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In re Tretina Printing Inc.

Decided: February 9, 1993.

IN THE MATTER OF THE ARBITRATION BETWEEN TRETINA PRINTING, INC. AND HI-TECH PROPERTIES, A GENERAL PARTNERSHIP, AND JAN TRETINA AND OLGA TRETINA, INDIVIDUALLY, PETITIONERS-APPELLANTS/CROSS-RESPONDENTS,
v.
FITZPATRICK & ASSOCIATES, INC., RESPONDENT-RESPONDENT/CROSS-APPELLANT. FITZPATRICK & ASSOCIATES, INC., PLAINTIFF-RESPONDENT/CROSS-APPELLANT, V. TRETINA PRINTING CO., INC., HI-TECH PROPERTIES, A GENERAL PARTNERSHIP, AND JAN TRETINA AND OLGA TRETINA, INDIVIDUALLY, DEFENDANTS-APPELLANTS/CROSS-RESPONDENTS



On appeal from Superior Court of New Jersey, Chancery Division, Monmouth County.

King, Brody and Landau. The opinion of the court was delivered by Brody, J.A.D.

Brody

Both parties appeal from a judgment confirming an arbitration award as modified by the trial Judge. The dispute arose under an "Owner-Construction Manager" contract between Tretina Printing, Inc. (Tretina) and Fitzpatrick & Associates, Inc. (Fitzpatrick). We hold that the arbitrator imperfectly executed his powers upon the subject matter submitted to him and that it is too late to direct a rehearing because the time within which he was empowered by the parties to make an award has expired.

Tretina engaged Fitzpatrick to manage the construction of a building to house Tretina's printing business and rental office space. Fitzpatrick guaranteed that Tretina's total cost would

not exceed $2,566,050, the Guaranteed Maximum Price (GMP). Tretina agreed to pay Fitzpatrick a $200,000 Construction Manager's Fee, to be included in the total cost, and 30% of any saving if the total cost is less than the GMP. The parties agreed that instead of paying Fitzpatrick the fee in monthly installments, Tretina would pay the entire fee with "an interest rate of 11.5%" after the work was completed. Significantly, the contract provided that the total cost included the "cost of corrective work." Fitzpatrick agreed to absorb any portion of the total cost that exceeded the GMP.*fn1

The contract provides that all disputes "shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association . . . ." Fitzpatrick submitted the parties' disputes to arbitration when Tretina failed to pay requisition # 15 in the amount of $45,083, which had been approved by Tretina's architect. By then Tretina had paid Fitzpatrick $2,119,819, which was $446,231 less than the GMP. Thus, under the basic terms of the contract, when the parties went into arbitration Tretina was liable for up to $446,231 of the remaining costs of construction, which included the cost of corrective work and Fitzpatrick's $200,000 fee.

After conducting twenty-one arbitration sessions over the period of a year, the arbitrator issued a written award in a form that has the appearance of resolving each of Fitzpatrick's and Tretina's contract claims by either assigning a dollar amount to each or stating that the claim is "denied." The "TOTAL AWARD TO FITZPATRICK" was $269,912.34, and the "TOTAL AWARD TO TRETINA" was $530,180, leaving a "TOTAL NET AWARD TO TRETINA" of $260,267.66. After making several adjustments for open items that the arbitrator had determined it would be premature for him to decide, the trial

Judge confirmed the net award -- but reduced it by $201,148, the sum noted in requisition #15 as accumulated "retainage."

Tretina appeals, claiming that the Judge should not have reduced the award. Fitzpatrick cross-appeals claiming that the award is so defective that the Judge should have vacated it.

The Supreme Court has recently defined a court's limited authority to review an arbitration award in the private sector. "We sit not as an appellate court to review arbitral decisions of law but only to safeguard against interpretive error that may be characterized on its face as gross, unmistakable, undebatable, or in manifest disregard of the applicable law and leading to an unjust result." Perini Corp. v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479, 496, 610 A.2d 364 (1992). From our review of the award, the fundamental provisions of the parties' contract, and the claims submitted by Fitzpatrick to the arbitrator, we conclude on the basis of the Perini standard that we must vacate the award.

By specifying how he arrived at the award, the arbitrator has enabled us to observe how he manifestly disregarded the heart of the parties' contract.

To begin with, the award ignores the Guaranteed Maximum Price, which is at the core of the contract and gives it its distinctive character. The contract requires that Tretina absorb all costs, including costs of correction, up to the GMP. As we previously noted, that means that based on a GMP of $2,566,050 Tretina must absorb $446,231 of the unpaid costs, including costs of correction and Fitzpatrick's fee, before costs may be charged to Fitzpatrick. Accepting for the moment the correctness of the itemization in the award, that means that the $269,912.34 that the arbitrator awarded Fitzpatrick is $176,318.66 short of what Tretina is contractually obliged to pay Fitzpatrick. Crediting Fitzpatrick with the full $446,231 reduces the total net award to Tretina to $83,949.

As a general rule under the contract, once Tretina pays the GMP, Fitzpatrick must absorb all additional costs. Thus, except as noted below, Fitzpatrick is not entitled to be paid claims, however valid, that the arbitrator did not award in full or omitted altogether from the award. ...


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