May 10, 2010
JOSEPH SCIAMARELLI, PLAINTIFF-RESPONDENT,
KATHLEEN AND ELLIOT SEMET, DEFENDANTS-APPELLANTS.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-1808-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued April 21, 2010
Before Judges Fisher, Sapp-Peterson and Espinosa.
At the conclusion of protracted proceedings, an arbitrator found Sound Design Enterprises Inc. t/a Sound Design Construction (Sound Design), as well as its president, plaintiff Joseph Sciamarelli, liable to Elliot and Kathleen Semet (the Semets), in the amount of $326,267.53, based on the breach of a contract for the repair and remodeling of the Semets' home in Brielle. Sciamarelli thereafter filed this action, seeking a vacation of the award insofar as it applied to him, pursuant to N.J.S.A. 2A:23B-23(a)(4) (allowing vacation of an award when "the arbitrator's powers" were "exceeded") and N.J.S.A. 2A:23B-23(a)(5) (allowing vacation of an award when "there was no agreement to arbitrate"). Upon the filing of the complaint, Judge Daniel M. Waldman entered an order requiring the Semets to show cause why judgment should not be entered in favor of Sciamarelli.
On May 26, 2009, a few days after hearing argument, Judge Waldman entered an order, as authorized by N.J.S.A. 2A:23B-20, directing the arbitrator to advise him in writing: (1) "whether she intended to enter the [a]ward... against [Sound Design] solely, or against both that corporate entity and the individual, Joseph Sciamarelli," and (2) if she intended the latter, "then set forth the procedural and/or substantive basis upon which that decision was based." These inquiries were certainly warranted, as the award contained no rationale for the award against Sciamarelli; instead, the award consisted only of a list of construction items with monetary figures representing the amount of the Semets' claim alongside monetary figures representing the award on each item. The award, however, referred in the caption to "respondents" as both Sound Design and Sciamarelli, and ultimately concluded that "[r]espondents shall pay" to the Semets $326,267.53 (emphasis added). Thus, the award gave every appearance -- but provided no explanation -- that the arbitrator had found both Sound Design and Sciamarelli liable to the Semets for the full amount awarded.
The arbitrator responded to Judge Waldman by letter dated June 10, 2009. She stated: (1) the award "was intended to include '[r]espondents' as described in the original claim filed [by the Semets]," noting that the "[r]espondents included Joseph Sciamarelli throughout the entire arbitration process"; and (2) "[t]he arbitration case filed in this matter... named Joseph Sciamarelli as a [r]espondent." The arbitrator also provided these comments:
In the [a]nswer & [c]ounterclaim filed by [r]espondents' attorney [at the time], the caption includes Joseph Sciamarelli. In [the] body of the [a]nswer & [c]ounterclaim there is no mention of excluding Joseph Sciamarelli from the arbitration process. (See attached)[.]
When the arbitration process started[,] [former counsel] was replaced by [present counsel for plaintiff] as attorney for "[r]espondents."
In an [a]rbitration [b]rief filed by [present counsel for plaintiff] he states, "Joe Sciamarelli is not a party to that contract, and therefore, he is not a proper party to this arbitration." (See attached). Testimony during the hearings by [the Semets] alleged that Mr. Sciamarelli's purported expertise to re-build their home and testify as an expert witness for them in another matter were the main reasons they hired him.
The claim filed with the American Arbitration Association was against Joseph Sciamarelli and [Sound Design], "[r]espondents[.]" My intention was to find for the [Semets] and although Mr. Sciamarelli did not sign personally on the [c]ontract or give a personal guarantee he was named as a "[r]espondent."
Thereafter, Judge Waldman again heard argument and, on August 10, 2009, rendered a written decision and entered judgment in Sciamarelli's favor.
In appealing, the Semets argue the judge erred: (1) in understanding what had been submitted to the arbitrator and the scope of the arbitrator's authority; (2) in appreciating the rules and practice governing the arbitration; (3) in applying contract principles regarding Sciamarelli's liability for Sound Design's wrongdoing; and (4) in determining the Semets failed to present facts to the arbitrator to support a basis for piercing Sound Design's corporate veil. We find insufficient merit in these arguments, or any other arguments that may be discerned from the Semets' pro se brief, to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We add only the following.
Much of the parties' efforts in the trial court and here have been devoted to whether Sciamarelli was a proper party to the arbitration. Although relevant, this dispute distracts from the larger question -- whether there were grounds for the imposition of an award against Sciamarelli even if the claim against him was arbitrable. Although there were questions about the timeliness of Sciamarelli's assertion of his objection to arbitration, which the arbitrator never addressed, we need not determine whether the order under review may be sustained on that ground because we are satisfied the arbitrator exceeded her authority by issuing an award against Sciamarelli when there was no evidence to support it.
We turn first to the arbitrability question and, thereafter, to the absence of evidence to support the award against Sciamarelli personally.
The Semets attempt to justify the arbitrator's exertion of authority over Sciamarelli -- despite the fact that he was not a party to the contract containing the arbitration clause --because they named Sciamarelli as a respondent and, as a result, he was obligated to give timely notice that he was challenging the arbitrator's authority to resolve claims asserted against him personally. In this regard, we are referred to R-8(c)*fn1 of the Rules of the American Arbitration Association, which states that
A party must object to the jurisdiction of the arbitrator or to the arbitrability of a claim or counterclaim no later than the filing of the answering statement to the claim or counterclaim that gives rise to the objection. The arbitrator may rule on such objections as a preliminary matter or as part of the final award.
There is no dispute that the responsive pleading filed by Sciamarelli's former counsel did not challenge the scope or reach of the arbitration, although Sciamarelli's current counsel did interpose such arguments in his pretrial brief. The arbitrator, for reasons not revealed in the award or her supplemental letter of June 10, 2009, never ruled on the dispute about arbitrability and never declared, as the Semets would have us assume, that Sciamarelli waived his right to contest the arbitrator's authority to render an award against him.
We recognize that parties opt for arbitration to obtain a rapid and streamlined resolution of disputes. See Policeman's Benevolent Assoc. v. Borough of N. Haledon, 158 N.J. 392, 397 (1999). Notwithstanding the dispensing of some formalities, arbitrators owe the parties a decision -- even a cursory decision -- on material contentions fairly presented. Here, there is no question but that Sciamarelli argued in his pretrial brief that he was not a proper party to the contract and the arbitrator had no authority to make an award against him. The arbitrator could have found this argument was untimely for the reasons urged by the Semets and as suggested by the first sentence of R-8(c), quoted above. We see no reason why an arbitrator might not also permit consideration of the argument on its merits despite an untimely objection, in the manner in which our courts will also at times excuse procedural missteps in order to decide cases on their merits. See, e.g., Ragusa v. Lau, 119 N.J. 276, 283-84 (1990).
In addition, the last sentence of R-8(c) indicates that the arbitrator need not rule on an objection "as a preliminary matter," but may dispose of the objection's merits at the time of the final decision. This portion of the rule presupposes that the arbitrator will make some decision on the question, even if the arbitrator decides to hold the respondent to the precise letter of the first sentence of R-8(c). In other words, the second sentence of R-8(c) would suggest that the arbitrator here should have expressly stated that she had either rejected the objection to the arbitration of claims against Sciamarelli because he failed to timely object, or expressly stated her ruling on the merits of the objection. The arbitrator, however, despite the opportunity provided by Judge Waldman's order, announced no decision on the scope of the arbitration.
Here, in this highly contentious case, the arbitrator owed the parties and the reviewing court a decision on this point. The arbitrator's silence in this regard, even when directed by the trial judge to amplify her earlier ruling, has troubled our consideration of whether the claims asserted against Sciamarelli personally were properly before the arbitrator.
In any event, we need not decide these questions regarding the scope of the arbitrator's authority because there is no doubt that even if Sciamarelli was a proper party to the arbitration, there was no arguable basis upon which he could be found liable.*fn2
It is hornbook law that an individual does not become personally liable on a contract when signing as an officer of a corporation. See, e.g., Macysyn v. Hensler, 329 N.J. Super. 476, 486 (App. Div. 2000); Baran v. Clouse Trucking, Inc., 225 N.J. Super. 230, 235 (App. Div.), certif. denied, 113 N.J. 353 (1988). Recognizing this, the arbitrator acknowledged in her June 10, 2009 letter that "Sciamarelli did not sign personally on the [c]ontract or give a personal guarantee." In light of this finding, the arbitrator could only render Sciamarelli personally liable upon finding a legitimate basis for piercing the corporate veil. See, e.g., Lyon v. Barrett, 89 N.J. 294, 300 (1982) (holding that "[i]n the absence of fraud or injustice, courts generally will not pierce the corporate veil to impose liability on the corporate principals"); see also Yacker v. Weiner, 109 N.J. Super. 351, 356 (Ch. Div. 1970) (holding that "[i]t is fundamental that a corporation is an entity wholly separate and distinct from the individuals who compose and control it, but the corporate cloak may not be utilized as a subterfuge to justify wrong or perpetuate fraud"), aff'd o.b., 114 N.J. Super. 526 (App. Div. 1971); Trachman v. Trugman, 117 N.J. Eq. 167, 170 (Ch. 1934) (holding that "[w]here the corporate form is used by individuals for the purpose of evading the law, or for the perpetration of fraud, the courts will not permit the legal entity to be interposed so as to defeat justice"). In response to the judge's request for clarification, the arbitrator did not indicate she heard evidence on any of the grounds indicated in these authorities for piercing the corporate veil.
The arbitrator did state that the Semets relied on Sciamarelli's expertise, but that fact does not remotely suggest they were either confused about the identity of the party with whom they were contracting or that there was some reason to believe Sciamarelli used the corporate form to defraud the Semets. In essence, the arbitrator's supplemental letter, insofar as it attempted an explanation for finding Sciamarelli personally liable, only offered the fact that Sciamarelli was a respondent in the arbitration. That fact did not authorize the arbitrator to rule as she did. Even if Sciamarelli was a proper party, the record before the arbitrator was bereft of any evidence that would render Sciamarelli liable for the acts or omissions of Sound Design, or for the piercing of the corporate veil.
The arbitrator's statement that she found Sciamarelli liable because he was a respondent, without more, convincingly demonstrates that the award against Sciamarelli personally, as Judge Waldman correctly found, was "clearly unsupported by reason, logic, relevant case law and statute, and is contradictory to the parties['] own contract." As a result, N.J.S.A. 2A:23B-23(a)(4) permitted the entry of the judgment under review.