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Wein v. Morris

April 14, 2008

HOWARD WEIN, PATRICK DELANEY AND JEFFERY REALTY, INC., PLAINTIFFS-APPELLANTS,
v.
JACK MORRIS, JSM AT INMAN, L.L.C., JSM AT TALMADGE, L.L.C., CHARLESTOWN CROSSING, INC., JSM AT NEW DOVER, L.L.C. AND JSM AT MATAWAN, L.L.C., DEFENDANTS-RESPONDENTS, AND ABC, CORPS. 1-10, XYZ, L.L.C.'S 2-10 AND JOHN AND JANES DOES 1-15, DEFENDANTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 388 N.J Super. 640 (2006).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

This appeal requires the Court to determine the validity of an arbitration award.

In March 1997, plaintiffs Howard Wein, Patrick Delaney, and Jeffery Realty, Inc., entered into two lease commission agreements with defendant Jack Morris on behalf of defendant entities. Through those agreements, plaintiffs became the exclusive agents to procure tenants and buyers for defendants' properties. Both agreements contained an arbitration clause that required any controversy, dispute or claim between the parties to be "resolved by binding arbitration in accordance with the rules of the American Arbitration Association."

Plaintiffs claimed they were due commissions, but defendants disagreed. In November 1998, plaintiffs filed suit in the Superior Court, alleging breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, and various other improprieties. Defendants filed an answer raising several affirmative defenses and counterclaims, and demanding a jury trial. The parties did not seek arbitration.

In May 2002, defendants moved to stay the lawsuit and to compel arbitration, but withdrew that motion before it was heard. In June 2003, after almost five years of extensive court-supervised discovery, both sides moved for summary judgment. Over the objection of the parties, all in agreement that the arbitration clause had been waived, the trial court sua sponte ordered the matter to arbitration and dismissed the action. No party sought to appeal that order and the matter proceeded to arbitration without further objection. The arbitrator entered an award in favor of plaintiffs that did not include future damages in the form of renewal commissions and counsel fees. Plaintiffs asked the arbitrator to reconsider the failure to include both of those items. The arbitrator subsequently awarded future damages, but denied the request for counsel fees.

Plaintiffs moved to enforce the award, and defendants moved to vacate it. The trial court confirmed the award and dismissed defendants' motion. In a published opinion, the Appellate Division reversed, finding that the trial court erred in compelling arbitration, that the trial court's order was not final and appealable as of right, and that defendants did not waive their right to contest the arbitration issue. The Appellate Division also concluded that the arbitrator exceeded his authority when he amended the award to include renewal commissions.

The Supreme Court granted plaintiffs' petition for certification and permitted the National Employment Lawyers Association of New Jersey (NELA) to file a brief as amicus curiae.

HELD: The trial court erred in ordering the parties to arbitrate; the order compelling arbitration was a final order appealable as of right, and even if the order were not final, under the circumstances presented defendants waived their right to contest the arbitrator's jurisdiction; and, the arbitrator lacked the authority to modify the arbitration award to include future damages.

1. The New Jersey Arbitration Act (the Arbitration Act), N.J.S.A. 2A:24-1 to -11, authorizes courts to recognize and enforce arbitration agreements. New Jersey courts have long noted the public policy encouraging arbitration. Applying fundamental contract principles, the Court is in accord with the Appellate Division's conclusion that arbitration was mutually waived. The parties engaged in almost five years of court-monitored discovery and clearly expressed their desire to waive arbitration. Faced with that unequivocal waiver, it was error for the trial court to order the matter to arbitration. (Pp. 10-12)

2. New Jersey court rules provide that a party has the right to appeal to the Appellate Division from a final judgment. R. 2:2-3(a)(1). Here, the trial court ordered the parties to arbitration and dismissed the action. That would appear to be a final judgment appealable as of right because the order disposed of all the issues as to those parties before the Superior Court. The Court recognizes, however, that if the trial court had followed the procedure provided under the then-applicable Arbitration Act, upon determining that the matter should be referred to arbitration, the court should have stayed the action. In that event, the order compelling arbitration would not have been final because it merely suspended the litigation until after the arbitration proceedings were complete, at which time the dispute would be subject to final resolution by the court confirming, vacating, or modifying the award. When the parties are ordered to arbitration, the right to appeal should not turn on whether a trial court decides to stay the action or decides to dismiss the action. Rather, the same result should apply in either case. To avoid further uncertainty in this area, and to provide a uniform procedure, the Court finds it appropriate to deem an order compelling arbitration a final judgment appealable as of right. That will provide uniformity, promote judicial economy, and assist the speedy resolution of disputes. The Court exercises its rulemaking authority and amends Rule 2:2-3(a) to add an order of the court compelling arbitration to the list of orders that shall be deemed final judgments for appeal purposes. Because this is a new rule, the Court finds it appropriate to apply it purely prospectively and not to the parties of this appeal. The matter is referred to the Supreme Court's Civil Practice Committee for its recommendations. (Pp. 13-18)

3. The Appellate Division has held, and this Court agrees, that parties may waive their right to have a court determine the issue by their conduct or by their agreement to proceed in arbitration. The court should consider the totality of circumstances to evaluate whether a party has waived the right to object to arbitration after the matter has been ordered to arbitration and arbitration is held. Some of the factors to be considered in determining the waiver issue are whether the party sought to enjoin arbitration or sought interlocutory review, whether the party challenged the jurisdiction of the arbitrator in the arbitration proceeding, and whether the party included a claim or cross-claim in the arbitration proceeding that was fully adjudicated. In this case, defendants expressed disagreement with the trial court, agreed to an arbitrator, filed their counterclaim, and fully participated in the arbitration proceeding. It would be a great waste of judicial resources to permit defendants to essentially have a second run of the case before a trial court. Under the totality of the circumstances, defendants waived their right to appeal the order compelling arbitration. (Pp. 18-24)

4. The Court is in substantial agreement with the reasoning of the Appellate Division on the issue of the arbitrator's authority to issue a corrected and clarified award. The arbitrator was without authority to amend the award to include renewal commissions. (Pp. 24-25)

The judgment of the Appellate Division is AFFIRMED in part and REVERSED in part.The matter is REMANDED to the trial court for further proceedings consistent with this opinion.

The opinion of the court was delivered by: Justice Wallace, Jr.

Argued October 22, 2007

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, RIVERA SOTO, and HOENS join in JUSTICE WALLACE's opinion. JUSTICE ALBIN did not participate.

This appeal requires us to determine the validity of an arbitration award. Plaintiffs' underlying claims are based on defendants' alleged breach of two written contracts, each of which contained an arbitration clause. Plaintiffs filed a complaint in Superior Court and did not seek arbitration. Defendants answered and filed a counterclaim. After almost five years of court-supervised discovery, both sides moved for summary judgment. Over the objection of the parties, the trial court ordered the matter to arbitration and dismissed the action. No party sought to appeal that order and the matter proceeded to arbitration without further objection. The arbitrator entered an award in favor of plaintiffs that did not include future damages and counsel fees. Plaintiffs asked the arbitrator to reconsider the failure to include both of those items. The arbitrator subsequently awarded future damages, but denied the request for counsel fees.

Plaintiffs moved to enforce the award, and defendants moved to vacate it. The trial court confirmed the award and dismissed defendants' motion. The Appellate Division reversed, finding that the trial court erred in compelling arbitration, that the trial court's order was not final and appealable as of right, and that defendants did not waive their right to contest the arbitration issue. We granted plaintiffs' petition for certification.

We hold that the trial court erred in ordering the parties to arbitrate, that the order compelling arbitration was a final order, and that even if the order were not final, under the circumstances presented defendants waived their right to contest the arbitrator's jurisdiction. We also hold that the arbitrator lacked the authority to modify the arbitration award to include future damages.

I.

The facts underlying this matter are largely uncontested. In March 1997, plaintiffs Howard Wein, Patrick Delaney, and Jeffery Realty, Inc., entered into two lease commission agreements with defendant Jack Morris on behalf of defendant business entities. Through those agreements, plaintiffs became the exclusive agents to procure tenants and buyers for defendants' properties. Both agreements also contained an arbitration clause that required any controversy, dispute or claim between the parties to be "resolved by binding arbitration in accordance with the rules of the American Arbitration Association."

Plaintiffs claimed they were due commissions, but defendants disagreed. In November 1998, plaintiffs filed suit in the Superior Court, alleging breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, and various other improprieties. Defendants filed an answer raising several affirmative defenses and several counterclaims, including fraud, misrepresentation, negligence, breach of fiduciary duties, and breach of the duty of good faith and fair dealing. Defendants demanded a jury trial.

The parties engaged in extensive discovery that lasted until 2003. The trial court closely monitored discovery, issuing six case management orders and deciding several motions to compel discovery. At one point defendants filed a motion for leave to appeal, but the Appellate Division denied that motion.

In May 2002, defendants moved to stay the lawsuit and to compel arbitration, but withdrew that motion before it was heard. Defendants also filed a motion for summary judgment that same month but subsequently withdrew that motion as well. A year later in June 2003, defendants again moved for summary judgment, and plaintiffs cross-moved for summary judgment.

On the return date for the summary judgment motions, the trial court surprised the parties by sua sponte ordering the parties to binding arbitration in accordance with the agreements. Defense counsel objected, arguing that plaintiffs had waived the arbitration clause. Plaintiffs' counsel agreed that the arbitration clause had been waived and reminded the court that defendants had filed a motion to compel arbitration, but withdrew the motion.

Following the hearing, plaintiffs' counsel wrote the trial court stating that the parties were in agreement that arbitration was waived and the litigation should proceed in court. Nevertheless, the trial court entered an order dated August 28, 2003, denying the parties' motions for summary judgment as moot, directing the parties to resolve their dispute through arbitration, and dismissing the complaint and all counterclaims and cross-claims. Neither plaintiffs nor defendants filed an appeal from that order.

On September 23, 2003, plaintiffs initiated arbitration with the American Arbitration Association (AAA). The parties agreed that a retired jurist would be the arbitrator. Defendants filed an answer and counterclaim against plaintiffs. Defendants did not raise any objection with the ...


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