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City of Union City v. AC Construction Corp.


August 30, 2010


On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-2761-09.

Per curiam.


Argued June 2, 2010

Before Judges Wefing, Messano and LeWinn.

Union City contracted with AC Construction Corporation (AC) to construct an amphitheater. After embarking on the project, AC encountered the need to remove contaminated soil at the construction site. The contract provided that any such contamination remediation costs would not exceed $50,000; however, AC's costs far exceeded that amount. A dispute thereupon arose between the parties. On or about October 22, 2008, AC ceased working on the project.

On April 21, 2009, AC filed a Demand for Arbitration with the American Arbitration Association (AAA). The "Demand request[ed] that the AAA attempt to arrange for mediation before the arbitration is initiated." At oral argument, plaintiff's counsel advised us that a one-day mediation did occur but was unsuccessful.

Article XV of the parties' contract, captioned "Mandatory Contract Dispute Procedures," provides:

The Contractor agrees to Mandatory Contract Dispute Procedures required by N.J.S.A. 40A:11-50, as described below.

In an effort to resolve any disputes that arise during the construction of the project... the Bidder and Owner agree that all disputes between them arising out of or relating to the performance of the work described in the Contract Documents shall be submitted to non-binding mediation in accordance with the Construction Industry Mediation Rules of the American Arbitration Association currently in effect. Request for mediation shall be filed in writing with the other party to the Contract and with the American Arbitration Association.

The parties shall share the mediator's fee and any filing fees equally. The mediation shall be held in the place where the Project is located, unless another location is mutually agreed upon. Agreements reached in mediation shall be enforceable as settlement agreements in any court having jurisdiction thereof.

The Bidder further agrees to include a similar mediation provision in all agreements with independent contractors and consultants retained for the project and to require all independent contractors and consultants also to include a similar mediation provision in all agreements with subcontractors, subconsultants, suppliers or fabricators so retained, thereby providing for mediation as the primary method for dispute resolution between the parties to those agreements.

Nothing in this section shall prevent the Owner from seeking injunctive or declaratory relief in court at any time. The alternative dispute resolution practices required by this section shall not apply to disputes concerning the bid solicitation or award process or to the formation of contracts or subcontracts to be entered into pursuant to P.L. 1971, c. 198 (C:40A:11-1 et seq.).

Article XV is silent as to what shall occur in the event mediation is unsuccessful.

AC takes the position that because Article XV is silent as to post-mediation procedures, the provisions of Article IV control, and that those provisions mandate arbitration if mediation is unsuccessful. Article IV, encaptioned "The Contract Documents," provides, in pertinent part:

The parties agree that the terms and conditions contained in The Contract Documents (including bid information, bid documents, General and Supplemental Conditions, specifications and drawings) are made part of this Contract and are binding on both parties as if all conditions contained in the Contract Documents were set forth in this Contract.

The "General and Supplemental Conditions" are set forth in a document entitled "New Public Amphitheater for the City of Union City," and are provided in the record before us. Section 00800 therein provides, in paragraph 1.1A:

Supplements, modifications and deletions hereinafter to Articles 1 through 14, inclusive, of the American Institute of Architects' Document A201, "General Conditions of the Contract for Construction," 1997 Edition, pages 1 through 44, inclusive, form a part of the Contract Documents, and together, shall be considered the Conditions of the Contract. Where a portion of the General Conditions is modified or deleted by these Supplementary Conditions, the unaltered portions of the General Conditions shall remain in effect.

Architect's Document A201, provides, in section 4.6.1 in pertinent part: "Any [c]laim arising out of or related to the Contract,... shall, after decision by the Architect or 30 days after submission of the [c]laim to the Architect, be subject to arbitration. Prior to arbitration, the parties shall endeavor to resolve disputes by mediation in accordance with the provisions of Section 4.5."*fn1

On June 1, 2009, Union City filed a complaint and order to show cause seeking to enjoin arbitration. On June 8, 2009, a judge denied Union City's application, finding that the contract provided for arbitration.*fn2

At the arbitrator's request, the parties submitted briefs on their respective positions regarding arbitration. On August 12, 2009, the arbitrator rendered a letter decision concluding that pursuant to A201, arbitration was "the appropriate forum... in the event that mediation is unsuccessful...."

On September 29, 2009, Union City filed a motion on short notice to have the matter removed from arbitration. On October 9, 2009, another judge rendered a decision denying Union City's motion, and entered an order to that effect on the same date.

Union City filed a motion for reconsideration. On November 16, 2009, the judge heard oral argument and entered an order denying that motion; the order also denied Union City's request for a stay. On November 25, 2009, we granted a stay of arbitration and on December 2, 2009, converted Union City's motion for leave to appeal into a notice of appeal pursuant to the recent amendment to Rule 2:2-3(a) to include an order compelling arbitration as a final judgment for appeal purposes. See Wein v. Morris, 194 N.J. 364, 380 (2008).

On appeal, Union City contends that (1) the trial judge erred in upholding arbitration in contravention of the "[p]lain [l]anguage" of Article XV; (2) the trial judge erroneously relied upon language not applicable to contracts between these two parties; (3) the conflict between A201 and Article XV must be resolved in favor of mediation; and (4) A201 is a "draft" not a "final" document.

Having reviewed these contentions in light of the record we are convinced that a significant factual dispute exists respecting the parties' understanding of the precise terms of their contract. The record presented to us does not contain a contract signed by the parties that specifically appends all purportedly included "supplemental" documents. Union City's appendix presents the various documents in desultory fashion. A three-page excerpt of the parties' contract, including a signed signature page, is immediately followed by a two-page unidentified document marked "draft[,]" which is later identified as A201. Next appears a complete copy of the parties' executed contract. However, the "Contract Documents" identified in Article IV are not appended to the contract itself; rather, they appear following several intervening exhibits. Nor does A.C. shed any light on this question.

As the proponent of arbitration, A.C. has the burden to establish the existence of an agreement to arbitrate between the parties. "Although arbitration is traditionally described as a favored remedy, it is, at its heart, a creature of contract." Kimm v. Blisset, LLC, 388 N.J. Super. 14, 25 (App. Div. 2006), certif. denied, 189 N.J. 428 (2007). "[T]he duty to arbitrate... [is] dependent solely on the parties' agreement." Cohen v. Allstate Ins. Co., 231 N.J. Super. 97, 101 (App. Div.), certif. denied, 117 N.J. 87 (1989). The determination as to whether such a duty exists "rest solely on the parties' intentions as set forth in the writing." Martindale v. Sandvik, Inc., 173 N.J. 76, 92 (2002).

Not only has A.C. failed to meet its burden of proving that the parties agreed to arbitration, it cannot establish with any degree of certainty what documents comprise the agreement itself.

Therefore, we are constrained to reverse and remand for further proceedings to determine (1) precisely what documents are included in the contract, either directly or incorporated by reference; and (2) what were the understanding and intent of the parties in negotiating and executing this contract, specifically with reference to dispute resolution mechanisms.

We concur with Union City's contention that the trial judge erred in relying on language in Article XV that does not apply to the contract between these two parties. In denying Union City's motion for reconsideration, the judge focused on language in the third paragraph of Article XV as evidence that the parties considered mediation to be "the primary method for dispute resolution" between them.

However, the language respecting mediation as "the primary method for dispute resolution" appears only in the paragraph governing agreements between the "[b]idder" and "independent contractors and consultants retained for the project...." In other words, paragraph three in Article XV governs contracts between AC and its contractors and consultants; this language does not govern the contract between Union City and AC.

In sum, because the trial judge relied on inapposite contract language to support her denial of reconsideration, and considering the evident dispute between the parties as to the import and scope of the "Contract Documents," we reverse the orders on appeal and remand for further proceedings in conformity with this opinion. We do not retain jurisdiction.

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