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Coast Automotive Group, Ltd. v. Withum Smith & Brown

May 19, 2010


On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-2464-06.

The opinion of the court was delivered by: Grall, J.A.D.



Argued November 17, 2009

Before Judges Wefing, Grall and LeWinn.

This litigation was commenced in July 2006. It involves a dispute between defendants - Withum Smith & Brown (WSB), a professional group of certified public accountants and consultants - and plaintiffs - Coast Automotive Group, Ltd.; its landlord, Shansab Realty, Inc.; and Shansab's president, Tamim Shansab (collectively plaintiffs). By agreement executed on July 12, 2005, plaintiffs retained WSB as an expert in connection with their litigation against Universal Underwriters. Universal was the insurer of property damaged in a fire. The fire occurred on March 11, 2001, at a dealership operated by Coast on premises leased from Shansab.

Based upon a provision of the parties' retainer agreement, the judge compelled them to arbitrate plaintiffs' allegations of breach of contract and the covenant of good faith and fair dealing and defendants' counterclaims, which allege breach of contract by failure to submit payment; fraud in the inducement; and unjust enrichment. Several of plaintiffs' claims sounding in tort were dismissed for failure to state a claim. R. 4:6-2(e).*fn1 One claim not referred to the arbitrator survived WSB's motions to dismiss - plaintiffs' claim alleging professional malpractice, which is pending before the trial court.

Plaintiffs appeal and contend that a claim for consequential damages resulting from WSB's breach - a claim resting on their allegation that WSB's breach placed them in a position in which they were compelled to accept an unfavorable settlement with Universal - is not within the scope of the arbitration clause.*fn2 The only significant question raised on this appeal is the propriety of the judge's construction of the parties' agreement to arbitrate. We conclude that the agreement to arbitrate does not encompass plaintiffs' affirmative claim for consequential damages in its litigation with Universal. Accordingly, we modify the scope of arbitration but otherwise affirm.

Our discussion of the procedural history and facts is limited to the matters pertinent to questions presented on this appeal. With respect to arbitration, the retainer agreement provides:

If at the conclusion of this matter our fees for services are not fully paid, adequately secured or appropriately provided for, and payment of our fees becomes an issue, you agree to participate in mediation and binding arbitration to resolve any and all fee-related disputes. . . . You further agree to be bound by the final decision of the arbitrator. The arbitrator shall be a mutually agreed-upon attorney, CPA or retired judge in the [S]tate of New Jersey and all matters pertaining to this agreement will be administered in the [S]tate of New Jersey under laws of New Jersey.

The agreement addressed the services to be provided, retainers, hourly billing rates, expenses and periodic payments. WSB agreed to bill on a monthly basis and to "keep detailed records of time and expenses." WSB also agreed to make those records available for plaintiffs' inspection upon request and reasonable notice. Plaintiffs agreed to review the bills and raise any questions in a "timely fashion." Plaintiffs also acknowledged that WSB would rely on their acceptance of the bill as "fair and reasonable" and of plaintiffs' obligation to pay if they did not object within twenty days of receipt of the bill. Bills were to be paid within thirty days of receipt, and WSB reserved the right to terminate or discontinue services if they were not paid pursuant to the terms of the agreement. The parties also provided that all outstanding "fees" were to be paid in full prior to WSB's preparation for testifying at depositions.

A dispute arose about fees when WSB submitted its first bill for payment. These factual allegations were included in plaintiffs' complaint: the first bill included a total, "with no breakdown of hours"; WSB refused to provide documentation describing each hour billed; WSB failed to keep hourly billing records; the invoices WSB provided for its services were fraudulent in that they included double billings and billings for work that was not necessary or was not done; WSB wrongly accused plaintiffs of being in breach of their retainer agreement; WSB wrongly demanded payment in an attempt to extract payment of a compromise amount, which WSB then wrongfully declined to accept; and WSB's conduct "placed [p]laintiffs' litigation [with] their insurance carrier in great jeopardy."

In August 2006, about one month after plaintiffs commenced this litigation against WSB, WSB sought an order compelling arbitration pursuant to the retainer agreement and an order declaring that WSB was not required to continue serving as ...

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