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Gauntt Construction Company v. Delaware River and Bay Authority

Decided: March 6, 1990.


On appeal from the Superior Court of New Jersey, Law Division, Burlington County, whose opinion is reported at 241 N.J. Super. 422 (Law Div. 1989).

Michels, Deighan and Brochin. The opinion of the court was delivered by Michels, P.J.A.D.


[241 NJSuper Page 311] Pursuant to leave granted by this court, defendants Delaware River & Bay Authority (Authority) and John Lewis, Project Engineer, appeal from an order of the Law Division that declared that the laws of the State of New Jersey applied to the construction contract between plaintiff Gauntt Construction Company/Lott Electric Company, a joint venture, The Lott Group, Inc. (Lott Group) and the Authority, thereby making the proceedings before the Authority director and his conclusions null and void, and ordering the action to continue before the trial court for the purposes of adjudicating the breach of contract claims and all other issues involved in the proceeding.

The facts giving rise to this appeal are essentially uncontroverted. The Authority and the Lott Group*fn1 entered into a written contractual agreement for modifications and improvements to the maintenance building located at the Delaware Memorial Bridge Complex in New Castle, Delaware. 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.

A dispute arose between the parties concerning the performance of the work and the amount due and owing under the contract. Pursuant to section 1.5.1, the parties agreed to appear before the Director for an arbitration hearing to be conducted on January 25, 1988. However, on January 21, 1988, the Lott Group instituted this action in the Superior Court of New Jersey, Law Division, seeking compensatory damages for work performed under the contract. In addition to filing the complaint, the Lott Group's attorney certified to the trial court that "to [his] knowledge the matter in controversy is not the subject of any other action pending in any court or of a pending arbitration proceeding" and that "to [his] knowledge, no other action or arbitration procedure is contemplated."*fn2 Thereafter, the Lott Group, through counsel, notified the Authority of the filing of the lawsuit and advised the Authority that it would not appear at the hearing. The Director nevertheless proceeded, conducting the arbitration hearing as scheduled, and, at the

conclusion thereof resolved all claims between the parties and awarded the Lott Group $175,463.16. The Lott Group considered this amount to be grossly inadequate.

The Authority raised the arbitration award as an affirmative defense, and moved for a judgment on the pleadings. The trial court denied the Authority's motion to dismiss, stating that "the contract clause permitting the resolution of disputes by one party to the contract, the [Authority] Director, was unenforceable under New Jersey law." The trial court also analyzed Delaware law and concluded that "the enforceability of the clause had not been addressed conclusively by any Delaware court."

On June 2, 1988, the Authority instituted suit in the Delaware Chancery Court, seeking enforcement of the arbitration award. The prosecution of that action was enjoined on the theory that "when suits are pending in two jurisdictions, the court first acquiring jurisdiction has precedence, although particular circumstances not present here, may dictate otherwise." The trial court then lifted the restraint against the prosecution of the Delaware suit "to the extent necessary to permit the [Authority] to obtain a ruling as to the validity of the dispute resolution clause."

On August 29, 1988, the Authority moved for summary judgment in Delaware on the issue of the validity of the arbitration provision. The Delaware court refused to decide the issue of whether the arbitration provision was valid, but opined that such clauses are generally enforceable under Delaware law. Specifically, the Delaware court stated that "a Delaware trial court, if it had the issue properly before it, would undoubtedly be bound by [the Delaware Supreme Court's Wilson ]*fn3 opinion and would find the provisions of Section 1.5.1 are not illegal." Noting that the courts of Delaware and New Jersey have concurrent jurisdiction over this dispute, the Delaware

court denied the Authority's motion for summary judgment because the suit was "first filed in the New Jersey court which has proceeded to consider the entire controversy." In so holding, the Delaware court noted: "Even if, however, the New Jersey court has in fact failed to correctly apply the correct conflict of law principles, as the Authority claims, there is an appropriate remedy in the courts of New Jersey." The Delaware court also stated that the Authority is not entitled to summary judgment because "there is a substantial question whether section 1.5.1 is a written agreement to submit the controversy between the parties to arbitration as is required by 10 Del.C. ยง 5701."

On January 23, 1989, the Lott Group moved to reinstate the restraint against further proceedings in the State of Delaware. The trial court, having retained jurisdiction, indicated that it would reconsider its earlier opinion regarding the choice of law issue. On May 3, 1989, the trial court issued a second opinion, affirming its initial opinion. The trial court held: "1) New Jersey law applies, making the proceedings before the [Authority] 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." Gauntt Constr. Co. v. Delaware River & Bay Auth., 241 N.J. Super. 422, 575 A.2d 70 (Law Div.1989). This appeal followed.

This appeal presents the difficult question of whether New Jersey or Delaware law should apply when both states have concurrent jurisdiction. The interstate compact between New Jersey and Delaware is silent on this issue and, thus, does not provide a method of resolving this type of dispute. The compact, in pertinent part, merely states:

Judicial proceedings to review any by-law, rule, regulation, order or other action of the authority or to determine the meaning or effect thereof, may be brought in such court of each State, and pursuant to such law or rules thereof, as a similar proceeding with respect to any agency of such State might be brought.

Each State may provide by law what penalty or penalties shall be imposed for violation of any lawful rule, regulation or order of the authority, and, by law or rule of court, for the manner of ...

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