On appeal from Superior Court of New Jersey, Law Division, Monmouth County, MON-L-4300.
Before Judges Wefing, Lisa and Fuentes.
The opinion of the court was delivered by: Wefing, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted January 23, 2003
Plaintiffs appeal from an order of the trial court granting the motion of Frank T. Araps, Esq. to compel arbitration of their dispute about the legal fees allegedly due and owing to Araps. We reverse.
Gus Kamaratos and his wife, Victoria Kamaratos, ("Kamaratos") were minority shareholders in North East General Contractors, Inc., a company engaged in the construction business. They retained Araps to represent their interests in connection with a dispute with the majority shareholder, Kostantinos Palias. On February 26, 1997, they signed a retainer agreement, captioned "Agreement to Provide Legal Services". The agreement, in addition to dealing with such matters as the scope of the work to be performed and the hourly rates to be charged, included the following provision. Any controversy and/or dispute between the Law Firm and You regarding Fees or any controversy, claim, dispute or other matter in question arising out of or relating to this AGREEMENT, or the breach thereof, shall be resolved by binding arbitration between the parties. Arbitration shall be in accordance with the New Jersey Uniform Arbitration Act, N.J.S.A. 2A:24-1, et seq. The arbitration shall be subject to Your right under the Rules Governing the Courts of the State of New Jersey R. 1:14, "Code of Ethics", Rules of Professional Conduct RPC 1.5, "Fees", then obtaining. Arbitration shall be commenced by the aggrieved party (Claimant) by filing a demand for arbitration directly with the other party (Respondent). Respondent shall file an answering statement with the claimant within seven days of receipt of the demand for arbitration. Within ten days thereafter the parties and/or their counsel shall communicate with each other in [an] attempt to identify a mutually acceptable arbitrator. Although the hearings will not be administered by the American Arbitration Association, they will be governed by the Commercial Industry Arbitration Rules of the American Arbitration Association then obtaining, and in particular those rules which provide for expedited administration and resolution. In the first instance, the cost for the arbitrator shall be shared by the parties, but the arbitrator shall have the right to allocate arbitrator and arbitration costs in the final award. Should the parties be unable to agree upon an arbitrator within the ten day period following the filing of the answering statement, either party may then apply to the American Arbitration Association (AAA) for the purpose of engaging the AAA for the limited purpose of the appointment of an arbitrator(s) in accordance with their then prevailing rules. Once an arbitrator(s) has been appointed by the AAA, the parties shall go forward with the administration of the dispute. If in the opinion of any party, there arises a problem or unreasonable delay with the administration of the dispute, including but not limited to the scheduling of any hearing, any party upon 10 days written notice to the other, shall have the right and power to notify and engage the AAA to commence formal administration of the proceeding before the American Arbitration Association in accordance with its then prevailing rules. In that event, the Commercial Industry Arbitration Rules of the American Arbitration Association then obtaining, and in particular those rules which provide for expedited administration and resolution, will govern the continued processing and resolution of the dispute. The award rendered by the arbitrator(s) shall be final and may be confirmed in any court having jurisdiction thereof.
Attached to the Agreement was a "Professional Fee and Expense Schedule." Paragraph O of this Schedule repeated the provision for arbitration of fee disputes.
Araps commenced work on their behalf, and in June 1997 he filed a seven-count verified complaint in the Chancery Division against Palias, seeking relief as an oppressed minority shareholder and asserting, inter alia, claims of breach of fiduciary duty, fraud, and defamation. By July, Araps and the attorney representing Palias were able to negotiate a partial resolution on behalf of their respective clients. They agreed to continue with the litigation of the remaining claims. Eventually, this Chancery litigation was transferred to the Law Division and consolidated with three other law suits involving related claims and parties.
As the litigation continued, Kamaratos began to challenge the bills submitted by Araps. The parties met on February 11, 1998. Araps prepared a letter, dated March 19, 1998, to memorialize the understandings reached at that meeting. The first four items set forth by Araps in this letter were as follows:
1. If we cannot reach a mutually acceptable settlement of my fee balance due at the conclusion of the case, that we will submit the fee dispute to the appropriate fee arbitration committee in accordance with the rules promulgated by the Supreme Court. It was further agreed that you will have the right to challenge all of my bills for this matter.
2. We agree to defer fee arbitration on my fees pending the outcome of your case against Palias. I do this as an accommodation to relieve you of the burden of being involved with a multitude of disputes at the same time. It is also possible, based upon the outcome of your suit, that we will be more likely able to reach a negotiated settlement of my fees at the conclusion of your case.
3. You wish me to continue as your attorney. 4. Provided we are able to reach a mutually satisfactory interim fee settlement and you are in agreement with my advice and follow my recommendations for the handling of this lawsuit, I have agreed to continue as your attorney.
Kamaratos signed this letter and returned it to Araps. At the time, Kamaratos owed more than $80,000 to Araps for legal services.
Almost a year later, Kamaratos decided to retain new counsel in place of Araps. In February 2001, Araps filed a petition pursuant to N.J.S.A. 2A:13-5 with the Chancery Division to establish an attorney's lien. He asserted within his petition that he was owed more than $115,000 in fees for his legal services. Kamaratos responded by invoking the fee arbitration mechanism under R. 1:20A. The fee arbitration ...