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Rinaldo v. Schaad

October 25, 2010


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-5279-06.

Per curiam.


Argued: March 3, 2010

Before Judges Payne, C.L. Miniman and Waugh.

Plaintiff Matthew T. Rinaldo appeals from two orders, one denying his motion to vacate an arbitration award in favor of defendants Joseph A. Schaad and JAS Junior, LLC, and another granting the cross-motion of defendants to confirm the arbitrator's award. At issue is a home-improvement contract requiring arbitration. We affirm.


On March 6, 2004, the parties entered into a home-improvement contract for renovation and expansion of plaintiff's home in Spring Lake Heights. The home had been constructed in the 1880s. The contract price was $215,790, and the contract required defendants to construct an addition on the existing dwelling home . . . including excavation and construction with utilization of masonry and concrete footing to establish full basement cellar; and on this residential building to alter, repair, renovate and otherwise replace and/or recondition and reconfigure the interior of the dwelling home.

The contract*fn1 provided for arbitration of disputes under the contract:

[T]he Owner or the Contractor may submit any dispute related to this Contract to Arbitration in accordance with the American Arbitration Association's [AAA] Construction Industry Arbitration Rules. The decision will be binding upon both the Owner and the Contractor.

The contract also contained a provision stating that defendants would, "at [their] cost, deliver to the OWNER at the time of final payment a home warranty satisfying the requirements of New Jersey law." Construction was to be completed "in a good and workmanlike manner" in accordance with the plans and specifications set forth in an addendum to the contract. Work was to be completed by July 6, 2004. Under the contract's payment schedule, the final balance due under the contract was to be paid within ten days of the issuance of a certificate of occupancy together with any other required government approvals.

As part of the construction, defendants demolished a portion of the existing structure and constructed a new foundation under one-third of the house. After construction was substantially complete, on December 2, 2004, plaintiff issued a "punch list" that he prepared regarding items of concern. Specifically, plaintiff expressed concern about cracks in the foundation, which began to appear shortly after the foundation was poured and continued to materialize thereafter. Additionally, he alleged that the foundation was sinking at one end of the house. Plaintiff demanded that defendants repair the items on his "punch list."

The certificate of occupancy was issued on December 23, 2004. On December 31, 2004, Schaad wrote to plaintiff stating that all items listed in plaintiff's December 3, 2004, fax had been rectified, and "punch list" items would be addressed after his January 13, 2005, return from vacation. He enclosed his final bill. In January 2005, defendants completed the "punch list" items, but the repairs were not to plaintiff's satisfaction. As a result, he refused to make final payment and notified defendants that he was terminating the contract.

On February 18, 2005, defendants' lawyer demanded the final payment of $26,580.05 and filed a Notice of Unpaid Balance -- Right to File Lien and a demand for arbitration with the AAA, serving the demand on plaintiff. Defendants based their demand for arbitration on the New Jersey Construction Lien Law (CLL), N.J.S.A. 2A:44A-1 to -38. On March 2, 2005, plaintiff filed an arbitration answer, a counterclaim, and a demand for setoff in the amount of $250,000. On March 9, 2005, defendants withdrew their petition for arbitration under the CLL without objection from plaintiff. The AAA closed its file.

On November 20, 2006, plaintiff filed a complaint against defendants alleging negligence, breach of contract, and violation of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -106, including a demand for treble damages. He sought the return of the $253,700*fn2 that he claimed he paid to defendants under the contract. On February 5, 2007, defendants filed an answer, which included a counterclaim requesting that the matter be transferred to arbitration pursuant to the parties' contract.

On May 14, 2007, defendants filed a motion to dismiss the complaint and transfer the matter to arbitration. Plaintiff opposed the motion, arguing that defendants had waived their right to arbitrate by filing and then withdrawing their first demand for arbitration. He also expressed concern that he would not be eligible for CFA treble damages in arbitration. Further, arbitration would deprive him of his right to a jury trial.

The parties argued the motion on July 5, 2007. On July 12 and 16, 2007, the first motion judge placed his oral decision on the record. The judge viewed the question to be decided as whether there was a knowing and intentional waiver of the contractual arbitration provision by defendants. He found:

Now, if perhaps I had been given a document that says I am withdrawing the arbitration with prejudice and I do not intend to proceed to arbitration, I would feel perhaps somewhat differently than I do currently. It would appear to me that this is nothing more than somewhat withdrawing the complaint in a negligence case without prejudice, which doesn't bar them from the right of coming back, as long as they're within the statute.

So for all those reasons, the public policy favoring arbitration, the contractual language which makes it binding and the absence of a clear relinquishment of that right or a surrender of that right, based on the record that I have, I'm going to grant the motion to dismiss the complaint and transfer the matter to arbitration.

The judge also found that there was no basis for plain-tiff's claim that the arbitrator would not be able to award treble damages under the CFA. On July 16, 2007, he entered an order dismissing the complaint and transferring the matter to arbitration. On August 14, 2007, plaintiff filed a motion for reconsideration. After oral argument on October 5, 2007, the judge denied the motion and signed an order to that effect. On October 24, 2007, plaintiff filed a notice of appeal, and defendants thereafter moved to dismiss the appeal. On January 22, 2008, we granted defendants' motion by order dismissing the appeal as improvidently filed.

The matter proceeded to arbitration, and after several adjournments, hearings were held before Arbitrator John Steigerwald on October 28*fn3 and 30, 2008 at defendants' counsel's office. Two additional dates were scheduled in November at plaintiff's counsel's office. The notice of hearing advised the participants that "[a]ny party wishing a stenographic record must make arrangements directly with the stenographer and notify the other party(s) of the arrangements in advance of the hearings in accordance with the rules."

During arbitration, plaintiff submitted an engineering report prepared by Michael Natoli. He found sixty-six deficiencies in defendants' construction and concluded that the deficiencies were the direct result of substandard construction methods and material. He called for corrective measures to "restore the residence to acceptable levels and meet with applicable codes and standards for the industry."

The deficiencies he found included, among other defects: misalignment of the front door and a gap between the door trim and the adjoining wall surface; a 3.7% transverse slope gradient of the flooring close to the entry door; "a significant disparity in both wood grain and surface colors between the original and new floor surface"; misalignment of several of the doors in the house; misalignment of the cabinets and the pantry interior in the kitchen; crack formations between the ceiling and wall in a second floor bedroom; roof shingles which extended beyond the structure; and failure to waterproof the foundation walls. Natoli found these to be construction defects, and most were violations of the New Home Warranty Act regulations, N.J.A.C. 5:25. He estimated that it would cost $300,000 to make the repairs.

Defendants submitted an expert engineering report prepared by Joseph Greco. He found nineteen workmanship defects, including: the basement door hit the dropped ceiling when opened; there was a crack on the ceiling in front of the staircase leading up from the basement; there was loose ceramic tile close to the entrance of one of the bathrooms; nails had popped in the ceiling in the main entrance hall; there was an uneven door; the cabinet door covering the trash compactor was not securely mounted; there were cracks in a bedroom ceiling; and there was an uneven reveal between the kitchen marble backsplash and cabinet. Greco also expressed concern regarding the drainage and waterproofing in the basement. However, he found that many of Natoli's concerns were subjective and also criticized his reliance on N.J.A.C. 5:25 as establishing a standard for construction because those regulations only applied to new home warranties, and this was a renovation project.

Greco admitted that the house sloped and the flooring was not level. In his testimony before the arbitrator, Greco stated that leveling the floor would require jacking up the house, but doing that could compromise the structural integrity of the entire building. This was consistent with Schaad's arbitration testimony that, when an addition is placed on a house that is over 100 years old, "you try to get it as close to level without jacking up [the house] and undermining the integrity of the structure."

Greco opined that none of the defects "represents situations that could not be reasonably resolved between the homeowner and the builder." In addition, he said that although the defects were not cited as code violations by the local inspectors, he believed they should be addressed to ensure safety. However, he did not believe the New Home Warranty and Builders' Registration Act (Act), N.J.S.A. 46:3B-1 to -20, applied because this was a renovation to an existing building. He stated that the home warranty referred to in the contract was not the home warranty under the Act. After Greco's testimony was substantially ...

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