On certification to the Superior Court, Appellate Division, whose opinion is reported at 262 N.J. Super. 45 (1993).
Wilentz, Clifford, Pollock, Garibaldi, Stein, Handler, O'Hern
This appeal and cross-appeal arise out of an arbitrator's award in a construction-management-contract dispute. The Chancery Division modified and confirmed the award. The Appellate Division reversed and vacated the award. In re Arbitration Between Tretina Printing, Inc. v. Fitzpatrick & Assocs., Inc., 262 N.J. Super. 45, 55, 619 A.2d 1037 (1993). We granted certification, 133 N.J. 442 (1993), and now reverse the judgment of the Appellate Division and reinstate the arbitrator's award. Moreover, the Court adopts as a rule governing judicial review of private-contract arbitration awards the standard set forth in the Chief Justice's Concurring opinion in Perini v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479, 610 A.2d 364 (1992).
Fitzpatrick & Associates, Inc. (Fitzpatrick) entered into a contract with Tretina Printing Corporation (Tretina) for the design and construction of a printing plant and office building. The parties agreed to a "guaranteed maximum price" (GMP) of $2,566,050, which reflected a guarantee by Fitzpatrick that the total cost of the project, including any corrective work and a construction-management fee, would not exceed that sum. The contract provided that Tretina would pay Fitzpatrick a $200,000 construction-manager's fee (provided that Fitzpatrick did not breach the contract) as part of the total cost. If the cost of the completed project exceeded the GMP, Fitzpatrick would absorb those costs itself. If the total cost turned out to be less than the GMP, then Tretina would turn over to Fitzpatrick thirty percent of the savings as well as the construction-management fee.
In addition, the contract contained a provision for "retainage," under which Tretina was entitled to withhold payment to Fitzpatrick of a sum equal to 150% of the estimated cost of completing any unfinished or unsatisfactory work. On completion of that work, Tretina would become obligated to pay Fitzpatrick the amount it had retained to cover the potential cost. Lastly, the contract specifically provided that "all claims, disputes, and other matters * * * arising out of, or relating to, this Agreement or the breach thereof * * * shall be decided by arbitration" and that the arbitrator's decision "shall be final * * *."
When Tretina failed to pay one of Fitzpatrick's requisitions, Fitzpatrick filed a claim for arbitration; Tretina cross-claimed because of Fitzpatrick's allegedly deficient and incomplete work in several areas of the construction. By that time, Tretina had paid Fitzpatrick $2,119,819. Thus, under the contract terms, at the time that the parties began arbitration, Tretina was liable for up to $446,231 of all of the remaining construction costs, including the cost of corrective work and Fitzpatrick's construction-management fee of $200,000.
The arbitrator, appointed by the American Arbitration Association, conducted twenty-two arbitration sessions over a one-year period, heard twenty-one witnesses, and reviewed 222 exhibits before issuing his written award. The award contained two lists consisting of Fitzpatrick's claims and Tretina's claims. Next to each item on the list the arbitrator either assigned a dollar amount, directed Fitzpatrick to complete or to pay for the cost of completing the claimed deficiency, or denied the claim. The "TOTAL AWARD TO FITZPATRICK" was $269,912.34 and the "TOTAL AWARD TO TRETINA" was $520,180.00, leaving a "TOTAL NET AWARD TO TRETINA" of $260,267.66.
Tretina moved for an order confirming the award and Fitzpatrick moved for an order vacating or modifying it. In a written decision, the Chancery Division modified the award and confirmed it as modified. Although the trial court made a few minor changes, it deferred to the arbitrator's judgment on all but one issue, namely, retainage. The arbitrator had listed Fitzpatrick's fourth claim as:
Construction management fee $100,000.00
As the trial court observed, the construction-management fee is entirely different from retainage. In addition, the court explained that retainage was not a separate claim; rather, it was a fund held by Tretina, who was required to pay it to Fitzpatrick "only if [Fitzpatrick] did not breach its contract and only to the extent that approved work did not require repair or redoing." Thus, according to the court, after the arbitrator calculated the damages that Fitzpatrick owed Tretina, he should have treated the retainage as a credit against those damages because Tretina has never paid over the retained money. The court reasoned that the arbitrator had either overlooked the retainage claim or had assumed that Tretina's award would be offset by the retainage amount to which Fitzpatrick was entitled. Thus, after reducing somewhat the arbitrator's net award to Tretina, the trial court reduced that award by $201,148, the "accumulated retainage" claimed by Fitzpatrick, bringing Tretina's net award down to $61,369.66.
Tretina appealed to the Appellate Division, claiming that the trial court had mistakenly exercised its discretion in modifying the award and in not requiring the arbitrator to clarify his award. Fitzpatrick cross-appealed, arguing that the award was so defective that the Chancery Division should have vacated it. The Appellate Division, after conducting a detailed analysis of the contract and of the arbitration proceedings, concluded that of the two judicial remedies, modification or vacation of the award, provided by the Arbitration Act, N.J.S.A. 2A:24-1 to -11 (the Act), modification was not available because "the award ignores the basic contours of the parties' contract, decides some submitted disputes contrary to the evidence, and completely fails to decide others." 262 N.J. Super. at 52-53. The court therefore vacated the award. Id. at 53. In reaching that decision the Appellate Division relied on Perini Corp v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479, 610 A.2d 364 (1992), and on N.J.S.A. 2A:24-8.
The Act provides that once an arbitrator issues an award, any party to the arbitration may seek confirmation of that award in the Superior Court within three months of the arbitrator's decision. N.J.S.A. 2A:24-7. If the trial court does not confirm the award, it can either vacate the award, N.J.S.A. 2A:24-8, or modify or correct it. N.J.S.A. 2A:24-9. However, the statute narrowly defines the circumstances under which a court may resort to those remedies.
Under the Act a court shall vacate an arbitration award:
a. Where the award was procured by corruption, fraud or undue means;
b. Where there was either evident partiality or corruption in the arbitrators, or any thereof;
c. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause being shown therefor, or in refusing to hear evidence, pertinent and material to the controversy, or of any other misbehaviors prejudicial to the rights of any party;
d. Where the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made.
When an award is vacated and the time within which the agreement required the award to be made has not expired, the court may, in its discretion, direct a rehearing by the arbitrators.
The Act also provides that a court shall modify or correct an award:
a. Where there was an evident miscalculation of figures or an evident mistake in the description of a person, thing or property referred to therein;
b. Where the arbitrators awarded upon a matter not submitted to them unless it affects the merits of the decision upon the matter submitted; and
c. Where the award is imperfect in a matter of form not affecting the merits of the controversy.
The court shall modify and correct the award, to effect the intent thereof and promote ...