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Gauntt Construction Company/Lott Electric Co. v. Delaware River and Bay Authority

May 3, 1989


Haines, A.j.s.c.


[241 NJSuper Page 423] This is a conflict of laws case to which usual conflict of laws rules do not apply. It involves a bi-state compact approved by the Legislatures of New Jersey and Delaware and the United States Congress. The compact created the Delaware River and Bay Authority, an agency of both states subject to the laws of

both states. What law applies when the laws of the two states are at odds?

The Lott Group, Inc. ("Lott") and The Delaware River and Bay Authority ("DRBA") are parties to a written contract for construction work on the Delaware Memorial Bridge and its facilities. Disputes have arisen concerning the performance of the contract work. Section 1.5.1 of the contract provides:

The Director shall act as referee in all questions arising under the terms of the Contract between the parties hereto, and the decision of the Director shall be final and binding. On all questions concerning the interpretation of Plans and Specifications, the acceptability, quality and quantity of materials or machinery furnished and work performed, the classification of material, the execution of the work and the determination of payment due or to become due, the decision of the Director shall be final and binding.

The parties, in accordance with this provision, agreed to appear before the Director for a hearing to be held on January 25, 1988. However, on January 21, 1988, Lott instituted this action, advising the DRBA, through counsel, that it would not appear at the hearing. The Director nevertheless proceeded. He filed a written decision, dated January 26, 1988 in which he noted the non-appearance of Lott, accepted the claims of the DRBA and found that the net amount due Lott was $175,463.16, an amount which Lott considers to be substantially inadequate.

The DRBA thereafter moved to dismiss this action on the ground that the Director's determination deprived this court of jurisdiction. The motion to dismiss was denied in part because the contract clause permitting the resolution of disputes by one party to the contract, the DRBA Director, was unenforceable under New Jersey law. This court also analyzed the Delaware law and concluded that the enforceability of the clause had not been addressed conclusively by any Delaware court.

On June 2, 1988 the DRBA also filed suit in Delaware to enforce the Director's determination. The prosecution of that suit was enjoined. In doing so the usual rule was applied: when suits are pending in two jurisdictions, the court first acquiring jurisdiction has precedence, although particular circumstances

not present here, may dictate otherwise. Yancoskie v. Delaware River Port Authority, 78 N.J. 321, 324, 395 A.2d 192 (1978).

A DRBA motion to reconsider the dismissal motion was denied. However, the restraint against prosecution of the Delaware suit was relaxed to the extent necessary to permit the DRBA to obtain a ruling as to the validity of the dispute resolution clause. The hoped-for result of the relaxation was a decision by the Delaware court concluding that the clause was unenforceable, thus bringing the laws of both states into agreement. This result was not obtained. The Delaware court refused to decide the issue but, in doing so, opined that the clause was enforceable in its State.

This court, having retained jurisdiction and continued its restraint against further proceedings in the State of Delaware, now decides that (1) New Jersey law applies, making the proceedings before the DRBA Director and his conclusions a nullity, and (2) this action shall continue for the purpose of adjudicating the breach of contract claims and all other issues involved in these proceedings.

A. The "Arbitration" Proceedings Before the DRBA Director.

Lott, in verifying its New Jersey complaint, as required by R. 4:5-1, stated that the controversy was not "the subject of any other action pending in any court or of a pending arbitration proceeding" and that "no other action or arbitration proceeding was contemplated". The complaint and its verification failed to disclose the existence of the clearly "contemplated" proceedings before the DRBA Director.

The Comment to R. 4:5-1 in Pressler, Rules Governing the Courts of the State of New Jersey, states:

The intent of this rule is to provide notice to all parties in each action that there are other actions pending involving the same controversy. As a result of such notice, all parties can move to intervene in other pending actions, to consolidate

other pending actions, or to take whatever other steps may be appropriate to protect their respective interests.

The DRBA claims that Lott, by failing to disclose the proceedings before the Director, violated the Rule, as indeed it did.

The correct practice required Lott to provide more than its bland certification. It should have disclosed the facts concerning the Director's hearing. While non-disclosure did not frustrate the purpose of the Rule since Lott and the DRBA were aware of the anticipated hearing, it denied information to this court which was entitled to complete candor. The absence of candor is at least a violation of the spirit of R.P.C. 3.3 which requires "Candor Toward the Tribunal". The incident must be reported to the Office of Attorney Ethics. However, the violation of R. 4:5-1 requires no other action. Opposing counsel made the court aware of the arbitration proceedings immediately after this suit was filed and their existence played no significant role in the decisions reached here. R. 4:5-1 does not provide sanctions. A dismissal of these proceedings, for example, would be an unacceptable penalty.

B. The Delaware-New Jersey Compact.

The Delaware-New Jersey Compact may be found in N.J.S.A. 32:11E-1 et seq., Del.Code Ann. tit. 17, Secs. 1701, 1721 and Pub.L. 87-678, 76 Stat. 560 (U.S. Congress, Sept. 20, 1962). The Compact provides, insofar as its provisions are relevant here, as follows (Roman numerals refer to Articles in the Compact):

III. The parties pledge "faithful co-operation in the effectuation of this Compact".

IV. The authority "shall constitute an agency of government of the state of Delaware and the State of New Jersey", for the purpose, among others, of constructing, maintaining and operating crossings between the states and facilities. Other functions may be performed "as may be hereafter entrusted to the authority by concurrent legislation expressly in implementation hereof".

VI. The authority's commissioners constitute a board which may take effective action only if at least three commissioners from each state vote in favor of the action, which vote is subject to cancellation by the Governor of the respective state.

VII. This Article provides general powers including the power to adopt by-laws, rules and regulations. It provides, however, that "no by-law, or rule, regulation or order shall take effect until it has been filed with the Secretary of State of each state or in such other manner in each state was may be provided by the law thereof." This Article further provides: "In the establishment of rules, regulations and orders respecting the use of any crossing, transportation or terminal facility owned or operated by the authority, including approach roads, it shall consult with appropriate officials of both states in order to insure, as far as possible, uniformity of such rules, regulations and orders with the law of both states." (Emphasis supplied)

The authority is authorized "to enter into contracts and agreements . . . with any individual firm or corporation, deemed necessary or advisable for the exercise of its purposes and powers".

Finally, the article permits the authority to "exercise all other powers not inconsistent with the constitutions of the 2 states or of the United States, which may be reasonably necessary or incidental to the effectuation of its authorized purposes or to the exercise of any of the foregoing powers, except the power to levy taxes or assessments, and generally to exercise in connection with its property and affairs, and in connection with property within its control, any and all powers which might be exercised by a natural person or a private corporation in connection with similar property and affairs".

VIII. ". . . no additional duties or obligations shall be undertaken by the authority under the law of either state or of Congress without ...

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