November 16, 2010
STRUCTURAL STEEL FABRICATORS, INC., PLAINTIFF-APPELLANT,
CONSOLIDATED SYSTEMS, INC., AND NEW JERSEY SCHOOLS DEVELOPMENT AUTHORITY, DEFENDANTS, AND DELRIC CONSTRUCTION COMPANY, INC., SAFECO INSURANCE COMPANY OF AMERICA, BIAGIO DELLA CERRA, INDIVIDUALLY, AND ROBERT RICCIARDI, INDIVIDUALLY, DEFENDANTS-RESPONDENTS, AND CONSOLIDATED SYSTEMS, INC., THIRD-PARTY PLAINTIFF,
DELRIC CONSTRUCTION, INC., AND LINCOLN GENERAL INSURANCE COMPANY, THIRD-PARTY DEFENDANTS.
On appeal from Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-0957-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 13, 2010
Before Judges Skillman, Parrillo and Espinosa.
Plaintiff Structural Steel Fabricators, Inc. (SSF) appeals from the August 28, 2009 order of the Law Division dismissing its complaint against defendant Delric Construction, Inc. (Delric) and its principals, Biagio Della Cerra and Robert Ricciardi, and compelling arbitration pursuant to the parties' subcontract. We affirm save for that portion of the order holding SSF judicially estopped from challenging the validity of the subcontract, which we vacate.
By way of background, Delric is a general contractor engaged in the construction of a school project - the Speedway Elementary School. Its contract with the New Jersey Schools Development Authority (SDA) was awarded as a result of a public bid, which Delric submitted on July 26, 2007, having been declared the lowest responsive bidder at $33,626,000. In its bid, Delric named SSF as its subcontractor for structural steel.
SSF is a subcontractor engaged in the business of fabricating and erecting steel for commercial and public entity construction projects. The day before Delric submitted its bid proposal to the SDA, on July 25, 2007, SSF submitted a bid quote to Delric in the amount of $2,875,552 for its steel services on the Speedway School project. Delric accepted and incorporated SSF's proposal into its overall bid to the SDA.
As noted, the SDA awarded Delric the project on September 12, 2007. Following the award, on October 8, 2007, the parties renegotiated a final subcontract price of $2,860,000, which reflected a $75,552 reduction from SSF's initial $2,875,552 proposal to Delric, inclusive of a $60,000 performance and payment bond required of SSF by Delric.*fn1 On March 11, 2008, the parties executed a subcontract agreement, listing the price for SSF services at $2,860,000.
The agreement contained an arbitration clause, granting Delric the unilateral right to compel arbitration for "any claims, disputes or other issues arising out of and/or related to the Subcontract and the performance of the work."*fn2
Specifically, the arbitration clause provided:
Except as provided in paragraph 24.2 below, any and all disputes or claims arising out of and/or related to the [s]ubcontract and the performance of the [w]ork at the [p]roject, shall be decided solely in the Superior Court of New Jersey and venue in any such action must be placed in the County of Passaic.
Notwithstanding the above, any claims, disputes or other issues arising out of and/or related to the Subcontract and the performance of the work may, at Delric Construction Company, Inc.'s sole option, be decided in binding arbitration administered by the American Arbitration Association in accordance with its Construction Industry Arbitration and Mediation rules. If arbitration is selected as the forum, the parties shall equally pay all AAA fees and arbitrator compensation, subject to reallocation in the arbitrator's award.
In connection with its work on the project, SSF entered into a contract with Consolidated Systems, Inc. (CSI) to supply SSF with metal floor and roof decking materials, supposedly specifically manufactured for the project.
From July 2008 until October 2008, Delric made installment payments to SSF for its work on the project. At some point, disagreements arose over Delric's payments to SSF for the added labor and materials due to change orders, SSF's adherence to the project schedule as well as engineering design standards, and CSI's delivery of metal decking materials.
On June 25, 2008, SSF filed, on an emergent basis, a verified complaint and order to show cause against CSI, seeking specific performance of its contract with CSI and alleging, among other things, that CSI's failure to deliver materials to SSF would expose SSF to liquidated damages arguably due Delric. That same day, the Law Division entered an order granting preliminary injunctive relief that required CSI to supply construction materials to SSF within forty-eight hours of being served with the order.
SSF amended its complaint against CSI on November 5, 2008 to add an intentional interference with contractual relations claim. On December 5, 2008, CSI filed an answer, counterclaim, and a third party complaint against Delric. On February 26, 2009, SSF amended its complaint a second time to add eight separate claims against Delric, some of which are also against two of its officers, Ricciardi and Della Cerra, including breach of contract, fraud, conversion and various violations of the New Jersey Trust Fund Act, N.J.S.A. 2A:44-148, and the Prompt Payment Act, N.J.S.A. 2A:30A-1 to -2. In the breach of contract claim, SSF alleged that Delric owed SSF for additional "change order work," partial payment under the subcontract, "plus the amounts unlawfully reduced from SSF's [s]ubcontract by Delric and Ricciardi."
In lieu of an answer, Delric moved to dismiss SSF's complaint and to compel arbitration pursuant to its subcontract with SSF.*fn3 SSF opposed the motion to compel arbitration on the grounds, inter alia, that the subcontract, including the arbitration clause, was void due to illegality, duress and/or fraud on the part of Delric.*fn4
Following argument, the Law Division entered an order on June 9, 2009, staying the bond and mechanic's lien claims, and granting Delric's motion to dismiss and to compel arbitration of the claims against Delric and its principals. The June 9, 2009 order did not stay the claims between SSF and CSI.
Thereafter, both parties moved for reconsideration. Delric requested that the court rule on its original request for a declaration that SSF was judicially estopped from challenging the validity of the subcontract agreement. SSF, on the other hand, relied on its discovery of new evidence that, it claimed, supported a fraud cause of action against Delric. SSF also sought reconsideration of the arbitration order to the extent that its amended complaint asserted statutory claims against Delric and its principals, which, it argued, were not encompassed by the arbitration clause. Finally, in the event its motion was denied, SSF moved for a stay of all proceedings, including the SSF/CSI claims and the arbitration initiated by Delric.
Following argument, on July 31, 2009, the court denied SSF's motion and granted Delric's cross-application. In a memorializing order of August 28, 2009, the court ruled, among other things, that "plaintiff, SSF, is judicially estopped from challenging the validity of the subcontract agreement between plaintiff and Delric, including the arbitration clause contained therein . . . ."
This appeal follows, in which SSF claims the trial court erred in compelling arbitration of its statutory causes of action and claims against the individual defendants. SSF also maintains the court erred in holding that SSF was judicially estopped from challenging the validity of the subcontract in arbitration.*fn5 For reasons that follow, we reject the former contention, but agree with the latter.
SSF argues that its statutory claims are not arbitrable because the arbitration clause does not unambiguously make clear that SSF is knowingly and intentionally waiving its right to litigate. We disagree.
It is well-established that parties may assent to arbitrate statutory claims through a contractual agreement. Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 131 (2001). New Jersey has a strong public policy in favor of arbitration, which requires that arbitration agreements be read liberally in favor of arbitration. Id. at 132; see also Alamo Rent A Car, Inc. v. Galarza, 306 N.J. Super. 384, 389 (App. Div. 1997). However, in the absence of a consensual understanding, neither party is entitled to force the other to arbitrate their dispute.
Subsumed in this principle is the proposition that only those issues may be arbitrated which the parties have agreed shall be. In respect of specific contractual language, a clause depriving a citizen of access to the courts should clearly state its purpose. The point is to assure that the parties know that in electing arbitration as the exclusive remedy, they are waiving their time-honored right to sue. As we have stressed in other contexts, a party's waiver of statutory rights must be clearly and unmistakably established, and contractual language alleged to constitute a waiver will not be read expansively. [Garfinkel, supra, 168 N.J. at 132 (citations and internal quotation marks omitted).]
"Our standard of review of the applicability and scope of an arbitration agreement is plenary." EPIX Holdings Corp. v. Marsh & McLennan Cos., 410 N.J. Super. 453, 472 (App. Div. 2009). "Moreover, in determining the scope of an arbitration agreement, a court must 'focus on the factual allegations in the complaint rather than the legal causes of action asserted.'"
Id. at 472-73 (quoting Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987)). "If these factual allegations '"touch matters" covered by the parties' contract, then those claims must be arbitrated, whatever the legal labels attached to them.'" Id. at 473 (quoting Genesco, supra, 815 F.2d at 846).
In Caruso v. Ravenswood Developers, Inc., 337 N.J. Super. 499 (App. Div. 2001), we upheld the trial court's decision to refer to arbitration the plaintiff home purchaser's action against a home builder, which included statutory claims of consumer fraud and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Id. at 501. Although the arbitration clause in the parties' contract did not expressly waive recourse to the courts concerning statutory causes of action, we explained that not all statutory remedies require an express waiver of the right to sue in order to be arbitrable. Id. at 507-08. Rather, the focus remains on the facts underlying the claim rather than the actual legal terms in which the claim is couched . . . [w]hether a particular claim is arbitrable depends not upon the characterization of the claim, but upon the relationship of the claim to the subject matter of the arbitration clause. To hold otherwise would permit a party to frame its complaint in language which frustrates or avoids the scope of the arbitration clause. [Ibid. (citations and internal quotation marks omitted).]
Governed by this standard, we found in Caruso that:
[T]he consumer fraud and RICO claims are founded on facts no different than the breach of contract claims submitted to the arbitrator. An examination of the facts recited in the original complaint, which was eventually submitted to the arbitrator in 1997, reveals that plaintiffs rely on the same facts to support the breach of contract, consumer fraud and RICO claims.
Although plaintiffs couch the claims in the relevant statutory language, it is apparent that the claims are subsumed in the subject matter of the arbitration agreement between the parties. [Id. at 508.]
Similarly, in EPIX, supra, we found an insured's statutory antitrust price-fixing claims against a workers' compensation insurer and its parent company to be arbitrable because it was inextricably bound up with the contract between the parties. 410 N.J. Super. at 468.
The central factual allegation here is that defendants participated in a bid rigging scheme "with the sole purpose of enhancing their respective pecuniary interests," resulting in oppressive terms and inflated premiums charged for the workers' compensation program provided by the AIG defendants, to the detriment of plaintiff, who suffered damages and financial instability therefrom. In our view, the claims the AIG defendants seek to arbitrate not only "arise out of", but are undeniably intertwined with the contract between EPIX and National Union, since it is the fact of EPIX's entry into the contract containing the allegedly inflated price and other oppressive terms that gives rise to the claimed injury. [Id. at 474.]
Similarly here, the statutory claims of violations of the Prompt Payment and Trust Fund Acts, asserted in counts nine and thirteen of SSF's second amended complaint, are based on facts no different than SSF's breach of contract claim, which is indisputably subject to arbitration. In support of its Prompt Payment Act violation, SSF claimed that:
114. SSF has performed in accordance with its agreement with Delric, and said labor and materials have been accepted by both Delric and the NJSDA.
115. In violation of N.J.S.A. 2A:30A-2(b), Delric has failed to make full payment to SSF for the work performed by SSF on the Speedway Project.
116. As a result, Delric has violated the Prompt Payment Act, N.J.S.A. 2A:30A-2(c), which requires that Delric pay SSF interest, beginning on the day following the date payment was due [plus] reasonable costs and attorneys' fees in connection with this action.
SSF's other statutory violation claim also relies on allegations of breach of contract by Delric:
140. SSF performed its obligations under the subcontract with Delric and [there] is now due to SSF in the amount of $919,582.93, plus the sums unlawfully reduced from the Subcontract by Delric and Ricciardi.
141. Pursuant to N.J.S.A. 2A:44-148, the Trust Fund Act, all monies paid by the SDA to Delric are trust funds which shall be paid to satisfy all claims for labor, materials and other charges incurred by the performance of each such contract.
As is evident, both of these statutory causes of action directly relate to, and are dependent upon, an evaluation of SSF's breach of contract claim. In particular, adjudication of these statutory claims rests upon the fact-finder's determination of: 1) whether the parties entered into an enforceable agreement; 2) what the terms of that agreement entailed; and 3) whether each party adhered to those agreed-upon terms. Consequently, because SSF's statutory claims are "founded on" and "subsumed by" the breach of contract claim, which clearly falls within the scope of the arbitration clause, they themselves are equally encompassed therein.
To be sure, even where statutory claims, as here, fall within the scope of the arbitration clause, we must still determine whether the Legislature intended those claims to be non-arbitrable. EPIX, supra, 410 N.J. Super. at 475. Yet, SSF points to nothing in either the text or legislative history of either Act, "which suggests the Legislature intended to preclude arbitration of claims thereunder without a clear and explicit waiver of the right to judicial adjudication." Id. at 478; see also Caruso, supra, 337 N.J. Super. at 504-05 ("It is clear that a statutory remedy does not, in itself, affect the favored status accorded to arbitration. In fact, [o]nly if a statute or its legislative history evidences an intention to preclude alternate forms of dispute resolution, will arbitration be an unenforceable option." (citations and internal quotation marks omitted)).
Rather, SSF relies primarily on Garfinkel, supra, 168 N.J. at 127, 130, an employment case alleging violations of the New Jersey Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -49, which embodies one of our State's strongest public policies, the eradication of workplace discrimination, and expressly grants complainants the right to a jury trial. N.J.S.A. 10:5-13. Because the LAD's choice of forum is an integral component of the statute, the Garfinkel Court held that an employee's intent to surrender his or her right to a jury trial in favor of arbitration must be "clearly and unmistakably established." 168 N.J. at 136. Thus, "to pass muster, . . . a waiver-of-rights provision should at least provide that the employee agrees to arbitrate all statutory claims arising out of the employment relationship or its termination." Id. at 135. We have also recognized, however, that these articulated limits to otherwise broadly-worded arbitration clauses do not apply outside "the special area" of a "plaintiff's enforcement of statutory employment claims." Alfano v. BDO Seidman, LLP, 393 N.J. Super. 560, 576 (App. Div. 2007).
In contrast here, we find nothing in either Act that precludes vindication of SSF's statutory rights in the arbitral forum. On the contrary, the Prompt Payment Act requires contracts to provide for submission to alternative dispute resolution to resolve "disputes regarding whether a party has failed to make payments required pursuant to this section."
N.J.S.A. 2A:30A-2(f). Moreover, the Trust Fund Act makes no mention of a right to jury trial. Cf. EPIX, supra, 410 N.J. Super. at 478-79. In any event, we find no inherent conflict between the underlying public purposes in each of these Acts and the "competing and compelling public policy favoring arbitration as a means of dispute resolution and requiring liberal construction of contracts in favor of arbitration." Gras v. Assocs. First Capital Corp., 346 N.J. Super. 42, 54 (App. Div. 2001), certif. denied, 171 N.J. 445 (2002). We therefore concur in the trial court's determination, finding SSF's statutory claims arbitrable.
SSF also contends that its claims against the individual defendants are not subject to arbitration because neither Ricciardi nor Della Cerra was a signatory to the subcontract and its claims against both arise out of conduct outside the scope of their authority. We disagree.
Non-signatories to an arbitration agreement may be bound to that arbitration clause under agency principles. Wasserstein v. Kovatch, 261 N.J. Super. 277, 286 (App. Div.), certif. denied, 133 N.J. 440 (1993); see also Alfano, supra, 393 N.J. Super. at 569. Thus, one party may be able to compel arbitration under an agreement that it has not signed if the contract benefits extend to that party under agency law. Alfano, supra, 393 N.J. Super. at 568-69. We have also recognized, under the theory of equitable estoppel, that a non-signatory may have standing to enforce an arbitration agreement where "'[the] issues to be litigated are intertwined with [the] agreement containing [the] arbitration clause.'" EPIX, supra, 410 N.J. Super. at 463 (quoting Bruno v. Mark MaGrann Assocs., 388 N.J. Super. 539, 548 (App. Div. 2006)).
While the subcontract was executed by corporate entities, Delric and SSF, both individual defendants are officers and agents of Delric: Ricciardi is the company's president and Della Cerra is its treasurer and secretary. As with Delric, SSF's claims against the individual defendants include violations of the Trust Fund Act, conversion and fraud. The allegations underlying these claims are the same as made against Delric and are premised on the same facts supporting SSF's breach of contract action against the corporate defendant, on whose behalf the individual defendants acted.
To illustrate, in count fourteen, SSF alleged that "[b]y virtue of the acts and omissions alleged herein, Delric, Ricciardi and Della Cerra unlawfully converted trust funds and/or monies due and owing to SSF for its own use and benefit[,]" which resulted in damage to SSF. Adjudication of this claim rests upon the same factual determinations underlying SSF's breach of contract claim, namely whether defendants owed SSF money for its services, whether they failed to pay SSF that amount, and if so, how much SSF is owed. Furthermore, the alleged actions of Della Cerra and Ricciardi in accepting certain money on the Speedway School project and failing to properly allocate that money to the subcontractors occurred in their capacity as corporate officers and therefore within the scope of their authority as agents of the corporate entity.
Similarly, allegations in count fifteen that Ricciardi and Della Cerra "falsely misrepresented and/or concealed information from the SDA regarding payments made by Delric to SSF," which they knew or should have known were false and caused SSF damage, involve actions taken solely by virtue of their positions as corporate officers of Delric and through their agency relationship with the corporate entity. Furthermore, these allegations are premised on the same set of facts supporting SSF's breach of contract against Delric. Since the latter indisputably falls within the scope of the parties' arbitration agreement, the interrelated claims of the individual defendants, as agents of the corporate entity, are equally arbitrable.
While we concur in the judgment of the Law Division that SSF's statutory claims and claims against the individual defendants are arbitrable, we disagree with that portion of its August 28, 2009 order holding that SSF is judicially estopped from challenging the validity of the subcontract in the arbitration forum. That ruling is based on the perceived inconsistency between SSF's position at the June 2008 order to show cause hearing to enforce its contract with CSI where, in demonstrating harm from CSI's non-delivery of materials, SSF argued it was subject to a liquidated damages claim by its general contractor for breach of contract, and its subsequent position in opposition to Delric's motion to compel arbitration, based on the asserted invalidity of the arbitration clause. Simply put, we discern no inconsistency, much less a "threat to the integrity of the judicial system" from such advocacy. See Kimball Int'l, Inc. v. Northfield Metal Prods., 334 N.J. Super. 596, 610 (App. Div. 2000), certif. denied, 167 N.J. 88 (2001).
Judicial estoppel is an "'extraordinary remedy,' which should be invoked only 'when a party's inconsistent behavior will otherwise result in a miscarriage of justice.'" Id. at 608 (quoting Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 365 (3d Cir. 1996)); see also Ali v. Rutgers, 166 N.J. 280, 287-88 (2000). "'[B]ecause the doctrine precludes a contradictory position without examining the truth of either statement[,]'" Ali, supra, 166 N.J. at 288 (quoting Teledyne Indus., Inc. v. NLRB, 911 F.2d 1214, 1218 (6th Cir. 1990)), "judicial estoppel should be invoked only in those circumstances required to serve its stated purpose, which is to protect the integrity of the judicial process." Kimball, supra, 334 N.J. Super. at 608.
We discern no reason for the application of this doctrine here. At issue in the June 2008 order to show cause application was the contract between SSF and CSI, and not the subcontract between SSF and Delric later challenged in Delric's motion to compel arbitration. Although the subcontract was alluded to in the former proceeding, the reference was simply to demonstrate the potential so-called "irreparable" harm to SSF from CSI's failure to deliver materials on a timely schedule. It was neither an affirmation nor ratification by SSF of the validity of its subcontract with Delric, but merely an acknowledgement of its existence. Indeed, at that proceeding, SSF represented only that Delric "has advised SSF that it will begin imposing $5,000 per day in liquidated damages to SSF for every delay due to the non-delivery of the metal decking on the Speedway School Project." We do not view this factual assertion as the equivalent of an admission either that the sanction, as a matter of law, would be enforceable or the subcontract valid, so as to preclude a later challenge when resisting Delric's efforts to enforce its arbitration clause. In fact, in that subsequent proceeding, consistent with its earlier position, SSF did not deny the existence of its subcontract with Delric. Rather, SSF argued that it was void as violative of public policy and procured through fraud and duress. We perceive no inherent inconsistency or direct conflict in these dual positions and certainly no evidence of bad faith on SSF's part in advocating either. See Palcsesz v. Midland Mutual Life Ins. Co., 87 F. Supp. 2d 409, 412 (D.N.J. 2000). There being no sound reason for applying the judicial estoppel doctrine, we hold that SSF is not precluded from challenging the validity of its subcontract with Delric in the arbitral forum. We therefore reverse that portion of the August 28, 2009 order directing otherwise.
Affirmed in part; reversed in part.