April 1, 2009
CABLE MANAGEMENT SERVICES, INC., RCH TELECOMMUNICATIONS, INC., AND ROBERT C. HALGAS, PLAINTIFFS-APPELLANTS/ CROSS-RESPONDENTS,
PETER BERKOWITZ, DEFENDANT-RESPONDENT/CROSS-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-3583-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 4, 2009
Before Judges Fisher and Baxter.
Plaintiffs, Cable Management Service, Inc., RCH Telecommunications, Inc., and Robert C. Halgas (CMS), appeal from a February 29, 2008 Law Division order that confirmed an arbitration award against CMS and entered judgment in favor of defendant, Peter Berkowitz, in the amount of $75,000 of severance pay. CMS maintains that the Law Division erred by:
1) rejecting its contention that the arbitrator lacked authority to award severance pay; 2) failing to correct a miscalculation in the amount of severance pay that was awarded; and 3) denying its request for counsel fees. In his cross-appeal, Berkowitz challenges the Law Division's refusal to award him counsel fees and post-award interest. We affirm in part, and remand on the issue of post-award interest.
CMS is a multi-state corporation that installs cable television service and internet access for various corporate clients. Pursuant to a September 24, 2001 employment agreement, CMS hired Berkowitz as Director of Operations for a period of one year or until terminated by mutual agreement. In section 8, the employment agreement specified that "controversies arising out of or relating to the employment relationship created by this Employment Agreement, or the breach thereof . . . shall be submitted to mediation and/or arbitration in lieu of adjudication through any federal, state or local court system . . . ."
In 2006, CMS assigned Berkowitz to the position of senior vice president of Telecom, which was a division of CMS. When Telecom's recurring losses could not be reversed, CMS decided to cease operation of Telecom. Upon being notified that his position was being eliminated, Berkowitz raised age discrimination and wage violation claims. After a period of negotiations, the parties entered into a separation agreement and general release (separation agreement) on February 23, 2007.
In relevant part, the separation agreement provided that if CMS terminated Berkowitz, CMS would be obligated to pay him $2,884.62 per week from the date of separation through August 31, 2007, a period of approximately twenty-seven weeks. The separation agreement also provided that Berkowitz was entitled to revoke his approval of the separation agreement, provided he did so no later than twenty-one days from February 23, 2007. However, in the event Berkowitz properly exercised his right of revocation, CMS would have no obligation to "pay the sums or provide the benefits otherwise provided for in [the Separation] Agreement." Finally, section 12 of the separation agreement specified that any litigation concerning the separation agreement could be brought only in state or federal court in the District of New Jersey.
On April 6, 2007, forty-two days after he signed it, Berkowitz sent CMS a letter by fax and by overnight mail revoking the February 23, 2007 separation agreement. On April 25, 2007, Berkowitz invoked his right to arbitration under section 8 of the employment agreement by filing a demand for arbitration with the American Arbitration Association.
Because neither side arranged for a court reporter to transcribe the arbitration proceedings, no verbatim record was prepared; however, the parties agree that the arbitrator made specific interim rulings that have a significant bearing on the issues presented to us on appeal.
In particular, during the arbitration proceeding, CMS argued that the arbitrator lacked authority to award Berkowitz the $2,884.62 weekly severance payments that are specified in the separation agreement. CMS argued before the arbitrator that the separation agreement had no arbitration clause and instead required all disputes arising out of the separation agreement to be resolved in state or federal court. The parties agree that on the second day of the arbitration proceeding, the arbitrator rejected CMS's argument that severance pay could not be awarded, even if Berkowitz proved a violation of the separation agreement. The parties further agree that CMS did not file an action in the Law Division seeking to halt the arbitration proceeding before it began, nor by way of order to show cause after the adverse decision by the arbitrator that monetary damages could potentially be awarded to Berkowitz.
On December 10, 2007, at the conclusion of the arbitration proceedings, the arbitrator issued a three-page decision concluding that Berkowitz's effort to revoke the separation agreement was "untimely," and therefore the separation agreement remained "in full force and effect." After finding that Berkowitz was terminated without cause and was consequently entitled to severance payments, the arbitrator awarded Berkowitz the "six months of pay" that the separation agreement required. He entered judgment in favor of Berkowitz in the amount of $75,000.*fn1
On December 20, 2007, CMS filed a complaint in the Law Division in which it argued that the separation agreement did not contain an arbitration provision, and the arbitrator was therefore without authority to award Berkowitz severance payments. Consequently, CMS demanded judgment vacating the $75,000 arbitration award. In the alternative, CMS argued that the weeks to which Berkowitz would have been entitled to severance payments were April 5 through August 31, 2007, which was twenty-one weeks, rather than the six months found by the arbitrator. As such, CMS sought to modify the arbitration award to $60,577.02. Finally, CMS sought an award of counsel fees and costs for being required to defend Berkowitz's claims during an arbitration proceeding notwithstanding the exclusive-judicial-remedy provision of section 12 of the separation agreement.
On February 29, 2008, the Law Division, after oral argument, affirmed the arbitration award in all respects. The judge denied CMS's application for counsel fees and costs and also denied Berkowitz's request for post-arbitration interest and for counsel fees.
Because arbitration is a favored method of resolving commercial disputes, the party seeking to vacate an arbitral award bears a heavy burden. Barcon Assocs. v. Tri-County Asphalt Corp., 86 N.J. 179, 186-87 (1981). Indeed, "every intendment is indulged in favor of the award and it is subject to impeachment only in a clear case." Ibid. (citation omitted). The purpose of arbitration is "to provide final, speedy, and inexpensive settlement of disputes; it is 'meant to be a substitute for and not a springboard for litigation.'" Scotch Plains-Fanwood Bd. of Educ. v. Scotch Plains-Fanwood Educ. Ass'n, 139 N.J. 141, 149 (1995) (citation omitted). "Accordingly, the role of the courts in reviewing arbitration awards is extremely limited[.]" Ibid.
However, as the Court observed in Scotch Plains, a reviewing court's deference to an arbitrator's decision "has limitations . . . . When the parties enter into an agreement that defines the scope of the arbitration process, an arbitrator may not exercise greater authority than the contract confers. The scope of an arbitrator's authority depends upon the terms of the contract between the parties." Ibid. (internal citation omitted).
Here, the parties agree that the 2003 Arbitration Act applies. It provides that a court may vacate an arbitration award if the arbitrator "exceeded the arbitrator's powers" or "there was no agreement to arbitrate, unless the person participated in the arbitration proceeding without raising the objection pursuant to subsection c. of section 15 of this Act not later than the beginning of the arbitration hearing[.]" N.J.S.A. 2A:23B-23(a)(4) and (5).
We turn first to the argument CMS raises in Point I, namely that the trial court erred when it denied CMS's request to vacate the $75,000 arbitration award on the grounds that the arbitrator lacked authority to award damages. CMS acknowledges that the arbitrator was authorized to decide whether Berkowitz's April 6, 2007 attempted revocation of the separation agreement was valid; however, CMS maintains that if such revocation was valid, the arbitrator nonetheless lacked authority to award severance pay because the separation agreement specified that all disputes arising out of the separation agreement must be resolved in state or federal court.
Berkowitz in turn argues that CMS waived any right it may have had to object to the arbitrator's authority to award damages. He points to a portion of the closing argument submitted by CMS that is contained in CMS's appendix. After arguing at great length that Berkowitz had been terminated for good cause, CMS proceeded to argue that "[w]ith regard to the issue of damages, the arbitrator should not reach the issue in light of the fact that there is no liability here." Thus, as is evident, CMS never argued that the arbitrator lacked authority under the 2001 employment agreement or 2007 separation agreement to award damages. Instead, CMS merely maintained that by his conduct, Berkowitz had forfeited any entitlement he might otherwise have had to receive such severance pay. In its closing arguments, CMS also maintained, in the alternative, that Berkowitz had proven "only speculative damages" because he failed to produce "expert testimony as to his earning capacity in the cable industry or any other profession" and because he had failed to mitigate his damages. In the concluding section of its closing argument, CMS asserted that the sum of $75,000 "is only the maximum [Berkowitz] should receive but . . . that should be reduced by his failure to mitigate" his damages. Thus, CMS's closing argument never challenged the arbitrator's jurisdiction to award damages.
In Highgate Development Corporation v. Kirsh, 224 N.J. Super. 328, 333 (App. Div. 1988), we held that a party's participation in arbitration proceedings after the jurisdiction issue has been resolved in his opponent's favor may--in conjunction with other factors--be deemed a waiver of that party's right to later assert in the Law Division that the arbitrator lacked authority to make an award to the claimant. We reasoned that waiver is applicable to ensure that a party "does not get two bites of the apple; if he chooses to submit to the authority and jurisdiction of the arbitrator, he may not disavow that forum upon the return of an unfavorable award."
Ibid. This "important policy" underlying the waiver doctrine would be "subverted" if a party were to be permitted to enter "a nominal objection to the arbitrator's jurisdiction, submit himself fully to the arbitration and still retain the option to demand a new hearing if he does not like the outcome of the arbitration." Ibid. In Wein v. Morris, 194 N.J. 364, 383 (2008), the Court approved "the Highgate analysis," characterizing it as "a better approach to the waiver issue."
Here, as in Highgate, not only did CMS continue to participate in the arbitration proceedings, without ever seeking to enjoin those proceedings, but it also participated in pre-arbitration discovery and filed a counterclaim before the arbitration proceedings began. Such conduct, when combined with its failure to attempt to enjoin those proceedings, constitutes a waiver of its right to now argue that the arbitrator lacked authority to award damages. See id. at 333-34. Having argued before the arbitrator that Berkowitz had not presented sufficient proof to warrant an award of damages, CMS was not entitled before the Law Division to assert the diametrically opposite position that regardless of the proofs Berkowitz had submitted at the arbitration, the arbitrator lacked jurisdiction to award any severance pay at all. Such posture is an instance of the "two bites of the apple" that we prohibited in Highgate, when we held that a party who chooses to submit to the authority and jurisdiction of the arbitrator should not be permitted to disavow that forum if he receives an unfavorable award. See Id. at 333. Consequently, we reject the argument CMS raises in Point I.
In Point II, CMS argues in the alternative that the trial court was, at a minimum, obliged to correct the miscalculation of the remaining severance amount due to Berkowitz. Specifically, CMS maintains that because it had already paid Berkowitz five weeks of salary after his February 23, 2007 date of termination, the Law Division erred by failing to recalculate the arbitration award to so reflect. CMS's argument lacks merit for several reasons. First, because neither party arranged for the production of a verbatim transcript of the arbitration proceedings that would have permitted the Law Division to ascertain what evidence was considered and adjudicated by the arbitrator in reaching the $75,000 figure, neither the Law Division nor this court is in a position to conclude that the arbitrator erred when he calculated damages. In the absence of such a verbatim record, we are unable to determine whether the arbitrator erred when he declined to credit CMS for five weeks of salary CMS claims to have paid Berkowitz after the date of his termination.
Second, as we have already discussed, the arbitration statute itself limits the Law Division's right to modify an arbitration award to only those circumstances where an "evident mathematical miscalculation" is presented; the arbitrator made an award on a claim not submitted to arbitration; or the award is imperfect as to form. N.J.S.A. 2A:23B-24(a). Because no such mathematical error is evident from the face of the award, the Law Division properly rejected CMS's request for a recalculation of the award. Tretina Printing, Inc. v. Fitzpatrick & Assocs., Inc., 135 N.J. 349, 360-61 (1994). We thus reject the argument CMS raises in Point II.
In Point III, CMS asserts that the trial court erred in refusing to require Berkowitz to reimburse CMS for the counsel fees and costs it expended for having to participate in an arbitration proceeding that should never have been conducted in the first place. This argument lacks sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We add only the following comment. CMS, having waived its right to object to the arbitrator's right to award damages, cannot now be entitled to an award of attorney's fees arising out of its participation in those very proceedings.
We turn next to Berkowitz's cross-appeal in which he argues the Law Division erred when it refused to award him attorney's fees as well as interest on the arbitration award. He maintains that in the absence of an award of attorney's fees, the $75,000 arbitration award will be "significantly eroded" and he will consequently receive little benefit from his award. The applicable statute, N.J.S.A. 2A:23B-25(c), authorizes a court to award reasonable attorney's fees and other reasonable expenses of litigation to the prevailing party when judgment is entered confirming an arbitration award. However, that statute has been interpreted as authorizing an award of attorney's fees to the prevailing party only in those instances where the parties' underlying contract or agreement specified that the party who prevailed in the arbitration would be entitled to an award of attorney's fees. Rock Work, Inc. v. Pulaski Constr. Co., 396 N.J. Super. 344, 355-57 (App. Div. 2007), certif. denied, 194 N.J. 272 (2008). Here, because neither the employment agreement nor the separation agreement so provided, the judge did not abuse his discretion when he declined to award attorney's fees to Berkowitz.
Last, Berkowitz maintains that the Law Division erred when it rejected his application for post-arbitration interest. Rule 4:42-11(a) provides in relevant part that "except as otherwise ordered by the court or provided by law, judgments, awards and orders for the payment of money, taxed costs and counsel fees shall bear simple interest as follows[.]" A court should allow interest to compensate the prevailing party "for the illegal detention of a legitimate claim." Small v. Schunke, 42 N.J. 407, 415 (1964). Indeed, "a court should charge and allow interest in accordance with principles of equity in order to accomplish justice in each particular case." Id. at 415-16.
Here, the judge did not explain his reasons for denying Berkowitz's request for post-award interest. Consequently, we remand to the Law Division for reconsideration of the denial of that request. We intimate no view on how such request should be resolved.
We thus affirm on CMS's appeal and on the attorney's fee issue advanced in Berkowitz's cross-appeal. Our remand is limited to the issue of post-award interest.
Affirmed in part and remanded. We do not retain jurisdiction.