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America's Pride Construction v. Farry

SUPREME COURT OF NEW JERSEY


December 19, 2002

AMERICA'S PRIDE CONSTRUCTION, PLAINTIFF,
v.
JOHN FARRY AND EILEEN FARRY, DEFENDANT AND THIRD PARTY PLAINTIFFS- APPELLANTS,
v.
LOU BONI, THIRD PARTY-DEFENDANT, AND. TIMOTHY P. KLESSE AND KLESSE ASSOCIATES, P.A., THIRD PARTY DEFENDANTS- RESPONDENTS.

On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

In this appeal, the Court determines whether a party who receives notice of an arbitration hearing, but does not attend it, is nonetheless entitled to a new hearing when the arbitrator has failed to provide that party with notice that an arbitration award has been entered.

John and Eileen Farry (defendants) contracted with America's Pride Construction, Inc. (plaintiff) to perform renovations on their home. After the work began, defendants became dissatisfied with plaintiff's work, ordered all construction to cease and refused to pay for any costs incurred by plaintiff. In June 1998, plaintiff filed suit against the defendants for breach of contract, and defendants counterclaimed against plaintiff and its principal and filed a third-party complaint against the architect.

In February 1999, the trial court notified the parties that the matter had been selected for mandatory, non-binding arbitration pursuant to Rule 4:21A-1. The original hearing was scheduled for March 1999, but due to four postponements the hearing did not occur until October 1999. Meanwhile, in August 1999, plaintiff's attorneys moved to be relieved as counsel. The trial court granted that motion in September 1999, and directed plaintiff and its principal to obtain substitute counsel within thirty days. The order provided that if plaintiff failed to retain counsel within that time its claims and defenses would be subject to dismissal or default. The order also stated that the principal would be deemed pro se if he failed to timely retain counsel.

In September 1999, the trial court notified defendants' attorney that the arbitration hearing was set for October 27, 1999. On the morning of the hearing, the architect's counsel telephoned defendants' attorney and informed him that the arbitration hearing was to proceed. Defendants' attorney explained to the architect's counsel that he had assumed the hearing would be postponed because plaintiff and its principal had not obtained new counsel as directed by the court. Shortly thereafter, an administrator in the office of the arbitrator telephoned defendants' attorney and asked him why he was not present at the hearing. The administrator informed defendants' attorney that the hearing would proceed "with or without counsel." Defendants' attorney failed to attend the hearing. He assumed that if the arbitrator entered an award adverse to his clients' interest, he would move for trial de novo once he received notice of the award.

The arbitrator entered an award the same day as the hearing, finding "no cause" in respect of the defendants' claims against all parties. However, neither defendants nor their attorney received notice of the arbitration award pursuant to Rule 4:21A-5(a)(1999). In December 1999, the architect filed a motion to confirm the arbitration award. Upon receiving a copy of that motion, defendants' attorney learned for the first time that the arbitrator had entered an award against his clients. In January 2000, the trial court entered an order confirming the award.

In response to the trial court's order, defendants' attorney filed a motion for reconsideration and requested permission nunc pro tunc to file a rejection of the award and to demand a trial de novo. He argued that he did not receive notification of the arbitration award as required by the rule. The trial court held that the attorney's lack of diligence, including his failure to appear at the arbitration hearing, his neglect in inquiring about the status of the hearing, and his failure to timely demand a trial de novo did not constitute extraordinary circumstances warranting the reversal of the arbitration award. The Appellate Division affirmed.

HELD: The arbitrator's failure to provide defendants or their attorney with a copy of the arbitration award as required by Rule 4:21A-5 tolled the filing deadlines set forth in Rule 4:21A-6(b), pursuant to which a party may reject the award and demand a trial de novo.

1. The purpose of a notice requirement is to apprise a party of some fact that he or she has a right to know and that the communicating party has a duty to communicate. When this matter was arbitrated, Rule 4:21A-5(a) required the arbitrator to file the written award with the civil division manager and mail a copy to each of the parties within ten days after the arbitration hearing. Under Rule 4:21-6(b), an order shall be entered dismissing the action unless a party files, within thirty days after the filing of the arbitration award, a notice of rejection of the award and a demand for a trial de novo or takes such other action as provided by the rule. (Pp. 5 to 7).

2. Reading Rules 4:21A-5(a) and -6(b) together, the Court finds that the time periods set out in Rule 4:21A-6(b) do not begin to run until the arbitrator has filed the written award with the civil division manager and the parties. This interpretation of the mailing requirement under Rule 4:21A-5(a) is consonant with other Court Rules that condition a filing deadline on the receipt of notice that a judgment, order, or decision has been entered against a party. (P. 7).

3. Here, it is undisputed that neither the defendants nor their attorney received a copy of the arbitration award. Defendants claim that if they had received notice of the arbitration award they would have rejected it immediately and requested a trial de novo. Defendants' attorney was aware of and relied on the notice requirement under Rule 4:21A-5(a) requiring that he be notified of any award filed with the civil division manager. However, the arbitrator failed to send a copy of the award to defendants or their attorney, and thus the thirty-day period to reject the award and file a demand for a trial de novo did not begin to run. In the circumstances of this case, the arbitrator's failure to send the award to defendants or their attorney rendered timely the late objection to the award. (Pp. 7 to 8).

4. Because both parties indicated during oral argument that they were amenable to re-arbitrating the matter if this Court reversed and remanded the matter, the Court remands for re-arbitration. Defendants' attorney is responsible for all necessary and reasonable costs associated with the first arbitration, excluding attorneys' fees. In future cases, a party's failure to appear at the arbitration will result in appropriate sanctions as set forth in the recently amended Rule 4:21A-4(f). (P. 8).

The judgment of the Appellate Division is REVERSED and the matter is REMANDED for arbitration.

CHIEF JUSTICE PORITZ and JUSTICES COLEMAN, LONG, VERNIERO, LaVECCHIA and ALBIN join in JUSTICE ZAZZALI's opinion.

The opinion of the court was delivered by: Zazzali, J.

Argued September 23, 2002

In this appeal, we must determine whether a party who receives notice of an arbitration hearing, but does not attend it, is nonetheless entitled to a new hearing when the arbitrator has failed to provide that party with notice that an arbitration award has been entered. The lower courts concluded that the absence of "extraordinary circumstances" precluded vacation of the arbitration award. We reverse.

I.

In April 1998, John and Eileen Farry contracted with America's Pride Construction, Inc. (America's Pride or plaintiff), to perform renovations on their home. Soon after the renovations had begun, the Farrys became dissatisfied with plaintiff's work, ordered all construction to cease and refused to pay for any costs incurred by plaintiff. In June 1998, America's Pride filed suit against the Farrys for breach of contract. The Farrys counterclaimed against America's Pride and its principal, Lou Boni, alleging breach of contract, breach of the implied warranties of merchantability and fitness, and consumer fraud. They also filed a third-party complaint against the architect, Timothy Klesse, and his firm, Klesse Associates, P.A., alleging negligence in the design and supervision of the renovations to their home.

In February 1999, the trial court notified the parties that the matter had been selected for mandatory, non-binding arbitration pursuant to Rule 4:21A-1. The original hearing was scheduled for March 1999, but due to four postponements the hearing did not occur until October 1999. In August 1999, the attorneys for America's Pride filed a motion to be relieved as counsel, claiming that America's Pride had been delinquent in the payment of past due legal fees. The trial court entered an order in September 1999, granting counsel's motion to withdraw and directing America's Pride and Boni to retain substitute counsel within thirty days. The order provided that if America's Pride failed to retain counsel within the appointed time, its affirmative claims and defenses would be "subject to dismissal or default." The order also stated that Boni would be deemed pro se if he failed to retain counsel within the appointed time.

In September 1999, the trial court notified the Farrys' attorney, Bartholomew Sheehan, that the arbitration date was set for October 27, 1999. On the morning of the hearing, Sheehan received a telephone call from Stephen Davis, the attorney representing Klesse, informing him that the arbitration was to proceed. Sheehan explained to Davis that he had assumed that the hearing would be postponed because America's Pride and Boni had not obtained substitute counsel. According to Sheehan, he believed that the arbitration would be postponed after Davis "assured [him] that it would be taken care of."

Shortly thereafter, an administrator in the office of the arbitrator telephoned Sheehan, inquiring why he was not present at the hearing. The administrator informed Sheehan that the hearing would proceed "with or without counsel." Sheehan chose not to attend the session. He assumed that if the arbitrator entered an award adverse to his clients' interests, he would move for a trial de novo once he received notice of that award.

That same day, the arbitrator entered an award, finding "no cause" in respect of the Farrys' claim against all parties. Neither Sheehan nor the Farrys received notice of the arbitration award pursuant to Rule 4:21A-5(a)(1999). In December 1999, Klesse filed a motion to confirm the arbitration award. Upon receiving a copy of that motion, Sheehan learned for the first time that the arbitrator had entered an award against the Farrys. In January 2000, the trial court entered an order confirming the award.

In response to the trial court's order, Sheehan filed a motion for reconsideration. He did not file a cross-motion for a trial de novo, but instead attached an affidavit to the motion for reconsideration, requesting permission nunc pro tunc to file a rejection of the award and demanding a trial de novo out of time. Sheehan argued that he did not timely file a demand for a trial de novo because he did not receive notification of the arbitration award as required by Rule 4:21A-5(a).

The trial court held that Sheehan's lack of diligence, including his failure to appear on the day of the hearing, his neglect in inquiring about the status of the hearing, and his failure to file a timely demand for a trial de novo, did not constitute "extraordinary circumstances" warranting the reversal of the arbitration award. The Appellate Division affirmed the trial court's decision. The panel agreed with the trial court that Sheehan had "failed to demonstrate the required 'extraordinary circumstances' necessary to relax the time limitations governing the filing of a demand for a trial de novo."

The Farrys filed a petition for certification challenging the Appellate Division's decision. We granted certification and remanded. 169 N.J. 600 (2001). On remand, the Appellate Division again affirmed the trial court's decision. The Farrys filed a petition for certification, and we granted certification. 171 N.J. 444 (2002).

II.

The issue now before the Court is whether the arbitrator's failure to provide the Farrys with a copy of the arbitration award as prescribed by Rule 4:21A-5(a) is a sufficient basis to toll the filing deadlines set forth in Rule 4:21A-6(b).

The purpose of a notice requirement is to apprise a party of some fact that he or she has a right to know and that the communicating party has a duty to communicate. Kaprow v. Board of Educ. of Berkeley Township, 131 N.J. 572, 587 (1993). When this matter was arbitrated, Rule 4:21A-5(a) provided that

[w]ithin 10 days after the completion of the arbitration hearing, the arbitrator shall file the written award with the civil division manager and shall mail a copy thereof to each of the parties. The award shall include a notice of the right to request a trial de novo and the consequences of such a request as provided by R. 4:21A-6. [R. 4:21A-5(a)(1999)(emphasis added).] Under Rule 4:21A-6(b), on the filing of an arbitrator's award, an order shall be entered dismissing the action unless: (1) within 30 days after filing of the arbitration award, a party thereto files with the civil division manager and serves on all other parties a notice of rejection of the award and demand for a trial de novo and pays a trial de novo fee as set forth in paragraph (c) of this rule; or (2) within 50 days after the filing of the arbitration award, the parties submit a consent order to the court detailing the terms of settlement and providing for dismissal of the action or for entry of judgment; or (3) within 50 days after the filing of the arbitration award, any party moves for confirmation of the arbitration award and entry of judgment thereon. [R. 4:21A-6(b) (1999).]

III.

Reading Rules 4:21A-5(a) and -6(b) together, we find that the time periods set out in Rule 4:21A-6(b) do not begin to run until the arbitrator has filed the written award with the civil division manager and the parties. Our interpretation of the mailing requirement under Rule 4:21A-5(a) is consonant with other Court Rules that condition a filing deadline on the receipt of notice that a judgment, order, or decision has been entered against a party. See, e.g., R. 4:49-2 (requiring service of judgment or order upon all parties before twenty day deadline under Rule is triggered); R. 2:4-1(b) (providing that appeals from final decisions or actions of state administrative agencies shall be taken within forty-five days from date of service of decision or notice of action taken).

In this appeal, it is undisputed that neither the Farrys nor their attorney received a copy of the arbitration award. The Farrys claim that if they had received notice of the arbitration award they would have rejected it immediately and requested a trial de novo. Sheehan was aware of and relied on the notice requirement under Rule 4:21A-5(a) requiring that he be notified of any award filed with the civil division manager.

However, as noted, the arbitrator failed to send a copy of the award to Sheehan or the Farrys, and thus the thirty-day period to reject the award and file a demand for a trial de novo did not begin to run. See Sprowl v. Kitselman, 267 N.J. Super. 602, 610 (App. Div. 1993) (remanding for arbitration where attorney did not receive notice of arbitration hearing). We hold that in the circumstances of this case the arbitrator's failure to send the award to the Farrys or their attorney rendered timely the late objection to the award.

IV.

At oral argument, the parties were asked whether they preferred arbitration or a trial de novo in the event that the matter was reversed and remanded. Klesse's attorney indicated that his clients preferred arbitration. Sheehan indicated that the Farrys were amenable to re-arbitrating the matter. In fairness to all parties we therefore remand for re-arbitration.

Sheehan is responsible for all necessary and reasonable costs associated with the first arbitration, excluding attorneys' fees. In future cases, a party's failure to appear at the arbitration will result in appropriate sanctions as set forth in the recently amended Rule 4:21A-4(f)(2002).

Accordingly, we reverse and remand the matter for arbitration.

CHIEF JUSTICE PORITZ and JUSTICES COLEMAN, LONG, VERNIERO, LaVECCHIA, and ALBIN join in JUSTICE ZAZZALI's opinion.

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