October 18, 2007
CALVIN CASHAN AND ELIZABETH CASHAN, PLAINTIFFS-RESPONDENTS,
MALIK CONSTRUCTION, INC., DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-1911-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 3, 2007
Before Judges Cuff and Lisa.
This appeal involves an arbitration award arising out of a dispute over the performance of a construction contract. The contract provided that Malik Construction, Inc., a general contractor, would perform a whole home renovation and addition at the Moorestown home of plaintiffs, Calvin and Elizabeth Cashan. A dispute regarding the performance of the contract led to the arbitration, which resulted in an award favorable to plaintiffs. Plaintiffs sought to confirm the award and discharge the construction lien filed by defendant. Defendant sought to vacate the award. Judge Suter issued an order confirming the award, discharging the lien, and denying defendant's motion to vacate the award. This appeal followed.
Defendant argues that the arbitrator's rulings during the course of the protracted arbitration proceedings constituted sufficient misconduct to vacate the award. Alternatively, defendant urges that the award should be vacated on public policy grounds, contending that the arbitration process violated public policies underlying the Rules of Professional Conduct and due process requirements. We reject these arguments and affirm.
The May 6, 2003 construction agreement provided for a contract price of $1,224,983.75 for specified construction services to be performed by defendant on plaintiffs' home. The beginning date was June 2003, with substantial completion required by June 2004. As a result of sixty-seven change orders over the course of one year, the total price increased to more than $1.8 million. The agreement contained an arbitration clause, by which any controversy would be settled by the American Arbitration Association (AAA) under its Construction Industry Arbitration Rules. The agreement contained a termination clause, by which plaintiffs were authorized to terminate for failure of performance, on ten days notice, with a right to cure by defendant.
By June 2004, plaintiffs were dissatisfied with the progress and quality of defendant's work. By letter of June 23, 2004, they notified defendant of their intent to terminate the agreement, effective July 3, 2004. Although defendant contended it cured the alleged deficiencies, plaintiffs persisted in termination.
Defendant vacated the property and, through an AAA arbitration proceeding obtained leave to file a construction lien in the amount of $253,178 against plaintiffs' property. That arbitration proceeding is not the subject of this appeal.
Meanwhile, plaintiffs filed a demand for arbitration, seeking $75,000 in damages to compensate them for defendant's allegedly faulty and incomplete work. In its answering statement, defendant claimed the contract was wrongfully terminated, and it sought from plaintiffs total damages of $441,000. The AAA appointed Peter Liloia, III, Esquire to serve as arbitrator. Liloia was well-qualified and experienced in arbitrating construction disputes.
The arbitration began on April 19, 2005. It consumed thirty-four hearing dates spanning thirteen months, until May 2, 2006. Approximately eighteen witnesses testified and more than 500 exhibits, comprising at least nine binder books, plus plans, specifications, three expert reports and two videos were submitted in evidence. The proceedings were very contentious. There were many scheduling conflicts and delays. Although we do not have a verbatim record, it is readily apparent that the proceedings were marked by lengthy objections and arguments, as well as protracted examination and cross-examination of witnesses.
Plaintiffs' case-in-chief concluded on June 22, 2005, after thirteen hearing days. Defendant began presenting its case on June 23, 2005. The testimony of defendant's principal, Ric Malik, occupied six days. According to plaintiffs' counsel, William C. Mead, Jr., plaintiffs' case was needlessly extended by lengthy cross-examination and objections, and Ric Malik's testimony was repetitive and covered irrelevant evidence and issues. Mead further contended that the arbitrator granted wide latitude to both parties in his evidentiary rulings.
On November 17, 2005, the contentious nature of the proceedings reached a new high. Defendant contends that its expert witness was badgered and bullied with simultaneous cross- examination from Mead and his co-counsel, A. Fred Ruttenberg. Plaintiffs deny any impropriety, claim Mead alone conducted the cross-examination, and indeed contend it was defendant's attorney, I. Michael Heine, who acted improperly by attempting to assist the expert in answering questions by handing him a document. Then, when Ruttenberg objected, Heine went into an outburst "calculated to disrupt the proceeding." Objections and arguments were made, tempers flared, and a recess was taken.
Heine, Malik and the expert went outside of the building. Ruttenberg followed. When Heine and the expert reentered the building, Malik blocked the doorway in an effort to prevent Ruttenberg from reentering the building. According to Malik, Ruttenberg grabbed Malik's right arm, but lost his balance and fell to the ground. Malik stood over the fallen Ruttenberg, and Malik claims that Ruttenberg reached up and grabbed his testicles.
Ruttenberg denied initiating contact with Malik. He said Malik threw him to the ground, after which Malik stood in a boxing stance with his fists clenched challenging Ruttenberg to a fight.
Heine called the police. Malik signed criminal complaints against Ruttenberg.
At the next hearing date, November 22, 2005, defendant moved to bar Ruttenberg from the hearing. The arbitrator denied the application. The arbitrator adjourned the hearing for the day. The next scheduled date was December 12, 2005. Three days prior to that date, Malik's personal attorney, Gary N. Elkind, filed a motion to exclude Ruttenberg from future hearings, supported by a memorandum of law, a certification by Malik, and medical documentation regarding Malik's injuries. In his certification, Malik itemized acts by Ruttenberg which Malik deemed hostile toward him, described the alleged assault and his resulting injuries, and contended that as a result of the assault, he "experienced difficulties with [his] memory, concentration, and ability to focus on written materials." He said Ruttenberg's continued presence would "increase [his] anxiety and further impede [his] memory and ability to concentrate and process information."
Elkind appeared at the December 12, 2005 hearing. Consistent with his moving papers, he reiterated that he represented Malik only in his individual capacity and did not represent the corporate defendant in the arbitration proceeding. Because Elkind did not represent a party, the arbitrator excluded him from the hearing pursuant to AAA rules. Heine urged the position that a separate attorney was necessary because he might be a witness regarding the altercation, which took place outside of the arbitrator's presence. Nevertheless, the arbitrator would not consider the motion made by a non-party. Heine then said he wished to adopt Elkind's motion to bar Ruttenberg. The arbitrator directed Heine to submit his request in writing to AAA, and advised that a written response could be filed as well. Upon receipt of those documents through AAA, the arbitrator would make a ruling. The hearing proceeded with the cross-examination of the expert and Malik.
An exchange of increasingly hostile and accusatory letters between the parties followed the hearing. In a letter to both parties, the arbitrator reaffirmed his earlier decision, declining to bar Ruttenberg from the proceedings. This letter made clear that the arbitrator permitted Heine to adopt Elkind's motion as his own.
At the December 12, 2005 hearing, there was added controversy over Heine's attempt to record the proceedings with a personal tape recorder. At the outset of this arbitration proceeding, it was agreed by the parties that no stenographic record would be made. The arbitrator refused to permit the tape recording, as noncompliant with AAA rules. At the next hearing date, on January 6, 2006, defendant arrived with a court reporter. Over plaintiffs' objection, the arbitrator allowed defendant to utilize a court reporter from that date forward. Nevertheless, in subsequent court proceedings, defendant submitted only select portions of stenographic transcripts, some of which were uncertified, which became part of the judicial record.
After the last hearing date on May 2, 2006, the arbitrator issued his award on June 30, 2006. He concluded that plaintiffs' termination of the contract was justified. To determine damages, the arbitrator subtracted the contract price, as increased by change orders, from the total cost paid by plaintiffs to defendant and to a subsequent contractor to complete the job. Accordingly, the arbitrator awarded plaintiffs $52,396. On July 10, 2006, plaintiffs filed a complaint seeking to confirm the award and discharge the construction lien. Defendant answered and moved to vacate the award. Judge Suter heard argument, after which she issued a written decision and entered an order confirming the award, discharging the lien, and denying defendant's motion.
Judge Suter rejected defendant's argument that the protracted nature of the proceedings warranted a finding of misconduct. Further, she found no factual basis to support a conclusion that the arbitrator permitted "a lawless and unrestrained atmosphere," and no authority to support the claim that plaintiffs' counsel's alleged badgering of witnesses required the court to vacate the award. The judge found no due process violation by virtue of the arbitrator's refusal to permit defendant to tape record the proceedings and his refusal to allow Malik to testify about the November 17, 2005 altercation. Likewise, the judge found no impropriety in the arbitrator's refusal to allow Malik's personal attorney to participate in the proceedings or in the arbitrator's decision to permit Ruttenberg to participate. Finally, the judge refused to set aside the arbitrator's interpretation of the termination clause in the contract or his decision not to grant a mistrial motion allegedly made by defendant in the aftermath of the altercation.
We begin our analysis by stating the well-established principle that New Jersey favors arbitration as a speedy and efficient approach to dispute resolution. Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 131 (2001); Block v. Posia, 390 N.J. Super. 543, 551 (App. Div. 2007). "Arbitration should be an alternative to, not the first step in, a judicial proceeding. Consistent with the goal of constituting arbitration as an alternative method of dispute resolution, judicial review of arbitration awards is limited."
Policeman's Benevolent Ass'n, Local 292 v. Borough of N. Haledon, 158 N.J. 392, 398 (1999).
The narrow scope of this review was enunciated in Tretina Printing, Inc. v. Fitzpatrick & Associates, Inc., 135 N.J. 349, 358 (1994). There, the Court rejected its earlier holding that a reviewing court could vacate an award if the arbitrator made a mistake as to an "undebatable point of law." Id. at 356-58 (discussing Perini Corp. v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479, 494-96 (1992) (plurality opinion)). Rather, the Court adopted the more stringent standard set forth by Chief Justice Wilentz in his concurring opinion in Perini: "'arbitration awards may be vacated only for fraud, corruption, or similar wrongdoing on the part of the arbitrators.'" Id. at 358 (quoting Perini, supra, 129 N.J. at 548 (Wilentz, C.J., concurring)). As the Chief Justice bluntly stated, "[w]hether the arbitrators commit errors of law or errors of fact should be totally irrelevant." Perini, supra, 129 N.J. at 519 (Wilentz, C.J., concurring); see also High Voltage Eng'g Corp. v. Pride Solvents & Chem. Co. of N.J., Inc., 326 N.J. Super. 356, 362 (App. Div. 1999).
Consistent with this approach, the New Jersey Arbitration Act (Act) sets forth the limited bases upon which a court may vacate an award. It provides in relevant part:
a. Upon the filing of a summary action with the court by a party to an arbitration proceeding, the court shall vacate an award made in the arbitration proceeding if:
(1) the award was procured by corruption, fraud, or other undue means;
(2) the court finds evident partiality by an arbitrator; corruption by an arbitrator; or misconduct by an arbitrator prejudicing the rights of a party to the arbitration proceeding;
(3) an arbitrator refused to postpone the hearing upon showing of sufficient cause for postponement, refused to consider evidence material to the controversy, or otherwise conducted the hearing contrary to section 15 of this act, so as to substantially prejudice the rights of a party to the arbitration proceeding[.] [N.J.S.A. 2A:23B-23.]
The Act provides that a party has a right "to be heard, to present evidence material to the controversy, and to cross-examine witnesses appearing at the [arbitration] hearing." N.J.S.A. 2A:23B-15d. This provision embodies the arbitrator's basic duty to respect fundamental due process rights. See, e.g., Wilde v. O'Leary, 374 N.J. Super. 582, 587 (App. Div.) (referring to industry-required arbitration), certif. denied, 183 N.J. 585 (2005).
"Notwithstanding the apparently broad scope of the court's powers to alter an arbitrator's award . . . our courts have not traditionally interpreted the statutory language broadly." Kimm v. Blisset, LLC, 388 N.J. Super. 14, 29 (App. Div. 2006), certif. denied, 189 N.J. 428 (2007). Unlike the previous incarnation of the arbitration statute, there is now no basis to vacate the award "on grounds of 'imperfection' if the claim of imperfection is addressed to the merits of the award." Id. at 31 (alteration omitted).
The Act authorizes an appeal of the trial court's order confirming the award. N.J.S.A. 2A:23B-28a(3). Because the arbitrator's alleged wrongdoing raises a legal question, our review is de novo. Del Piano v. Merrill Lynch, Pierce, Fenner & Smith Inc., 372 N.J. Super. 503, 507 (App. Div. 2004), certif. granted, 183 N.J. 218 (2005). However, the arbitrators' factual determinations are generally not reviewable by a court, Ukrainian Nat'l Urban Renewal Corp. v. Joseph L. Muscarelle, Inc., 151 N.J. Super. 386, 396 (App. Div.), certif. denied, 75 N.J. 529 (1977), and a court will not vacate an award for the arbitrator's mistaken interpretation of the law. Tretina Printing, supra, 135 N.J. at 358.
Applying these principles, we find no error in Judge Suter's analysis and conclusions. We affirm substantially for the reasons set forth in her written decision of October 6, 2006. We add the following discussion.
On appeal, defendant argues that the arbitrator engaged in multiple acts of misconduct, which substantially prejudiced defendant and deprived it of a fair proceeding. Specifically, defendant points to five actions of the arbitrator that constitute this misconduct: (1) refusing to allow Malik to testify timely about the alleged physical assault, and permitting Ruttenberg to remain at the hearings; (2) precluding defendant from keeping an affordable record of the proceedings by use of a tape recorder; (3) barring Elkind from presenting a motion to exclude Ruttenberg, and ordering Elkind to leave the hearing; (4) barring Heine from timely adopting Elkind's motion; and (5) refusing to grant a mistrial. As stated at the outset of this opinion, defendant argues alternatively that the award should be vacated on public policy grounds. We will comment briefly on these arguments.
Defendant argues that the arbitrator wrongfully refused to accept Malik's material testimony about the altercation and committed misconduct when he permitted the alleged attacker, Ruttenberg, to remain in the room during Malik's cross-examination. We do not agree. Arbitrators are granted broad discretion in the manner in which proceedings are conducted. It is readily evident that the arbitrator permitted, throughout these proceedings, extensive direct and cross-examination and adopted an expanded view of evidentiary relevance. We have no basis to conclude that the arbitrator impermissibly restricted either party in the presentation of relevant and material evidence. With respect to the altercation, which occurred during Malik's cross-examination, defendant retained the opportunity to conduct redirect examination. The arbitrator did not force Malik to testify at any time. Defendant's contention that Malik was unable to recall events and testify competently because of Ruttenberg's presence is baseless.
After refusing to bar Ruttenberg, the arbitrator agreed to entertain a motion to reconsider the decision, permitting both sides to submit written memoranda to the central AAA headquarters. Thus, Heine was permitted to pursue the application on behalf of defendant. The arbitrator's ultimate decision was within the bounds of his discretion.
We find no merit in defendant's claim that it was wrongfully deprived of the opportunity to tape record the proceedings. AAA rules provide that a party desiring a stenographic record shall make arrangements directly with a stenographer and shall notify the other parties of these arrangements at least three days in advance of the hearing. At the outset of this proceeding, it was agreed by the parties that neither would utilize the services of a stenographer. When defendant chose to utilize one midway through the proceedings, the request was granted by the arbitrator, over plaintiffs' objection on the grounds that the initial agreement not to use a stenographer was binding throughout the proceedings. There was no abuse of discretion in the arbitrator's determination to disallow the use of a tape recording device, which is not expressly authorized by AAA rules.
We find no impropriety in the arbitrator's determination to bar Elkind from presenting the motion to exclude Ruttenberg. First, Elkind did not represent a party to the arbitration proceeding. Second, defendant suffered no prejudice because the arbitrator permitted Heine to present the application, after which the arbitrator reconsidered it and decided it on the merits. The arbitrator has discretion to permit or exclude any person other than a party and its representative, and there was no mistaken exercise of that discretion here.
In a related argument, defendant contends that the arbitrator's refusal to permit Heine to timely adopt Elkind's motion requires vacation of the award. The essence of this argument is that, even though Heine was permitted to resubmit Elkind's motion as defendant's after the December 12, 2005 hearing, defendant was denied due process because Malik continued to be subject to cross-examination in the presence of Ruttenberg on December 12, 2005. We reject this argument. Although there is no record of the December 12, 2005 hearing, we do have a record of the January 6, 2006 hearing, which suggests that the arbitrator never forced Malik to submit to cross-examination. Rather, it appears that the parties reached mutual decisions about each day's witnesses and testimony. We are provided no basis for judicial interference with the award by virtue of defendant's argument on this point.
Finally, defendant argues that the arbitrator's refusal to grant a mistrial destroyed "the last, clear chance to avoid manifest injustice." Plaintiffs deny that defendant ever moved for a mistrial. Lacking a verbatim record of the proceedings, we cannot resolve this discrepancy. Nevertheless, assuming such a motion was made and denied, we are again guided by the mistaken exercise of discretion standard. Diakamopoulos v. Monmouth Med. Ctr., 312 N.J. Super. 20, 37 (App. Div. 1998). For the reasons we have already discussed, we find no mistaken exercise of discretion here.
We next briefly address defendant's alternate argument that the award should be vacated on public policy grounds. Defendant relies on two areas of public policy. One is that the arbitrator's refusal to receive pertinent testimony and the preclusion of Malik's personal attorney failed to vindicate the public policies underlying due process safeguards of the United States and New Jersey Constitutions. We reject this argument without the need for further discussion, because, for the reasons we have already stated, we are satisfied that all due process requirements were satisfied in this proceeding.
Defendant's other public policy argument is that the arbitrator's decision failed to vindicate the policies underlying the Rules of Professional Conduct. Defendant relies upon Weiss v. Carpenter, Bennett & Morrissey, 143 N.J. 420 (1996). We find this argument unpersuasive.
As defendant notes, courts generally engage in "'heightened judicial scrutiny' when an arbitration award implicates 'a clear mandate of public policy.'" N.J. Tpk. Auth. v. Local 196, 190 N.J. 283, 294 (2007) (quoting Weiss, supra, 143 N.J. at 443). However, a court may vacate an arbitration award on public policy reasons only "in rare circumstances." Tretina Printing, supra, 135 N.J. at 364. If the arbitrator's "resolution of the public-policy question is reasonably debatable, judicial intervention is unwarranted." Weiss, supra, 143 N.J. at 443. Courts should not vacate an award because they disagree with the arbitrator's findings of fact or the application of the facts to the relevant public policy concerns. Ibid. A reviewing court should interfere with an award only if the arbitrator's decision would plainly violate a clear mandate of public policy. Ibid. This is so because such arbitration decisions authorize or encourage litigants to violate the laws and regulations of the State. Ibid.
Defendant argues that the arbitrator's refusal to cure Ruttenberg's transgressions subverts the public policy underlying the Rules of Professional Conduct. "[T]he Rules of Professional Conduct, at least to the extent that they are designed and interpreted to protect the public interest, express a clear mandate of public policy." Id. at 442. The record does not establish that Ruttenberg engaged in misconduct. But, even if he did, defendant would not be entitled to relief because defendant's argument distorts the holding in Weiss and ignores the recent explication of that case in New Jersey Turnpike Authority, supra, 190 N.J. at 295-96.
In Weiss, supra, 143 N.J. at 422, the Court confronted a law firm partnership agreement that barred withdrawing attorneys from collecting their full equity interests absent death, incapacity, judicial appointment, or the attainment of sixty-five years of age. The Court vacated an arbitration award applying the termination clause, because the award itself effected a violation of the Rules of Professional Conduct. Id. at 444-45. Specifically, the decision to apply the withdrawal clause chilled an attorney's right, under RPC 5.6, to terminate his or her current professional association and to practice law elsewhere. Ibid. The Court did not address the broader question of whether heightened judicial review was required only when the arbitration award itself violated public policy. Id. at 441-42.
The Court, however, answered that question in New Jersey Turnpike Authority. There, Chief Justice Zazzali noted that in Weiss the focus was on whether the arbitrator's resolution of the case violated public policy; the goal of the court's limited review was to "'verify that the interests and objectives to be served by the public policy are not frustrated and thwarted by the arbitral award.'" N.J. Tpk. Auth., supra, 190 N.J. at 296 (quoting Weiss, supra, 143 N.J. at 443).
It is true that the Court applied the public policy exception to a factually dissimilar employment termination case, concluding that a court should analyze the public policy implications of the arbitral award and not the discharged employee's alleged bad act in order to confirm or vacate an arbitrator's decision to reinstate an employee. Id. at 296, 298-300. However, in order to reach its conclusion, the Court relied heavily on Weiss' and Tretina Printing's narrow view of the court's power to review arbitration awards.
We conclude that in the case before us the arbitration award itself does not implicate the public policy concerns underlying the Rules of Professional Conduct. Here, the arbitrator concluded that defendant breached the construction agreement and awarded damages to the owners. Regardless of Mr. Ruttenberg's conduct during the hearing, there is no ethical concern raised by the award itself. Unlike the decision to uphold an unethical partnership agreement in Weiss, the arbitrator's decision here does not authorize or place the judicial "stamp of approval" on activities inimical to the public good.
Defendant also relies on Liberty Mutual Insurance Co. v. Open MRI of Morris & Essex, L.P., 356 N.J. Super. 567 (Law Div. 2002). However, that case further supports the rule that the arbitration award itself must undermine a clear mandate of public policy in order to warrant judicial intervention. There, the arbitrator decided an insurance coverage dispute in favor of an unlicensed medical facility. Id. at 569-71. The court vacated the award because the arbitrator had disregarded the state licensing laws and the clear public policy underlying such laws. Id. at 580-81. To uphold the award itself would have authorized a medical facility to provide services and receive insurance disbursements without the proper license. The facts here do not require such judicial scrutiny.
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