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Dia of Jersey City v. Fogari


February 27, 2009


On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-3855-01.

Per curiam.


Argued January 26, 2009

Before Judges Carchman, R. B. Coleman and Sabatino.

This appeal and cross-appeal arise out of a business dispute that the trial court, with the parties' consent, referred to a private umpire pursuant to the Alternative Procedure for Dispute Resolution Act ("APDRA"), N.J.S.A. 2A:23A-1 to -19. After lengthy hearings, the umpire issued an award, which he subsequently modified, ruling in part for plaintiffs and in part for defendants. The trial court sustained the umpire's written findings in all respects and entered a corresponding final judgment. The parties remained dissatisfied, and they each sought this court's review on various issues.

We affirm the judgment in part, vacate it in part, and remand for further proceedings. We do so primarily because of certain unresolved issues that were omitted from the umpire's disposition.

Although the record is extensive, we need not recite the parties' factual contentions in great detail, given the nature of the legal issues before us. We summarize those contentions.

From 1992 through 1997, plaintiff*fn1 Ricardo Baldonado, a licensed radiologist, and defendant*fn2 Robert Fogari, M.D., participated together in a business relationship involving medical imaging at various locations. The imaging services included magnetic resonance imaging ("MRIs"), x-rays, and CT scans.

During the course of this relationship, plaintiff allegedly: (1) contributed significant financial support to help defendant acquire Jersey City Imaging Center, now known as American Imaging of Jersey City, Inc. ("American Imaging"), to establish Bergen Open MRI, Inc. ("Bergen MRI"), and Hackettstown Open MRI, Inc. ("Hackettstown MRI"); and (2) provided radiology reading services through DIA. Although defendant operated these various imaging centers to differing degrees, he had no ownership interest in the corresponding business entities. Instead, defendant's wife, Jayne Fogari, owned those entities herself, in full or in part.*fn3

When the two men first formed their business relationship in the early 1990s, they had been friends for roughly twenty years. In fact, defendant is the godfather of one of plaintiff's daughters. At some point in the mid-to-late 1990s, their relationship deteriorated. Consequently, defendant terminated his business dealings with plaintiff.

After plaintiff was terminated, he and DIA filed a complaint against defendant and other affiliated parties*fn4 in the Law Division. Plaintiff claimed that he was due several hundred thousand dollars from defendant in return for the reading services he had already rendered without compensation, for prospective services he would have performed but for his improper termination, and for the repayment of unpaid loans. Plaintiff also maintained that, given his expenditures of money and labor, he should be deemed a partner with defendant in the ongoing imaging ventures.

Defendant denied plaintiff's allegations that he was owed money. Defendant further asserted, by way of counterclaim, that plaintiff had engaged in improper self-dealing activities. These competing allegations stemmed from plaintiff's acquisition of two other imaging centers in West New York, facilities that defendant had been interested in obtaining with him. According to defendant, the acquisitions constituted tortious interference with economic advantage and breach of fiduciary duty, and therefore, plaintiff was liable to pay him damages.

When the case was initially called for trial in the Law Division, the court disqualified plaintiff's then-counsel, upon recognizing that he was likely to be a trial witness. The parties at that point agreed to have their disputes referred to a private umpire under the APDRA. A consent order to that effect was entered, dismissing the plaintiff's claims and defendant's counterclaims without prejudice, subject to the APDRA proceedings. The parties then mutually selected an umpire, a retired Assignment Judge.

The umpire conducted eighteen days of hearings between May 2006 and January 2007. He also considered detailed written submissions from counsel.

On June 4, 2007, the umpire issued his initial written decision. The umpire rejected most of plaintiff's affirmative claims but awarded him a net sum of $183,500 in unpaid loans. In essence, the umpire found the proofs insufficient to establish that plaintiff had a ownership interest in the Jersey City, Bergen, and Hackettstown centers. The umpire also found that plaintiff's services as a reader for those centers were terminable at will. The umpire did find, however, that plaintiff was entitled to be paid back the funds he had loaned to the businesses, "together with interest from the date of [the] award."

The umpire declined to grant any affirmative relief to defendant on his counterclaim. In that regard, the umpire expressly found that, although the parties had engaged in some discussions about creating a prospective partnership in the West New York facilities, no meeting of the minds had been achieved. Hence, there was insufficient proof of a joint venture.

After receiving written exceptions from the parties, the umpire issued a supplemental letter on August 3, 2007. In that letter, the umpire increased the loan repayment award by another $50,000 for a payment that he had admittedly overlooked. This modification increased plaintiff's total award to $233,500. The umpire rejected all of the other asserted exceptions.

The parties then appealed and cross-appealed the umpire's award to the Law Division. After hearing oral argument, the court rejected the parties' competing arguments about the umpire's alleged errors. In the course of its decision, the court invoked Tretina v. Fitzpatrick & Assocs., 135 N.J. 349, 358 (1994) (holding that private arbitration awards ordinarily "may be vacated only for fraud, corruption, or similar wrongdoing on the part of the arbitrators") (internal citation omitted). Finding no such wrongdoing present here, the trial court ratified the umpire's award, as modified by his August 3, 2007 supplemental letter. Final judgment confirming the award was entered on December 20, 2007.*fn5

Plaintiff now appeals, mainly contending that the trial court applied an insufficiently-rigorous standard of review to the umpire's award. Specifically, plaintiff argues that the court erred in limiting its review pursuant to Tretina, supra, and Section 8 of the Arbitration Act, N.J.S.A. 2A:24-1 to -11 (which limits modification of an award to grounds of corruption, fraud, or other misconduct), as opposed to conducting the more rigorous judicial review demanded under the APDRA at N.J.S.A. 2A:23A-13. Plaintiff further contends that the umpire neglected to address his claims for: (1) earned but unpaid reading fees and (2) discretionary prejudgment interest, and that the trial court failed to remedy those oversights. Plaintiff also claims that the umpire erred by excluding certain sums from the unpaid loan balances. He seeks correction of the award, either by this court or, in the alternative, on remand.

Defendant cross-appeals, asserting that the umpire and the trial court both erred in not addressing his counterclaim's alternative legal theory of tortious interference. He further argues that the umpire's findings about the absence of a joint venture for the West New York sites were contrary to the record proofs. Defendant opposes plaintiff's affirmative claims for adjustment.

We are persuaded that the trial court was under a misapprehension about the appropriate standard for reviewing an umpire's award under the APDRA. In 1987, the New Jersey Legislature enacted the APDRA to create: a new procedure for dispute resolution which would be an alternative to the present civil justice system and arbitration system of settling disputes. It is intended to provide a speedier and less expensive process for resolution of disputes than traditional civil litigation and would provide parties with rights that are not currently available under New Jersey's Arbitration Act. [Governor's Reconsideration and Recommendation Statement to Assembly Bill No. 296, at 1 (Jan. 7, 1987) (emphasis added).]

The APDRA "is not self-executing. It is a voluntary procedure that only applies if it is invoked in a written agreement." Mt. Hope Dev. Assocs. v. Mt. Hope Waterpower Project, L.P., 154 N.J. 141, 151 (1998). Parties to an APDRA proceeding are entitled to engage in discovery. N.J.S.A. 2A:23A-10. The dispute is heard by an umpire, N.J.S.A. 2A:23A-9, who is required to make an "award on all issues submitted for alternative resolution in accordance with applicable principles of substantive law." N.J.S.A. 2A:23A-12(e). The award must be reduced to a writing, must "state findings of all relevant material facts, and make all applicable determinations of law." N.J.S.A. 2A:23A-12(a).

Under the APDRA, an umpire's award may be set aside or modified by the Superior Court on the following grounds:

c. The award shall be vacated on the application of a party who either participated in the alternative resolution proceeding or was served with a notice of intention to have alternative resolution if the court finds that the rights of that party were prejudiced by:

(1) Corruption, fraud or misconduct in procuring the award;

(2) Partiality of an umpire appointed as a neutral;

(3) In making the award, the umpire's exceeding their [sic] power or so imperfectly executing that power that a final and definite award was not made;

(4) Failure to follow the procedures set forth in this act, unless the party applying to vacate the award continued with the proceeding with notice of the defect and without objection; or

(5) The umpire's committing prejudicial error by erroneously applying law to the issues and facts presented for alternative resolution. [N.J.S.A. 2A:23A-13(c) (emphasis added).]

Moreover, subsection 13(b) of the APDRA requires that the umpire's decision be founded upon "substantial evidence":

In considering an application for vacation, modification or correction, a decision of the umpire on the facts shall be final if there is substantial evidence to support that decision; provided, however, that when the application to the court is to vacate the award pursuant to paragraph (1), (2), (3), or (4) of subsection c., the court shall make an independent determination of any facts relevant thereto de novo, upon such record as may exist or as it may determine in a summary expedited proceeding as provided for by rules adopted by the Supreme Court for the purpose of acting on such applications. [N.J.S.A. 2A:23A-13(b) (emphasis added).]

By contrast, the level of judicial review for awards made under the Arbitration Act, N.J.S.A. 2A:24-8, is essentially confined to whether the arbitrators engaged in wrongdoing or otherwise acted outside of the scope of their authority:

The court shall vacate the award [made under the Arbitration Act] in any of the following cases:

a. Where the award was procured by corruption, fraud or undue means;

b. Where there was either evident partiality or corruption in the arbitrators, or any thereof;

c. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause being shown therefor, or in refusing to hear evidence, pertinent and material to the controversy, or of any other misbehaviors prejudicial to the rights of any party;

d. Where the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made.

When an award is vacated and the time within which the agreement required the award to be made has not expired, the court may, in its discretion, direct a rehearing by the arbitrators. [N.J.S.A. 2A:24-8 (emphasis added).]

These limited grounds for review in the Arbitration Act substantially comport with the Court's holding in Tretina, a case which arose in the context of reviewing a private arbitration award. See Tretina, supra, 135 N.J. at 352.

Although the judicial review provisions in the Arbitration Act and in the APDRA somewhat overlap, in that both statutes authorize an award to be set aside in instances of corruption, misconduct and the like, the APDRA is more demanding. The latter's stiffer approach is particularly reflected in the APDRA's requirements that, among other things, the award be supported by "substantial evidence," N.J.S.A. 2A:23A-13(b), and that the award not be the product of "prejudicial error in applying applicable law to the issues and facts presented for alternative resolution." N.J.S.A. 2A:23A-13(f).

We recognized these significant differences in the court's review function under these respective statutes in Morel v. State Farm Ins. Co., 396 N.J. Super. 472 (App. Div. 2007). In that case, the plaintiff, an insured seeking PIP benefits, appealed from a judgment of the Law Division, which had confirmed an umpire's award under the APDRA in favor of the defendant insurer. Id. at 473. The sole issue before the umpire was whether the plaintiff actually had been in his car at the time of the subject motor vehicle accident. Ibid. After the umpire issued his adverse ruling, plaintiff sought the trial court's review under the APDRA. The motion judge incorrectly perceived that his review of the umpire's determination was "limited to considering whether the [proceeding] was marred by fraud, corruption, conflict of interest" or similar factors. Id. at 474. Because no such taint was established, the judge filed an order confirming the award. Ibid. We reversed that decision because the trial court had failed to apply the more rigorous review standards "dictated by the Legislature" in the APDRA. Id. at 476.

Here, the trial court similarly erred in applying a more relaxed standard of review to the umpire's award than that required by the APDRA. At oral argument before us, defense counsel conceded that the court applied an incorrect review standard, although he urges that the mistake was inconsequential.

Rather than remanding this entire matter on that basis, we have independently reviewed the record*fn6 , using the APDRA's statutory criteria. See id. at 475 (authorizing the Appellate Division to conduct its own review of an award in such circumstances). Based upon that examination, we are satisfied, with the exception of certain omitted items, the umpire's decisions were sound, supported by substantial evidence and consistent with the applicable law.

The umpire made several key credibility assessments about the witnesses who testified, including, among other things, his finding that defendant's forensic accountant, Ted Ibex, was credible in his testimony about the proper computation of plaintiff's loan balance for the Jersey City site. Those credibility findings have ample support in the record and warrant our deference. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974). Except for certain omitted items that we will address separately, the umpire performed a detailed and logical analysis of the extensive proofs relating to the evolution and demise of the parties' business dealings.

Among other things, the evidence clearly sufficed to support the umpire's core determinations that plaintiff was not entitled to an equity share in defendant's three imaging centers, that the funds he infused in those centers were simply loans and that his relationship with defendant was terminable at will.

Moreover, the umpire's analysis comports with pertinent case law of contracts, see, e.g., In re Miller's Estate, 90 N.J. 210, 219 (1982) (noting that contracts lacking terms of duration are usually terminable at will), partnership, see, e.g., Kozlowski v. Kozlowski, 164 N.J. Super. 162, 171 (Ch. Div. 1978) (reciting the elements of a partnership, including proof of mutual agreement, the sharing of profits and losses, joint ownership and control of property and business, community of power, dissolution rights, and conduct toward third persons), aff'd, 80 N.J. 378 (1979), joint venture, see, e.g., Wanaque Borough Sewerage Auth. v. Twp. of West Milford, 281 N.J. Super. 22, 32 (App. Div. 1995) (outlining the elements of a joint venture, including, among other things, a mutual agreement to enter into an undertaking with a community of interest and a common purpose); see also Grober v. Kahn, 47 N.J. 135, 147-48 (1966) (holding that mutual contributions to an asset purchase did not create a joint venture, absent proof of ongoing involvement by the contributors), and other legal doctrines, see Wade v. Kessler Inst., 172 N.J. 327, 338 (2002) (noting that employment relationships are presumptively terminable at will).

We perceive no factual or legal basis to disturb the umpire's reasoned assessments. We therefore affirm the umpire's express findings, both with respect to plaintiff's affirmative claims and as to defendant's counterclaims.

We reject plaintiff's specific contention that the umpire failed to give sufficient consideration to his equitable claim for prejudgment interest on the unpaid loans. Because there were no promissory notes specifying interest rates on the funds he advanced, the question of prejudgment interest is a matter of the tribunal's discretion. See Bak-A-Lum Corp. of America v. Alcoa Bldg. Products, Inc., 69 N.J. 123, 131 (1976). The umpire adequately conveyed his assessment that such interest, despite it being advocated in plaintiff's post-hearing submissions, was not equitably required in this case. The umpire did so in his initial decision by specifying that plaintiff was entitled to $183,500, "together with interest from the date of this award." (Emphasis added). That selected trigger date for interest, by logical implication, denied plaintiff any prejudgment amount.

Moreover, the umpire specifically informed the parties in his ensuing August 2007 supplemental decision that: "As to the application for pre-judgment interest, I will not modify the determination made in my Opinion of June 4, 2007 as to that issue." We see no reason to disturb that ruling. The umpire did not exceed the bounds of discretion in concluding that plaintiff was entitled to get his principal back, but nothing more than that, when he was terminated from the imaging centers.

Although they did not yield interest, plaintiff's loans helped keep the imaging businesses as going concerns, thereby affording him continued film-reading opportunities from which he might derive compensation. The continued vitality of the businesses also advanced plaintiff's hope, albeit a unilateral one, that he might gain an equity share in those enterprises.

On the other hand, we reject defendant's claim that the umpire miscalculated the award on the loans by including certain funds that plaintiff had advanced more than six years before his lawsuit was filed. See N.J.S.A. 2A:14-1. There is sufficient testimony in the record to conclude that plaintiff's cause of action to seek a return of those monies did not accrue until after he was terminated and learned that he would not be recognized by defendant as having any equity interest in the imaging centers. See, e.g., Guichardo v. Rubinfeld, 177 N.J. 45, 51 (2003).

Two open issues, however, do require further attention. First, the umpire neglected to rule upon plaintiff's claims to be compensated for reading services that he provided before he was terminated. This material oversight must be rectified. Plaintiff clearly asserted and preserved this discrete (and potentially substantial) claim for earned fees in his Law Division complaint and in the hearings before the umpire. His expert accountant, Stephen Chait, offered various calculations of such earned fees, although no bills or supporting documents for those calculations appear in the record before us. Defendant admits that plaintiff performed certain reading services, although he denies any legal obligation to pay for them. Defendant's accountant also differs with some of the numerical calculations of plaintiff's accountant.

Unfortunately, the record before us is inadequate for us to determine, de novo, whether plaintiff is entitled to an award of past earned fees under principles of quantum meruit, implied contract or other legal theories. Nor can we tell from this record how much such fees, if they are indeed compensable, should be. Consequently, we must remand this unresolved issue to the Law Division. The Law Division shall confer with the parties and determine the best method to develop a record to adjudicate this issue, with appropriate findings. Among other things, the court may consider appointing a new private neutral to address the earned-fees claim, although the parties have both indicated to us that they would prefer any such open issues to be decided by the trial court without any further references to a neutral.

Second, the umpire never addressed defendant's alternative counterclaim theory of tortious interference. This claim is legally distinct from the joint venture claim that the umpire rejected. See Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 751 (1989) (outlining the elements of a tortious interference claim). The present record is insufficient for us to resolve the claim ourselves. Consequently, we remand for the disposition of that open issue as well, along with the development of an appropriate record.

We have duly considered all other points and sub-points raised by the parties, and note that they lack sufficient merit to warrant discussion in this opinion. R. 2:11-3(e)(1)(E).

For these reasons, the trial court's final judgment is affirmed in part, vacated in part, and remanded for further proceedings. We do not retain jurisdiction.

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