On appeal from Superior Court of New Jersey, Law Division, Essex County, ESX-L-6327-00.
Before Judges Skillman, Coburn and Fisher.
The opinion of the court was delivered by: Coburn, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
During arbitration under the rules of the American Arbitration Association ("AAA"), the arbitrator decided that he was authorized to appoint a receiver to administer plaintiff. Plaintiff asked the Law Division to enjoin the appointment. The individual defendants, Rosen, Levine, and Brawer, opposed the motion on the ground that the court lacked jurisdiction and on the merits. The court rejected the jurisdictional argument, but denied plaintiff's motion on the merits. We granted leave to appeal. R. 2:5-6.
This case was previously before us on an appeal brought by the individual defendants from a Law Division order denying submission of their disputes with plaintiff to arbitration. Of necessity, we include in our statement of facts the facts of that disposition to place in context our rejection of the claim of these defendants that the trial court lacked jurisdiction to rule on the arbitrator's authority to appoint a receiver. Because neither the parties' arbitration agreement nor the AAA rules can be fairly read to so empower the arbitrator, we reverse.
In February 2000, the individual defendants withdrew as shareholders from plaintiff, a law firm organized as a professional corporation, taking with them a substantial portion of its business to another law firm, defendant Lowenstein Sandler. Plaintiff sued all defendants in the Law Division, alleging various forms of tortious conduct. Relying on the written contract of plaintiff's shareholders, which provided for arbitration, the individual defendants moved to stay or dismiss the action. The Law Division denied their motion. We granted leave to appeal, reversed, and remanded"for entry of an order staying further proceedings pending arbitration of plaintiff's claims against the individual defendants." Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C. v. Rosen, No. A-2106-00T2 (App. Div. November 28, 2001). On remand, the Law Division entered an order staying the action against Lowenstein Sandler, but dismissing rather than staying plaintiff's action against the individual defendants.
An arbitrator was selected to determine the disputes between plaintiff and the individual defendants, who subsequently asked the arbitrator to appoint a receiver to administer plaintiff. They claimed that plaintiff was wasting its assets and endangering their ability to collect on their monetary claims. The arbitrator ruled that he had the authority to appoint either a statutory or custodial receiver but would await further submissions before he decided whether to exercise that authority.
Plaintiff returned to the trial court, seeking an order barring the arbitrator's creation of either form of receivership. The individual defendants argued that the court lacked jurisdiction because of its previous order dismissing them from the case. They also argued that the arbitrator had correctly interpreted the parties' agreement and the extent of his authority under the AAA rules and the law. Although the court rejected the jurisdictional argument, it decided not to interfere with the arbitrator's decision because that determination appeared to be a reasonable construction of the contract.
The shareholders' contract provides that"the parties shall be required to resort exclusively to arbitration... in accordance with the then prevailing rules of the [AAA] for commercial arbitrations." The relevant AAA rules are R-34(a) and (c). Subsection (a) defines the arbitrator's equitable powers in general terms, without mentioning receivership:
The arbitrator may take whatever interim measures he or she deems necessary, including injunctive relief and measures for the protection or conservation of property and disposition of perishable goods.
Subsection (c) acknowledges that the parties may seek interim ancillary relief in aid of the arbitration from the court in these words:
A request for interim measures addressed by a party to a judicial authority shall not be deemed incompatible with the agreement to arbitrate ...