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All Seasons Marina, LLC v. All Action Water Sports


February 4, 2008


On appeal from the Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-250-04.

Per curiam.


Argued December 19, 2007

Before Judges Axelrad, Payne and Messano.

Defendants/third-party plaintiffs, All Action Water Sports (All Action) and its principal Ray Leps, appeal 1) the motion judge's September 1, 2006, order that granted plaintiff All Seasons Marina, L.L.C. (the Marina) and its principal, third-party defendant Brian Tersaga's (collectively, plaintiffs), motion to compel arbitration and dismiss the pleadings; and 2) the denial of defendants' subsequent motion for reconsideration.

Defendants contend that the motion judge erred in concluding that 1) there was a valid written lease in effect between the parties; and 2) that a provision contained therein requiring "any dispute arising" under the lease to "be settled by arbitration" required dismissal of the pleadings and referral of the matter to arbitration. Alternatively, defendants argue that plaintiffs were estopped from compelling arbitration because they filed this action in the Law Division and had prosecuted the lawsuit for more than two years before invoking the clause. Lastly, defendants argue that in deciding the motion, the judge considered exhibits submitted by plaintiffs that were furnished after the close of discovery and were otherwise inadmissible under the rules of evidence.

We conclude that the motion record presented material factual disputes that could not be resolved without a trial or plenary hearing, foreclosing the determination that defendants were legally bound by the terms of the purported lease, and in particular its arbitration clause. We therefore reverse and remand for further proceedings consistent with this opinion.

The Marina is the owner of certain property located at 611 Roosevelt Boulevard in Marmora. All Action maintained a business at that location selling and servicing marine equipment and watercraft. The Marina filed its complaint alleging All Action had breached the parties' lease agreement by failing to pay rent owed for December 2003 and leaving the property in "intolerable condition," requiring the cleaning, repair, and rebuilding of the property. The Marina also alleged All Action and Leps committed various intentional torts resulting in property damage and clean up costs. Additionally, the Marina alleged All Action had not satisfied the outstanding balance for fuel purchased on credit prior to the termination of the lease.

In a single answer filed on June 22, 2004, defendants generally denied the allegations in the complaint. They also specifically denied that "a written [l]ease [a]greement exist[ed]." The Marina filed an amended complaint that sought punitive damages, and defendants filed an answer that now included a counterclaim against the Marina and a third-party complaint against its owner Tersaga. The counterclaim and third-party complaint alleged, among other things, that Tersaga had defamed defendants, maliciously abused process against defendants, and otherwise interfered with All Action's business.

After engaging over the next two years in discovery, plaintiffs moved to compel arbitration. Essentially they argued that the written lease between the Marina and All Action with a start date of April 1, 1995, and an expiration date of March 31, 1999, was thereafter "renewed and ratified" by defendants in a letter dated March 17, 2003.*fn1 Pursuant to paragraph twenty-three of the lease, plaintiffs argued that any dispute arising under the lease should be submitted to binding arbitration. They alleged that defendants refused to arbitrate the dispute and they now sought a court order compelling arbitration and dismissing the pleadings.

In support of the motion, plaintiffs attached the purported lease, a copy of the March 17, 2003, letter, and a variance application filed on behalf of All Action with the Township of Upper zoning board of adjustment. That application sought approval for an amended site plan and a variance regarding a sign on the property. Attached to the application was a signed copy of the parties' 1995 lease.

The March 17, 2003, letter was signed by Tersaga and addressed to Leps. It began, "[P]lease allow me to confirm that All Seasons [] will continue to enjoy its relationship with All Action, and welcome you as a tenant for the next twelve [] to twenty-four [] months. There will be no change in the price of your tenancy, nor any other changes to the terms previously in place." Tersaga's letter concluded, "If you wish to remain with us for the balance of 2003, please sign this letter and it will act as an addendum to any existing lease that currently exists between us." The letter was countersigned by Leps.

Defendants opposed the motion and cross-moved for a further discovery extension. Defense counsel attached to his opposition portions of Leps's deposition testimony in which he denied ever signing a written lease for the property, did not know whose signature appeared on the written lease, and insisted that his arrangement with All Seasons's prior owner was a verbal tenancy agreement. Defense counsel acknowledged that Leps had countersigned the March 17, 2003, letter, but noted it made no reference to any written lease agreement and noted the variation in the signature on the letter from that on the lease.

On September 1, 2006, the motion judge heard oral arguments on the motion and cross-motion. Defense counsel noted that the variance application had never been produced in discovery. He advised the judge that his client was on vacation, and he had not had any opportunity to confer with him regarding the circumstances that surrounded the variance application, but that Leps "indicated to [him] that he did not file the documentation." Plaintiffs' counsel countered by claiming he had produced the variance application in discovery, but that "if it wasn't exchanged [by] the parties," it was a "public record" and that was how plaintiffs had obtained it.

The judge noted that "actions speak louder than words," and was convinced by plaintiffs that "there was a lease that was continued after it expired." The judge found the Leps's signatures on the lease and the variance application were similar, but could not explain why the signature on the March 17, 2003, letter was "somewhat different."*fn2 The judge continued, "[T]he activity overall and the continuation of the relationship over the years between the parties convinces me that the lease was valid. The arbitration provision is valid." He granted plaintiff's motion, ordered arbitration in accordance with the lease provision, and ordered plaintiffs to furnish the outstanding discovery that was the subject of defendants' cross-motion.

Defendants moved for reconsideration. Noting Leps's unavailability at the time the motion was heard, defense counsel urged the judge to reconsider his ruling based upon a new certification filed by Leps. Leps certified that he had not signed the lease, nor had he authorized anyone to sign it on his behalf. Leps claimed he had now reviewed the variance application and believed the handwriting on the application may have been that of Dick Harris, who was "technically never an employee of All Action," though he was a friend of Leps who had "assisted in doing some work." Leps claimed that he never authorized Harris to sign any lease or file any application. Leps reiterated that his agreement with the Marina's prior owner, Ralph Dilks, "was based upon a handshake."

In a November 3, 2006, written decision, the judge denied defendants' motion for reconsideration of the prior order. The judge noted that his decision to compel arbitration "did not depend on the validity of the signature on the lease." Rather, "[i]t was the course of dealings between the parties, including but not limited to [d]efendants' application for a zoning variance and subsequent ratification of the written [l]ease which led him to the conclusion that the written [l]ease was valid and binding." The judge continued that "[r]egardless of who signed the zoning variance [application], [d]efendants received the benefit of its submission to the [board of adjustment],"*fn3 and "later ratified the written lease by letter [of March 17, 2003] [that] . . . Leps admits he signed." Concluding that defendants had "not offered any 'probative, competent evidence,' which (sic) . . . the Court [previously] failed to consider," the judge denied the motion for reconsideration. This appeal ensued.*fn4

Defendants first argue that the motion judge erred in determining the written lease, including its arbitration provision, was in full force and effect. They contend that the testimony of Leps demonstrates the lease was not in effect, or, alternatively, that the claims raised in their counterclaim and third-party complaint were not claims that "ar[ose] under the [l]ease," and therefore are not subject to the arbitration clause.

In order to reach the crux of plaintiff's motion to compel arbitration, the judge needed to decide whether the lease was in effect, thus binding defendants to its terms. The judge necessarily had to resolve the diametrically-opposed evidence in the motion record. Leps claimed he never signed the lease, never agreed to its terms, never authorized anyone to sign on behalf of All Action, never filed the variance application, and never authorized anyone to submit it to the board of adjustment. He admitted he signed the March 17, 2003, letter, but claimed its explicit language made no mention of a written lease.

As a counterbalance to these asserted facts, the Marina claimed that the lease bore Leps's signature, the variance application bore Leps's signature, a copy of the lease was submitted with the application, and Leps signed the March 17, 2003, letter reaffirming the terms of "any existing lease" between the parties. We note, however, that plaintiffs' amended complaint alleged that the lease "was subsequently amended by letter several times," with the most recent amendment claimed to be the March 17 letter. However, no other amendatory letters dated after the expiration date of the lease, March 31, 1999, were in the motion record.

Although the Marina's motion sought to compel arbitration, it was in essence a motion seeking summary judgment on the issue of whether the parties were, or were not, bound by the terms of the lease. Only the resolution of various factual disputes could lead to the legal conclusion that the lease was in effect, thus permitting plaintiffs' invocation of the arbitration clause.

In order to properly assess the Marina's motion, the judge needed to apply the standards used to determine any motion for summary judgment. The Marina was entitled to a determination that the parties were bound by the lease only if it "show[ed] that there [was] no genuine issue as to any material fact challenged," and that it was "entitled to a judgment or order as a matter of law." R. 4:46-2(c). The judge needed to assume that defendants' version of the facts were true and give them the benefit of all favorable inferences available in the record. Brill v. Guardian Life Ins. Co., 142 N.J. 520, 536 (1995).

We think it is clear that by application of these standards to the facts contained in the motion record, the Marina was not entitled to have the essential material disputed facts adjudicated in its favor in a summary fashion. Similarly, we reject defendants' assertion that we should determine that the lease was not in effect. In short, the motion record was inadequate and did not allow for such a determination, one way or the other. Although the judge found the course of the parties' conduct to be compelling, that course of conduct was consistent both with a finding that the lease was in effect, as well as a finding that the parties operated under an oral agreement. We therefore reverse the orders under review and remand the matter for a plenary hearing or trial as the judge determines in the proper exercise of his discretion after hearing from the parties.

The Marina argued before us that such an outcome denies it the ability to short-circuit a full-blown trial, thus, de facto eliminating the efficacy of the arbitration clause in the first instance. We disagree.

Rule 4:46-3(b) permits the judge, if he determines "that the case may be fully or partially adjudicated upon limited testimony," to "enter an order fixing a date certain for the trial of specifically identified disputed factual issues . . . ." The "obvious purpose" of this portion of the Rule is to "permit speedy disposition of those actions whose factual disputes are relatively narrow and which can, therefore, be fully adjudicated with minimal testimony and discovery." Pressler, Current N.J. Court Rules, comment 1 to R. 4:46-3 (2008). Upon remand, we are confident that through the exercise of appropriate discretion, the judge can expeditiously provide for the determination of the preliminary issues presented.

We decline the opportunity to address defendants' other argument in this regard--that the claims asserted in the counterclaim and third-party complaint did not "arise" under the lease and thus are not subject to arbitration. The motion record is sparse on this issue, and the judge made no express findings. Moreover, the order compelling arbitration also provided for the extension of discovery so that defendants could gather further information in support of their claims. We, of course, have not been supplied with the result of those efforts. Defendants are free to renew their argument on this point before the judge as appropriate, and the Marina and Tersaga will be able to fully respond.

Although we have required a remand, we find it necessary to address defendants' second point on appeal. They contend that the Marina and Tersaga waived their right to compel arbitration under the lease and should now be estopped from seeking to compel arbitration because they initiated the action in the Law Division, and thereafter prosecuted the case through the discovery period before bringing any motion to compel arbitration. Because of the peculiar facts presented, we disagree.

We acknowledge defendants' essential point that a party may waive its ability to subsequently invoke a contractual arbitration clause when by express agreement, or by implication through its action, it chooses to litigate its claim rather than demand arbitration. McKeeby v. Arthur, 7 N.J. 174, 181 (1951); see also, Wein, supra, 388 N.J. Super. at 650 (holding "a waiver resulting from the parties' voluntary pursuit of their positions in the Superior Court will preclude the enforcement of a contractual promise to arbitrate").

However, unlike the present case, those cases and others cited by defendants focused upon the issue of when the waiver of an arbitration clause whose existence was undisputed occurred. Here, defendants have consistently denied that they are bound by the terms of the written lease, and therefore, have consistently asserted they have no obligation to arbitrate. Had plaintiffs sought arbitration at an earlier date, we assume the result would have been much the same as it was when the motion was actually brought. In other words, defendants would still have denied that they were bound by the lease, and the judge would have found it necessary to resolve the factual disputes at the core of the legal issue, the same disputed facts which necessitate our remand.

Moreover, it is unclear whether defendants can reasonably argue that plaintiffs somehow sat on their hands and allowed the litigation to continue, thus impliedly waiving their rights to seek arbitration. Plaintiffs' motion to compel was supported by two letters from their counsel to defense counsel, one dated April 19, 2005, and one dated May 31, 2005, in which "binding arbitration or mediation" is requested. A third letter, dated August 14, 2006, demanding arbitration, immediately preceded the motion. This further supports our conclusion that plaintiffs have not waived their right to arbitrate disputes that arose out of the lease, and, therefore, we reject defendants' argument in this regard.

Because of our remand, the final issue raised by defendants regarding the admissibility of the variance application is moot. Defendants can no longer claim prejudice because the document was produced after the close of discovery since further discovery was permitted. If the judge believes defendants are entitled to even more discovery on the issue, he may order that in the appropriate exercise of his discretion. Likewise, defendants' claim that the variance application fails to satisfy the standards of admissibility set forth in N.J.R.E. 1003 is an issue addressed to the trial judge's sound discretion to be exercised as he conducts the limited trial or plenary hearing on remand and additional facts surrounding the document are adduced.

Reversed and remanded. We do not retain jurisdiction.

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