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Caruso v. Ravenswood Developers

March 01, 2001


On appeal from the Superior Court of New Jersey, Law Division, Somerset County, L-768- 98.

Before Judges Havey, Cuff and Lefelt.

The opinion of the court was delivered by: Cuff, J.A.D.


Argued: October 23, 2000

In this appeal, we must decide whether plaintiffs' statutory claims, specifically consumer fraud and RICO, are included in the scope of the residential construction contract arbitration clause. The claims were submitted to the arbitrator, plaintiffs received a compensatory award but their consumer fraud and RICO claims were denied by the arbitrator. Following confirmation of the award, plaintiffs filed this appeal. We affirm.

On March 4, 1995, plaintiffs Anthony and Carol Caruso executed a contract with defendant Ravenswood Developers, Inc. (Ravenswood) for construction of a home. The purchase price was $805,000. Defendant Baruch Schleichorn supervised the construction of the house for Ravenswood.

The parties agreed to resolve all disputes in connection with the contract through arbitration. Plaintiffs, however, insisted that they retain the right to pursue a specific performance remedy in Superior Court. The relevant clause provides as follows:

Any dispute arising in connection with this Agreement and/or any amendments to this Agreement, either before or after closing of title, shall be heard and determined by arbitration at the offices of the American Arbitration Association subject to the Buyer's right to appeal for specific performance of the Contract in the event of the Seller's negligent and/or arbitrary and/or willful refusal to close title. The decision of the arbitrator shall be final and binding. The cost of arbitration shall be shared equally between the parties. [emphasis supplied.]

According to plaintiffs, Schleichorn constantly commented between November 1996 and April 1997 that he could get $300,000 more for their house. In March 1997, plaintiffs were informed by a third party that Schleichorn was trying to find a way to get out of the contract. On April 13, 1997, Schleichorn told the Carusos he would cancel the contract unless they paid an additional $100,000. When they refused, he informed them the contract was canceled.

On April 21, 1997, after Ravenswood refused to reaffirm the contract, plaintiffs filed a complaint in the Superior Court for specific performance of the contract. In response to Schleichorn's threat to construct a room in non-conformance with the plans, plaintiffs filed an amended complaint seeking not only specific performance but also damages for breach of contract and consumer fraud. Plaintiffs also applied for an order to enjoin further construction in non-conformance with the plans. This application was denied and the Superior Court action was stayed pending arbitration of plaintiffs' damage claims.

Plaintiffs submitted a formal arbitration demand on June 3, 1997, and the first hearing was conducted on December 19, 1997. At this hearing, plaintiffs' attorney stated that the consumer fraud claim was not subject to arbitration and he asserts that defendants' attorney agreed. Plaintiffs assert they anticipated returning to the Superior Court to prosecute their consumer fraud claims at the conclusion of the arbitration proceedings. Nevertheless, on May 1, 1998, plaintiffs filed a second complaint which alleged that the same conduct recited in the action filed in April 1997 constituted violations of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20, and the Racketeer Influenced and Corrupt Organizations Act (RICO), N.J.S.A. 2C:41-1 to -6.2.

On June 29 and September 17, 1998, two additional arbitration hearings were conducted. At the September 17 hearing, defendants stated that they intended to file a motion to dismiss the newly filed complaint on the basis that the claims were subject to arbitration. The motion to dismiss was filed on September 24, 1998. On October 23, 1998, Judge Ashrafi referred the consumer fraud and RICO claims to arbitration.

In his oral opinion, Judge Ashrafi found that the language of the arbitration clause was broad and encompassed all disputes and all remedies, contractual and statutory, flowing from those disputes. He noted that the narrow construction of the clause advocated by plaintiffs was contrary to the general rule requiring liberal interpretation of such clauses. Furthermore, the explicit exception in the contract for specific performance implied plaintiffs' understanding of the sweeping scope of the clause.

On August 13, 1999, the arbitrator found defendants breached the contract and entered a monetary award in favor of plaintiffs. The consumer fraud and RICO claims were denied. On December 3, 1999, Judge Ashrafi entered an order confirming the arbitration award. Plaintiffs' appeal focuses on the ...

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