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Preferred Warranties, Inc. v. Fialkowski

December 7, 2007


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-6958-05.

Per curiam.


Submitted November 13, 2007

Before Judges Weissbard and S.L. Reisner.

Defendant Edward Fialkowski appeals from a trial court order dated September 27, 2006, vacating an arbitration award and remanding the matter to the American Arbitration Association (AAA) for hearing before a different arbitrator.


The record reflects the following facts.*fn1 There is no dispute that Fialkowski, a New Jersey resident, purchased a used Mercedes Benz automobile from plaintiff Mario Lomedico Exotic Motor Sales, Inc. (Dealership) in New Jersey. When he purchased the vehicle, Fialkowski also purchased, through the Dealership, a service contract for the additional price of $1595. The document, which was signed by Fialkowski and Mario Lomedico of the Dealership, was captioned "Automobile Service Contract," but according to Fialkowski the Dealership marketed the contract to him as an extended warranty on the car. Boilerplate language in the agreement provided that "any controversy or claim arising out of or relating to this agreement, or the breach thereof . . . shall be settled by arbitration" and that disputes under the agreement would be "subject to the laws of the Commonwealth of Pennsylvania." The service provider under the contract was Preferred Warranties, Inc. (PWI), an entity located in Pennsylvania.

After PWI refused to make certain repairs which Fialkowski contended were covered by the service contract, Fialkowski served the Dealership and PWI with a demand for arbitration dated March 3, 2005. The demand requested $5145 in unpaid repair claims, $5600 in attorney fees, and $1595 as a refund of the purchase price of the "warranty." The demand also sought treble damages for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL). In response to a July 27, 2005 letter from counsel for PWI and the Dealership, Fialkowski's counsel sent a letter dated August 2, 2005, clarifying that Fialkowski was claiming that the Dealership violated the UTPCPL by misrepresenting that the contract was a "warranty." In this letter, Fialkowski also withdrew his claim for repairs to the gas tank and struts.

The arbitration was held in New Jersey, before a New Jersey attorney, Allan Marain, Esq. In a post-hearing submission dated August 12, 2005, Fialkowski filed an itemized written statement of the monetary relief requested. This statement included a claim for $4226 for repairs, less certain itemized adjustments, and $11,600 in counsel fees. Fialkowski's attorney did not submit an itemized affidavit of services, but simply indicated that the fee was comprised of 58 hours at $200 per hour.

Arbitrator Marain issued an award on August 24, 2005, denying Fialkowski's claim against PWI, but granting his claim against the Dealership in the amount of $8559. The arbitrator did not explain how he arrived at that amount. He also awarded Fialkowski $5000 in counsel fees to be paid by the Dealership.

On September 25, 2006, PWI and the dealership filed a complaint in the Law Division to vacate or modify the award. According to the complaint, Fialkowski had presented proof of $2535 in unpaid claims under the service contract and had not presented proof of the amount of his counsel fees. The complaint contended, among other things, that the arbitrator had "refused to provide a computation of the amount awarded" and that there was no evidence to support a treble damage award against the Dealership.

Following a hearing on November 9, 2005, the Law Division judge directed the parties to submit briefs on the following issues: (1) whether the decision to set aside an arbitration award is a procedural or substantive issue; (2) a comparison of New Jersey and Pennsylvania law, particularly in regard to treble and exemplary damages and whether an arbitrator need provide an explanation,; and (3) whether "it was proper for defendant to submit additional evidentiary material regarding legal fees after the close of the arbitration hearing."

On May 18, 2006, the judge issued an oral opinion on the record. Addressing the issue of whether vacating an arbitration award is substantive or procedural, he noted that the contract was signed in New Jersey, and Fialkowski and the Dealership are both New Jersey citizens. Only PWI was located in Pennsylvania. Relying on Roadway Package Sys. v. Kayser, 257 F.3d 287 (3d Cir. 2001), the judge concluded that the issue was procedural and thus, New Jersey law would apply. On the other hand, Pennsylvania law would apply to the substantive issues. He went on to hold: absent a specific provision in the contract that says that both the substantive law and . . . the arbitration law applies[,] that the generic choice of law - - standing alone is insufficient to support a finding that contracting parties intended to opt out of the New Jersey default regime . . . Here, New Jersey was the arbitrating forum and so we're going to apply the New Jersey vacatur statute.

Applying New Jersey law, he concluded that if Marain awarded treble damages, he had an obligation to include his analysis and reasons. Otherwise, there was no way to know how Marain awarded over $8000 when the only damages claimed were around $2500. Accordingly, the judge determined that: the arbitrator's failure to submit - - to write out the reasons and then a refusal when he was asked to do so is a violation of his duty - - and his - - ...

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