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Madison House Group v. Pinnacle Entertainment

March 15, 2010

MADISON HOUSE GROUP, A NEW JERSEY LIMITED PARTNERSHIP, PLAINTIFF-RESPONDENT,
v.
PINNACLE ENTERTAINMENT, INC., A DELAWARE CORPORATION AND ACE GAMING, LLC, A NEW JERSEY LIMITED LIABILITY COMPANY, DEFENDANTS-APPELLANTS, AND GREATE BAY HOTEL & CASINO, INC., A NEW JERSEY CORPORATION T/A "SANDS HOTEL AND CASINO," DEFENDANT.



On appeal from the Superior Court of New Jersey, Chancery Division, Atlantic County, Docket No. C-145-08.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: December 16, 2009

Before Judges Axelrad and Sapp-Peterson.

Defendant Pinnacle Entertainment, Inc. (Pinnacle)*fn1 appeals from the February l8, 2009 order of the Chancery Division permanently enjoining it from proceeding with the arbitration it had commenced against plaintiff, Madison House Group, L.P. (Madison), with the American Arbitration Association (AAA). We affirm.

This appeal involves the hotel portion of the Sands Casino that Greate Bay Hotel & Casino, Inc. leased from Madison in 2000. In July 2004, Greate Bay assigned the lease to Pinnacle. There were ongoing problems between landlord and tenant and by letter of November 25, 2008, Madison gave notice to Pinnacle of default under the lease, asserting violations not relevant to this appeal.

In response, on December l0, Pinnacle commenced an AAA arbitration against Madison, primarily seeking a declaration that Pinnacle had complied with its lease obligations and was not in breach. According to Pinnacle, it was entitled to pursue this arbitration under the dispute resolution provision contained in Paragraph 21 of the parties' lease, which provides in relevant part:

21. Governing Law. This Lease shall be governed by and construed in accordance with the domestic laws of the State of New Jersey without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of New Jersey. Any and all legal proceedings concerning the infringement, breach, or contemplated breach of this Lease, shall be subject to arbitration in the State of New Jersey, Atlantic County only, and the parties hereto consent to such jurisdiction and venue. Any such disputes arising under this Lease, shall be decided finally by three arbitrators in an arbitration proceeding conforming to the Rules of the . . . ("AAA") applicable to commercial arbitration. The arbitrators shall be appointed as follows: . . . . The decision of a majority of the arbitrators shall be conclusively binding upon the parties and final, and such decision shall be enforceable as a judgment in any court of competent jurisdiction. Notwithstanding the above, at the option of either Landord or Tenant, Landlord or Tenant shall have the right to resolve any dispute, whether initiated by Landlord or Tenant, in a state or federal court of competent jurisdiction located in the State of New Jersey, Atlantic County (or Camden County if federal court), and each party irrevocably submits to the jurisdiction and venue of such court for such purposes.

[(Emphasis added by underline).]

On December 23, 2008, Madison commenced this action in the New Jersey Superior Court, Chancery Division, Atlantic County, seeking specific performance under the lease and damages for breach of the lease and breach of the implied covenant of good faith and fair dealing. Madison also sought a mandatory injunction directing Pinnacle to withdraw its arbitration proceeding and submit its dispute to the court. During an administrative conference call between the parties and AAA, counsel for Madison advised that it had filed the court complaint and would not be arbitrating the dispute. On January 7, 2009, Pinnacle filed suit in the federal district court to compel arbitration and stay the state court action.*fn2

On or about January 6, 2009, Madison filed an order to show cause with temporary restraints in the state court action. Madison argued that the last sentence of Paragraph 21 beginning with "[n]otwithstanding the above," applied to the entirety of the paragraph that preceded the phrase. It contended the paragraph clearly provided that either party had the option of arbitrating disputes arising under the lease unless the other party wanted to litigate those disputes in court; in the vernacular, a lawsuit would "trump" arbitration.

Pinnacle argued that the parties recognized the arbitration of the disputes under the lease was mandatory and the "notwithstanding" clause specifically referred only to the preceding sentence. It contended that by including a clause incorporating AAA rules, the parties conferred jurisdiction in the first instance on the arbitration panel, which included the initial decision as to the issue of arbitrability. According to Pinnacle, once a final and binding decision was issued by the arbitrator, the last sentence of the paragraph gave either party the option to seek redress under the New Jersey Arbitration Act in the state or federal court to either enforce or appeal the arbitration award.

Following oral argument on January 8, 2009, Judge William C. Todd, III gave the following explanation, in part, for his ruling granting the preliminary injunction:

On the record that I have before me today it seems to me that at the least if I were to acknowledge that there's an ambiguity [in Paragraph 21 of the Lease], a review of all the circumstances would suggest that the language should be interpreted as the plaintiffs are urging. I think almost anyone reading that paragraph would come to the conclusion that the parties reserve to themselves the option of litigating rather than proceeding with arbitration. I think that is clearly the most reasonable interpretation of that language of the agreement, and because that language ...


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