Alternate Dispute Resolution Cases 

During 2009 (and late 2008) the Courts continued in the trend toward approving the enforcement of arbitration clauses, constricting the courts’ jurisdiction while expanding that of the appointed arbitrators and liberalizing consolidation efforts within arbitration proceedings, which has historically been one of the principal concerns with arbitration proceedings.  Without exception the primary cases favored the ADR processes and jurisdiction. Parties should be careful when faced with arbitration clauses. If they do not want arbitration or want it limited, they must make sure the clause is removed or very cleverly state its limits. 

Class Action Waivers subject to Unconscionability Analyses

G.R. Homa v. American Express Co. (558 F. 3d 225, 3^rd Cir. 2009)

             Although not a construction case, this decision by the U.S. Court of Appeals for the Third Circuit rejected automatic application of an arbitration clause that included a class action waiver in a consumer contract.  The court determined that even for a nationwide provision calling for application of the law of another state, the court could apply New Jersey state law principles of unconscionability.

Arbitrator Has Jurisdiction to Determine Consolidation Issues 

D.R. Horton, Inc. v.  J.J. Deluca Company (410 NJ Super. 253, App. Div. 2009)

             In an action brought by the developer owner against the contractor on a condominium construction project, the Court denied the owner’s application to enjoin the contractor from seeking consolidation with a then pending arbitration between the contractor and some of its subcontractors arising out of the same project.  While the owner concurred that it had an arbitration clause within its contract, it asserted that only the Court could decide consolidation issues.  The Appellate Division affirmed the trial court action that dismissed the owner’s suit and referred the consolidation issue to the arbitrator under the Rules of the American Arbitration Association after finding that the courts did not have exclusive jurisdiction to decide consolidation issues, which could also be decided by the arbitrator.  

Untimely Request to Consolidate  

The Biber Partnership v. Diamond Hill Joint Venture, LLC (404 NJ Super. 96, App. Div. Dec. 2008) 

            The Court upheld a decision by the Law Division denying a request to consolidate two separate arbitrations arising out of construction projects.  Although the Court found that the Uniform Arbitration Act (N.J.S.A. 23B-1 et. seq.) allowed for such consolidation, the Court determined in this case where one arbitration action had substantially progressed prior to the request for consolidation, the prejudice that would result from the delay in seeking consolidation and the fact that the objecting party would be denied its contractual right to participate in the selection of the arbitrator, supported rejection of the consolidation request. 

Extended Time to Move to Dismiss Litigation and Compel Arbitration 

Spaeth v. Srinivasan (403 NJ Super. 508, App. Div. 2008) 

            Although not a construction case, the court made significant findings regarding the issue of whether a defendant who files an answer and counterclaim in a legal proceeding is deemed to have waived the ability to later move for dismissal based upon an arbitration clause within the contract between the parties.  The Court found that although defendant initially responded to the suit through the filing of an answer and counterclaim, within months of filing the defendant (who was acting pro se) moved to enforce the clause by having the suit dismissed and the matter moved to arbitration.  The Court found there was no prejudice to the plaintiff, there had been little by way of active discovery and there was insufficient evidence to establish that the defendant knowingly waived her right to enforce the clause.   

Denial of Untimely Request to Challenge or Reject Arbitrator

 Vollers Excavating and Construction, Inc. v. Watchung Square Associates, LLC (App. Div. July, 2009) Unpublished

            This case involved an appeal from a Law Division decision approving arbitration awards entered against a property owner and rejecting the owner’s assertion of arbitrator bias.  Following close to 5 years of arbitration proceedings with over 100 days of hearings, the owner who had over $7 million of damages entered against it, sought to challenge one of the 3-member arbitration panel as having been subject to influence of at least one of the successful contractor parties.  The court was primarily focused upon the fact that over a period of time disclosures were made that identified connections through trade association involvement between one of the contractor parties and the arbitrator. The owner had not objected when these disclosures were made.  While the court acknowledged that the nature of the disclosures may have provided a basis for investigation of any involvement, the owner was deemed to have waived that ability and was not entitled to post-award discovery, where it had all of the necessary information to seek investigations over a period of 5 years. 

            From a practical standpoint, this case reveals an often faced issue.  Parties opt for experienced neutrals in selecting arbitrators.  With experience may come a history of relationships, good and bad.  The construction litigation industry in New Jersey involves a relatively small number of players and therefore there exists a tremendous potential for past relationships.  Arbitrators are typically required to disclose such relationships. If a party has concerns, Vollers reminds us that there is a time to file concerns and objections.  That time is NOT after years of proceedings and hearings and an adverse award. 

Affirmation of Arbitrator’s Powers to Control Process 

U.S. Home Corporation v. West Pleasant (App. Div. March 2009) Unpublished 

            On this appeal from a court affirmation of an arbitration award, the Appellate Division affirmed the award that returned a $1,500,000 real property contract deposit.  The parties’ dispute ranged largely over whether one or the other breached preconditions to finalizing the sale.  The panel had refused to extend the hearings sought by the seller due to the claimed medical condition of one of its principals.  The court determined that there was inadequate medical information presented to allow it to overrule the panel and further that the panel had granted accommodations to allow participation by affidavit.  The court focused on the distinction that the seller did not present material to show that an adjournment would have allowed some level of recovery and rehabilitation (the potential witness had suffered a stroke).  The court further found that the panel was within its power to make other binding process determinations including the rejection of a request for a deposition (the panel offered to subpoena a non-party witness instead of allowing the deposition) and its rejection of a request for reconsideration.  The overall result was a very strong approval of arbitrator powers under a contractual arbitration clause and the reluctance of the court to interfere with those powers. 

Condo Association Subject to Unit Owners’ Arbitration Clauses

 Zephyr Lofts Condominium Association v. Henderson Lofts Urban Renewal, LLC, et. al. (App. Div. Oct. 2009)  Unpublished 

            Plaintiff condominium association appealed a trial court order dismissing its complaint on the basis of an arbitration clause not within the association/developer terms but within the individual unit owner purchase agreements.  The primary claims were by the association against the initial developer for construction defects, breaches of warranty and failure to establish and maintain an appropriate reserve, under a number of causes of action including the Consumer Fraud Act, PREDFDA, seeking to pierce the corporate veil and others.  The trial court determined that all claims were to go to arbitration.  The primary issue on appeal was whether the association was bound by the individual unit owner contracts that included arbitration clauses.  The court found that the association as the representative entity of the unit owners, was seeking damages and claims for more than simply the common areas, and was asserting misrepresentation and concealment (both of which pertained to the developer’s relationship with unit owners), the association was bound to the individual arbitration clauses. 

Ambiguity in Award to be Addressed by Arbitrator, Not Court

Nationsrent, Inc. v. Metro Concrete and Masonry Inc., et. al. (App. Div. Oct. 2009) Unpublished 

            On this appeal from an arbitrator’s decision, the Court found that where ambiguity results from the arbitrator’s award (here in the determination of interest), the proper venue for clarification, is the arbitrator, himself.  The Appellate Division found that the trial court had no independent jurisdiction to impose its determination and that the matter was to be remanded to the arbitrator.

                                                                                  CURETON CLARK, P.C.                                                                                   James H. Landgraf, Esq.