating to a party’s compliance with sections 4.3.2 and 4.3.3 should be decided by a court or by arbitrators. Therefore, the arbitrability of such a dispute requires reference to the general arbitration clause of the contracts, which provides that:
Any Controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association.
Because the dispute as to whether DiMaria complied with sections 4.3.2 and 4.3.3 relates to procedural preconditions of arbitration, we must construe this arbitration clause in light of the presumption that parties to a contract providing for arbitration intend the arbitrators to decide such procedural questions. See PaineWebber, Inc. v. Elahi, supra, 87 F.3d at 598-99.
This conclusion is directly supported by Board of Library Trustees, Shaker Heights Pub. Library v. Ozanne Constr. Co., 100 Ohio App.3d 26, 651 N.E.2d 1356 (1995), which involved the same standard form construction contract entered into between Commerce and DiMaria. In Ozanne, the owner of a building refused to arbitrate a contractor’s claims on the ground that the contractor had failed to give the architect timely notice of those claims. However, the court characterized the arbitration clause of the contract, which was identical to the one involved in this case, as “extremely broad and unlimited as to the nature of disputes that are subject to arbitration.” Id. at 1358. In view of the strong presumption in favor of arbitrability, the court concluded that “[ijt cannot be said ‘with positive assurance’ that the disputes at issue ... did not ‘arise out of or ‘are not related to the Contract, or the breach thereof.’ ” Ibid. Similarly, the trial court correctly construed the general arbitration clause in the contracts between
II
On the appeal from the judgment confirming the arbitration award, Commerce argues that the award is “so outrageous” that it had to have resulted from “fraud, corruption or similar wrongdoing.” In particular, Commerce attacks the award of $69,554.66 for the counsel fees incurred in the proceedings and $49,650 for “all other contractual topics,” such as lost profits on other contracts DiMaria was unable to secure due to a loss of bonding capacity, lack of capital required to purchase materials and damage to its corporate name. Commerce also attacks the requirement that it pay 10% interest on the amount of the award until it is paid in full.
Even if Commerce’s attack upon the arbitration award would have been maintainable under prior New Jersey law, see Perini v. Create Bay Hotel & Casino, Inc., 129 N.J. 479, 496, 610 A.2d 364 (1992), it is clearly without merit under the standard of judicial review endorsed in Tretina Printing, Inc. v. Fitzpatrick & Assocs., Inc., supra, 135 N.J. at 349, 640 A.2d 788. In Tretina, the Court held, quoting Chief Justice Wilentz’ concurrence in Perini, that “[bjasically, arbitration awards may be vacated only for fraud, corruption, or similar wrongdoing on the part of the arbitrators.” Id. at 358, 640 A.2d 788. Chief Justice Wilentz’ concurrence clearly states that a court should confirm an arbitration award even though the award is not based on the principles of law which would be applied in the courts of New Jersey or any other jurisdiction:
The very purpose of committing a dispute to arbitration is to get away from the judiciary, to get away from the strictures and limitations of law, ...
*19 ll]f nothing is said in the agreement, the arbitrators may use any standards they want to reach a just and equitable result, unrestricted by any law or laws, required only to be honest and to attempt to the best of their ability, based on their knowledge and experience to achieve a just and equitable result.
[Perini v. Greate Bay Hotel & Casino, Inc., supra, 129 N.J. at 542-43, 610 A.2d 364.]
Commerce argues that the award of counsel fees was improper because it was contrary to “[t]he traditional American Rule ... that attorneys fees are not awardable to the winning party unless statutorily or contractually authorized.” Similarly, Commerce argues that the award for lost profits due to DiMaria’s loss of bonding capacity, lack of capital required to purchase materials, and damage to its corporate name, violated the rule of Hadley v. Baxendale, 9 Ex. 341, 145 Eng. Rep. 145 (1854) that damages for breach of a contract are limited to those losses which would have been reasonably foreseeable by the parties as a probable result of a breach.
However, under the Perini concurrence endorsed in Tretina, arbitrators have no obligation to follow the principles of law which would govern an action in a court of law. Instead, arbitrators may conclude that the only way to provide complete relief for a breach of contract — the only way to actually put the injured party in as good a position as it would have been in if the contract had not breached, see Donovan v. Bachstadt, 91 N.J. 434, 444, 453 A.2d 160 (1982) — is to award any counsel fees which had to be incurred to prove the breach as well as lost profits that were beyond the parties’ contemplation at the time of execution of the contract. In fact, Chief Justice Wilentz’ concurrence in Perini specifically criticized the plurality opinion’s recourse to Hadley v. Baxendale in reviewing the arbitration award involved in that case. 129 N.J. at 547, 610 A.2d 364. The arbitrators also could have concluded that to prevent any further damage to DiMaria’s business due to the lack of adequate operating capital, it would be “just and equitable” to encourage Commerce to pay the arbitration award promptly by requiring it to pay interest on the award at a rate in excess of the prevailing market rate. Therefore, even if we were to accept the underlying premise of Commerce’s argument — that a
Ill
On its cross appeal, DiMaria argues that the trial courts in both actions erred in denying its counsel fee applications. In support of its applications, DiMaria relied upon the Frivolous Litigation Act, which provides in pertinent part that “[a] party who prevails in a civil action, ... may be awarded all reasonable litigation costs and reasonable attorney fees, if the judge finds ... that a complaint, counter-claim, cross-claim or defense of the nonprevailing person was frivolous.” N.J.S.A. 2A:15-59.1(a). A claim or defense may be found to be frivolous only if it was asserted “in bad faith, solely for the purpose of harassment, delay or malicious injury” or if, the losing party knew or should have known that the action was “without any reasonable basis in law or equity” and “could not be supported by a good faith argument for an extension, modification or reversal of existing law.” N.J.S.A. 2A:15 — 59.1(b)(1),(2). Our Supreme Court has concluded that the Legislature intended the term “frivolous” to be “given a restrictive interpretation.” McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 561, 626 A.2d 425 (1993).
We are satisfied that neither of Commerce’s actions was frivolous within the intent of N.J.S.A. 2A:15-59.1. Although we have concluded that the question whether DiMaria complied with the procedural preconditions of arbitration was within the arbitrator’s authority to decide, there is case law in New Jersey supporting the contrary view. See, e.g., Moreira Constr. Co. v. Township of Wayne, supra, 98 N.J.Super. 570, 238 A.2d 185; Brick Township Mun. Utils. Auth. v. Diversified R.B. & T Constr. Co., supra, 171 N.J.Super. 397, 409 A.2d 806. Moreover, the more recent decisions of this court, which hold that arbitrators rather than a court
Although we are satisfied for the reasons set forth in section II of this opinion that the position Commerce advanced in its action to vacate the arbitration award was clearly contrary to existing law, an action may be found to be frivolous under N.J.S.A. 2A:15-59.1 only if the losing party not only “knew or should have known” that the action was “without any reasonable basis in law or equity,” but also that it “could not be supported by a good faith argument for an extension, modification or reversal of existing law.” Even though Tretina sets forth a highly restrictive standard for judicial review of arbitration awards, the Tretina standard was only endorsed by four justices, two of whom (Chief Justice Wilentz and Justice Clifford) are no longer members of the Court. Thus, this standard is not firmly settled law in New Jersey, and a party would have a reasonable basis for arguing that our courts should return to a less restrictive standard for review of arbitration awards.
Finally, we discern no basis in this record for concluding that either of Commerce’s actions was brought “in bad faith, solely for the purpose of harassment, delay or malicious injury.” N.J.S.A. 2A:15-59.1(b)(1). Therefore, the trial courts in both actions correctly concluded that DiMaria was not entitled to counsel fees under the Frivolous Litigation Act.
Accordingly, the judgments in both actions are affirmed in all respects.
Commerce subsequently dismissed the remaining count, relating to counsel fees, without prejudice.
Commerce also argues that DiMaria waived its right to arbitration because it did not make a demand for arbitration until six months after Commerce's termination of the contract. However, the parties entered into a tolling agreement to preserve their rights to pursue arbitration only six weeks after termination of the contract. Therefore, this argument is clearly without merit. R. 2:ll-3(e)(l)(E).
