On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-3027-01.
Before Judges Stern, Coburn and Graves.
The opinion of the court was delivered by: Coburn, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
In these back-to-back, interlocutory appeals, which we have consolidated for purposes of this opinion, we agreed to address three procedural questions for parties involved in related litigation pending concurrently and as a matter of right in arbitration and in court. The questions arose because the factual and legal issues in both tribunals concern performance of contracts for a large construction project for which some of the contracts require arbitration, while others do not. The questions are: whether the lawsuit should have been stayed pending the arbitration; whether a defendant in the lawsuit was obliged to litigate its third-party lawsuit claim in the pending arbitration, which involved, among others, the third-party lawsuit defendant; and whether discovery in the lawsuit of a partial settlement agreement between two of the arbitrating parties, only one of which was involved in the lawsuit, was appropriate.
The principal parties in this complex, multi-party, multi-issue, multi-forum litigation are: the property owner, Watchung Square Associates, LLC, and its management company, Fidelity Land Development Corporation ("WSA"); the general contractor, Joseph A. Natoli Construction Corporation ("Natoli"); the excavator, Vollers Excavating and Construction, Inc. ("Vollers"); and the water supply company, Elizabethtown Water Company ("Elizabethtown").
In early August 1999, Natoli agreed to construct a large shopping center for WSA on its Watchung property. In late November 1999, Natoli subcontracted with Vollers for excavation and site work. Both contracts required that all disputes were to be resolved by arbitration.
On August 21, 1999, Elizabethtown became involved in this project. It agreed with WSA to reroute about 1000 feet of water main through the construction site, and it hired Vollers to perform the excavation and other work required to accomplish the relocation. Neither of those contracts required arbitration.
In mid-February 2000, the slope Vollers was cutting failed in or near the area where the relocated water main was to be run up the mountain slope to connect with an existing Elizabethtown water main. This required a further relocation of the water main at additional expense. Subsequent slope failures occurred along the length of the mountain.
WSA's largest claims were based on the problems it experienced as a result of the slope failures. The critical issue is whether Vollers or WSA was responsible. If Vollers was responsible, the remaining issue is: whether it caused the initial failure while working on the slope as a subcontractor for Natoli, with which it had an arbitration agreement; while working on the slope for Elizabethtown under the water main relocation contracts between WSA and Elizabethtown and between Elizabethtown and Vollers, which did not provide for arbitration; or whether it caused multiple slope failures while working on both projects. Numerous disputes arose between WSA and Natoli, and in January 2002, WSA terminated their contract.
The procedural maneuvering has been extremely complex. For clarity, we omit reference to filings that appear to be peripheral to the issues at hand. Elizabethtown acted first by filing the captioned Law Division action against WSA for approximately $130,000 in unpaid invoices it claimed were due under the relocation contract. WSA counterclaimed, alleging that the work done for Elizabethtown by Vollers had caused the initial slope failure, resulting in over $11 million in damages. Elizabethtown filed an amended complaint, increasing its demand, and both Elizabethtown and WSA impleaded Vollers as the party responsible for the slope failure. The fourth-party defendants were added later based, in part, on allegations that they were responsible for the slope failures.
In the meantime, WSA filed a demand for arbitration against Natoli, Vollers, and another company. The damages sought included the over $11 million claimed in the lawsuit. Shortly thereafter, Vollers filed a lien foreclosure action in Somerset County against WSA, Natoli, and others. That case was resolved by an order staying the claims of parties not subject to arbitration and directing WSA, Natoli, Vollers and others to resolve their disputes in the arbitration.
During the arbitration, Natoli and Vollers entered into a written contract, which the parties have called the "Liquidating Agreement." WSA asserts that it "is apparently a document . . . [which] may contain admissions by either party relevant to their acts or omissions . . . ." Vollers describes it as a "joint ...