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Elizabethtown Water Co., A New Jersey Corporation v. Watchung Square Associates

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 4, 2011

ELIZABETHTOWN WATER CO., A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT,
v.
WATCHUNG SQUARE ASSOCIATES, L.L.C., AND FIDELITY LAND DEVELOPMENT CORPORATION, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS,
v.
VOLLERS EXCAVATING & CONSTRUCTION, INC., THIRD-PARTY DEFENDANT/ FOURTH-PARTY PLAINTIFF-RESPONDENT, AND FRANK FERRARO, THIRD-PARTY DEFENDANT-RESPONDENT,
v.
TRAVELERS INSURANCE COMPANY, SALVATORE DAVINO, EDWARD D. MACEIKO, MELICK-TULLY ASSOCIATES, P.A. MARCHETTA, A.I.A., AND MENLO ENGINEERING ASSOCIATES, INC., FOURTH-PARTY DEFENDANTS-RESPONDENTS, AND MORETRENCH AMERICAN CORPORATION, FOURTH-PARTY DEFENDANT.
ELIZABETHTOWN WATER COMPANY, PLAINTIFF-RESPONDENT,
v.
WATCHUNG SQUARE ASSOCIATES, L.L.C., AND FIDELITY LAND DEVELOPMENT CORPORATION, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS,
v.
VOLLERS EXCAVATING & CONSTRUCTION, INC., THIRD-PARTY DEFENDANT/ FOURTH-PARTY PLAINTIFF-APPELLANT, AND FRANK FERRARO, THIRD-PARTY DEFENDANT-RESPONDENT,
v.
TRAVELERS INSURANCE COMPANY, SALVATORE DAVINO, EDWARD D. MACEIKO, MELICK-TULLY ASSOCIATES, P.A. MARCHETTA, A.I.A., AND MENLO ENGINEERING ASSOCIATES, INC., FOURTH-PARTY DEFENDANTS-RESPONDENTS, AND MORETRENCH AMERICAN CORPORATION, FOURTH-PARTY DEFENDANT.

On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-3027-01.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 22, 2011

Before Judges Wefing, Payne and Hayden.

These appeals involve disputes between the developer of a large shopping complex in Watchung and contractors involved in the project. The trial court denied without prejudice motions for partial summary judgment, and we granted leave to appeal from the resultant orders. The appeals were argued before us back-to-back, and we now consolidate them for purposes of this opinion.

The appeals have a complex factual and procedural history that must be set forth in some detail to properly analyze the contentions the parties advance on appeal. Defendant Watchung Square Associates, L.L.C., (Watchung Square) purchased the site previously occupied by Lockheed Electronics with the intent to convert it into a large shopping center.*fn1 The site is bounded on the south by Route 22 and on the north by the Watchung Mountain. The Watchung Planning Board conducted extensive hearings with respect to the application. One of the issues that generated concern among Board members and surrounding property owners was the effect of the construction on the abutting mountain. From the outset, development plans included a retaining wall. All appropriate approvals were eventually obtained.

In August 1999, Watchung Square contracted with Joseph A. Natoli Construction Corporation (Natoli) to serve as the general contractor for the project, and Natoli, in turn, subcontracted with defendant Vollers Excavating & Construction, Inc. (Vollers) for the site work for the project. Watchung Square's contract with Natoli and Natoli's subcontract with Vollers required the arbitration of disputes that arose between the parties.

Part of the necessary preparatory work to development of the site was relocation of an existing water main owned by plaintiff Elizabethtown Water Company. The main had to be rerouted because in its existing configuration, it ran under the proposed location of a building to be occupied by Target. In addition to the relocation of the main, it was proposed to run the water line up to a tank on the top of the Watchung Mountain. Watchung Square signed two contracts with Elizabethtown Water for this work, and Elizabethtown contracted with Vollers to do the necessary site work. The contracts between Watchung Square and Elizabethtown and Vollers did not contain an arbitration clause.

The project ran into significant delays and incurred significant extra expenses. Who was responsible for those delays, and who was responsible for those expenses are strongly disputed by the parties.

During the development of the project, there were several slope failures from the abutting Watchung Mountain. The first of these occurred on February 10, 2000, in the area in which Vollers was doing work in connection with the Elizabethtown water line; a portion of the slope collapsed onto the area in which the proposed Target store was to be located. This is referred to generally as the Elizabethtown failure. The parties dispute who was responsible for this failure and whether this failure led to several subsequent slope failures that occurred in July, October, and November 2000.

After the February 2000 slope failure, Watchung Square directed Natoli to contract with Moretrench American Corporation (Moretrench) to dewater the site. Moretrench installed a series of wells and pumps, but this proved not to be a permanent solution, and additional slope failures occurred through April 2001.

The parties point to several causes for these failures, including the underlying soil conditions, which involved significant ground water; the manner in which Vollers was excavating for the water main and for the retaining wall; the original design of the retaining wall; and the manner in which Vollers initially began its construction of that wall. Watchung Square asserted that Vollers began its work in this area without making proper preparation for the ground water conditions, while Vollers asserted that Watchung Square was aware of the ground water conditions but failed to disclose them to Natoli or to Vollers. Watchung Square asserted that Vollers was excavating at too steep a grade without proper shoring while Vollers asserted it was following the plans provided to it. Watchung Square asserted that Vollers was responsible for the original design of the retaining wall, and Vollers denied that. Watchung Square said that Vollers was to build the retaining wall in a "top-down" fashion to proceed safely; Vollers said that it was doing so.

After the November 2000 slope failure, Watchung Square contracted directly with Moretrench. This did not prevent another slope failure, which occurred in April 2001.

These slope failures led ultimately to the redesign and extension of the retaining wall. The process of redesigning the wall, and its ultimate construction, involved both delays in completion of the overall project and increased expense. The parties dispute responsibility for the delays and liability for those costs.

In an effort to resolve certain of their disputes, Watchung Square, Natoli and Vollers entered into an agreement in February 2001 that the parties refer to as the "Florida Accord." Under this agreement, the parties agreed that the north retaining wall, abutting the mountain, had to be redesigned and extended and that the projected cost for this work was $1,884,027, of which Watchung Square would contribute $1,284,027, with the balance divided equally between Natoli and Vollers and any extra costs or savings to be divided among them in the same proportion. The agreement included the following paragraph:

In consideration of the aforementioned Terms and Conditions of this Change Order, the parties, as relates to the Site Work Contract, Watchung Square Associates, Joseph

A. Natoli Construction Corporation and Vollers Excavating agree to waive and release any and all claims against each other arising from and/or in connection with any and all actions to date with regard to any and all slope failures, retaining wall design, temporary dewatering and delays.

The parties to this Accord dispute whether it has been breached by the others.

The execution of this agreement did not resolve all the problems with completing this development, and in January 2002, Watchung Square terminated Natoli as the project's general contractor. A variety of actions followed. In February 2002, Watchung Square filed a demand with the American Arbitration Association for arbitration against Natoli, seeking various categories of damages. In March 2002, Vollers filed a complaint in Superior Court, Somerset County, seeking damages from Watchung Square and Natoli. These damage claims were ultimately joined with, and heard as part of, the arbitration proceedings initiated by Watchung Square.

Prior to these actions, Elizabethtown filed this action against Watchung Square, alleging that it was owed approximately $130,000 in connection with the relocation of its water main. Watchung Square counterclaimed, alleging that the work performed by Vollers for Elizabethtown in connection with this relocation caused the February 10, 2000, slope failure, and Watchung Square sought damages of nearly $12 million. Elizabethtown then impleaded Vollers, and Watchung Square later asserted a professional malpractice claim against the engineer from Vollers who was involved in this portion of the project. Vollers later filed a fourth-party complaint, including as fourth-party defendants Watchung Square's principal, Salvatore Davino; its architect, Edward D. Maceiko; two engineering firms; another architectural firm; and Moretrench. The only party who has successfully obtained summary judgment is Moretrench.

In light of the arbitration proceedings, Elizabethtown sought to stay this action until conclusion of the arbitration, and Watchung Square sought to compel Vollers to proceed in arbitration with respect to the issue asserted in its third-party complaint. The trial court denied both motions; we granted leave to appeal. We reversed as to the first and affirmed as to the second. With respect to the first, we noted in part:

[a]lthough we cannot determine at this early stage of the proceedings the precise degree of overlap between parties and issues, they are quite likely to be substantial. Since the arbitration may well resolve responsibility for all of the slope failures, the principle of conserving judicial resources is a weighty consideration . . . . [Elizabethtown Water Co. v. Watchung Square Assocs., 376 N.J. Super. 571, 579 (App. Div. 2005).]

With respect to the second motion, we affirmed the trial court, noting that those claims arose out of the contract between Elizabethtown and Watchung Square, which did not include an arbitration clause. Ibid.

As we have noted, Watchung Square filed its demand for arbitration in February 2002. More than one hundred days of hearings were held. The arbitration did not conclude until August 2007, when the arbitrators issued their award. In Watchung Square's final brief book to the arbitrators it sought damages in excess of $18 million. The arbitrators' award to Watchung Square, however, was less than $600,000. The arbitrators, on the other hand, awarded Natoli and Vollers each in excess of $4 million. The arbitrators did not include in their award any statement of reasons or findings. They simply listed the various categories of damages claimed, indicated those that were denied in their entirety and for the balance, listed the amount awarded. Watchung Square's attempts to set aside this award were unsuccessful, and it was confirmed by order entered February 11, 2008. The trial court's order confirming this award was affirmed on appeal. Vollers Excavating & Construction, Inc. v. Watchung Square Associates, L.L.C., No. A-3242-07 (App. Div. July 27, 2009).

Following conclusion of the arbitration proceedings, this litigation was reactivated. Elizabethtown and Vollers sought partial summary judgment with respect to Watchung Square's claim for damages based upon the Elizabethtown failure, contending that the arbitration had resolved this issue against Watchung Square and that it was precluded from attempting to relitigate the matter in another forum. Watchung Square opposed these motions, contending that it had not presented to the arbitrators its claims with respect to the Elizabethtown failure because those claims were based on a contract that did not have an arbitration clause. It noted that the arbitrators had repeatedly stated their intention not to become involved in deciding issues that were presented in this litigation. After extensive briefing and argument, the trial court denied the motions, and we subsequently granted leave to appeal.

Having reviewed the extensive briefs submitted by the parties, heard the arguments of the attorneys, and reviewed the exhaustive appendices filed in connection with this appeal, we are satisfied the trial court's orders should be affirmed.

I Elizabethtown argues on appeal that Watchung Square is collaterally estopped from proceeding in this action to seek damages in connection with the Elizabethtown failure. We disagree.

"Collateral estoppel . . . 'bars relitigation of any issue which was actually determined in a prior action, generally between the same parties, involving a different claim or cause of action.'" Tarus v. Borough of Pine Hill, 189 N.J. 497, 520 (2007) (quoting State v. Gonzalez, 75 N.J. 181, 186 (1977)). The doctrine applies if the party asserting the bar demonstrates that:

(1) the issue to be precluded is identical to the issue decided in the first proceeding; (2) the issue was actually litigated in the prior action, that is, there was a full and fair opportunity to litigate the issue in the prior proceeding; (3) a final judgment on the merits was issued in the prior proceeding; (4) determination of the issue was essential to the prior judgment; and (5) the party against whom issue preclusion is asserted was a party to or in privity with a party to the prior proceeding.

[Pace v. Kuchinsky, 347 N.J. Super. 202, 215 (App. Div. 2002).]

Accord Twp. of Middletown v. Simon, 193 N.J. 228, 236 (2008).

In deciding whether the issues sought to be precluded are identical to the issues decided in the first proceeding, the relevant factors are "whether there is substantial overlap of evidence or argument in the second proceeding; whether the evidence involves application of the same rule of law; whether discovery in the first proceeding could have encompassed discovery in the second; and whether the claims asserted in the two actions are closely related." First Union Nat'l Bank v. Penn Salem Marina, Inc., 190 N.J. 342, 353 (2007).

Moreover, "in appropriate circumstances an arbitration award can have . . . collateral estoppel effect in subsequent litigation." Nogue v. Estate of Santiago, 224 N.J. Super. 383, 385-86 (App. Div. 1988).

"The essential question is whether . . . an issue is formulated as it would be in a court and decided according to procedures similar to those of a court. . . . An issue of fact is so formulated when there is assertion and controversion of the occurrence of a legally significant event . . . . If an issue has thus been formulated, and if the procedure for resolving it is substantially similar to that used in judicial adjudication, the . . . determination of the issue should be given preclusive effect . . . ."

[Id. at 386-87 (quoting Restatement (Second) of Judgments, § 83 cmt. b (1982)).]

Regarding whether an arbitration award should have issue-preclusive effect in favor of a non-party to the arbitration proceedings, "the question to be decided is whether a party has had his day in court on an issue, rather than whether he has had his day in court on that issue against a particular litigant." McAndrew v. Mularchuk, 38 N.J. 156, 161 (1962). Thus, a "discretionary weighing of economy against fairness" must be applied. Kortenhaus v. Eli Lilly & Co., 228 N.J. Super. 162, 165 (App. Div. 1988).

Here, the parties dispute whether there is an identity of issues, whether the arbitration in fact decided the question of responsibility for the Elizabethtown failure, and whether a decision on that issue was an essential part of the arbitrators' decision. The record before us does not indicate that Watchung Square presented to the arbitrators the question of any responsibility on the part of Elizabethtown for the February 2000 slope failure. Nor do we perceive that a decision with respect to responsibility for the initial February 2000 slope failure was an essential ingredient to the arbitrator's evident conclusion that Natoli and Vollers were not responsible for the failures that occurred subsequently. From the record presented to us, it is apparent that the parties dispute the causes of the subsequent failures, and that there is not agreement as to whether those subsequent failures are causally related to that of February 10, 2000.

If it is not apparent from the arbitration proceedings precisely which issues the arbitrators decided, we consider it inappropriate to invoke collateral estoppel upon the basis of the ultimate arbitration award. Dalow Indus., Inc. v Jordache Enter., Inc., 631 F. Supp. 779, 782 (S.D.N.Y. 1986) (noting "Without knowing which issues were ruled upon and what those rulings were, we cannot determine that a key requirement of the doctrine [of collateral estoppel]-identity of issue-has been satisfied."); Ufheil Constr. Co. v. New Windsor, 478 F. Supp. 766, 769 (S.D.N.Y. 1979) ("As it remains unclear which of plaintiff's arbitration claims were deemed valid by the arbitrators, this court cannot say with certainty that there is an identity between the issues decided in arbitration and those in the present proceeding."), aff'd, 636 F. 2d 1204 (2d Cir. 1980).

Elizabethtown argues that the damages claimed by Watchung Square in this litigation overlap with the damages it claimed in the arbitration, and thus the issues are identical for purposes of collateral estoppel. We have reviewed the final brief book submitted to the arbitrators by Watchung Square, and we are unable to agree with Elizabethtown. Watchung Square asserts in this litigation damage claims that it did not include in its brief book and that it noted it was reserving for litigation.

II

Vollers presents a separate argument on appeal -- that Watchung Square is barred by res judicata from seeking damages in this litigation based upon the Elizabethtown failure. Again, we disagree.

Res judicata restricts a litigant's ability to bring claims in a subsequent civil action that were or could have been adjudicated in an earlier lawsuit involving the same parties. Lubliner v. Bd. of Alcoholic Bev. Control, 33 N.J. 428, 435 (1960). "The rationale underlying res judicata recognizes that fairness to the defendant and sound judicial administration require a definite end to litigation." Velasquez v. Franz, 123 N.J. 498, 505 (1991) (citations omitted). "In order for res judicata to apply, there must be (1) a final judgment by a court of competent jurisdiction, (2) identity of issues, (3) identity of parties, and (4) identity of the cause of action." Brookshire Equities, L.L.C. v. Montaquiza, 346 N.J. Super. 310, 318 (App. Div.), certif. denied, 172 N.J. 179 (2002).

Res judicata "precludes parties from relitigating substantially the same cause of action." Kram v. Kram, 94 N.J. Super. 539, 551 (Ch. Div.), rev'd on other grounds, 98 N.J. Super. 274 (App. Div. 1967), aff'd, 52 N.J. 545 (1968).

To decide if two causes of action are the same the court must consider: (1) whether the acts complained of and the demand for relief are the same (that is, whether the wrong for which redress is sought is the same in both actions); (2) whether the theory of recovery is the same; (3) whether the witnesses and documents necessary at trial are the same (that is, whether the same evidence necessary to maintain the second action would have been sufficient to support the first); and (4) whether the material facts alleged are the same. [Culver v. Ins. Co. of N. Am., 115 N.J. 451, 461-62 (1989) (internal citations omitted).]

"The application of res judicata is a question of law . . . ." Selective Ins. Co. v. McAllister, 327 N.J. Super. 168, 173 (App. Div.), certif. denied, 164 N.J. 188 (2000). Questions of law are reviewed de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

Here, elements one and three of the res judicata test are satisfied. The arbitration award was a valid, final judgment on the merits, and both Watchung Square and Vollers were parties to the arbitration.

As to element two, whether there is an identity of issues, we have already noted our conclusion that such identity does not exist because Watchung Square did not submit to arbitration the issues of whether Elizabethtown and Vollers breached their contractual obligation to extend the water main and were negligent in their efforts to do so, causing the February 2000 slope failure. Although evidence used in the arbitration proceeding may be used in the litigation, such as Watchung Square's expert report, that factor alone does not preclude its third-party complaint against Vollers. See EPIX Holdings Corp. v. Marsh & McLennan Cos., Inc., 410 N.J. Super. 453, 480 (App. Div. 2009) ("[O]ur courts have routinely permitted litigation in separate forums where a plaintiff alleges claims against multiple defendants, some of whom have agreed to arbitrate their disputes and others have not, even where common questions of law and fact create significant overlap.").

Nor is there an identity of the causes of action. In the arbitration, Watchung Square alleged that Vollers failed to adequately perform its obligations pursuant to its subcontract with Natoli in that it excavated knowing that there was potential for subsequent slope failures after the initial February 2000 slope failure. In the litigation, in contrast, Watchung Square alleges that Elizabethtown "and/or" Vollers breached their contractual obligation to extend the water main and were negligent in their efforts to do so, causing the initial slope failure in February 2000.

The trial court correctly denied summary judgment to Vollers.

III

We also reject so much of Vollers' argument that rests upon the entire controversy doctrine. The entire controversy doctrine requires litigants in a civil action to raise all affirmative claims arising from a single controversy that each party might have against another party, including counterclaims and crossclaims. R. 4:30A.*fn2 The doctrine has three purposes: "(1) the need for complete and final disposition through the avoidance of piecemeal decisions; (2) fairness to parties to the action and those with a material interest in the action; and (3) efficiency and the avoidance of waste and the reduction of delay." DiTrolio v. Antiles, 142 N.J. 253, 267 (1995).

"In essence, it is the factual circumstances giving rise to the controversy itself, rather than a commonality of claims, issues or parties, that triggers the requirement of joinder to create a cohesive and complete litigation." Mystic Isle Dev. Corp. v. Perskie & Nehmad, 142 N.J. 310, 323 (1995). "In determining whether successive claims constitute one controversy for purposes of the doctrine, the central consideration is whether the claims against the different parties arise from related facts or the same transaction or series of transactions." DiTrolio, supra, 142 N.J. at 267.

Nevertheless, "the entire controversy doctrine is not imported wholesale into arbitration proceedings." Shoremount v. APS Corp., 368 N.J. Super. 252, 256 (App. Div. 2004). Rather, the entire controversy doctrine applies to those issues of which the parties "were aware at the time of the prior dispute settlement proceeding and arbitration, and which were ripe and amenable to resolution through "the alternate dispute resolution procedure." Spolitback v. Cyr Corp., 295 N.J. Super. 264, 268-69 (App. Div. 1996).

"[B]ecause the entire controversy doctrine is an equitable principle, its applicability is left to judicial discretion based on the particular circumstances inherent in a given case." Mystic Isle Dev. Corp., supra, 142 N.J. at 323. Thus, a lower court's application of the doctrine is reviewed for an abuse of discretion. Ibid.

Vollers contends that Watchung Square expanded the scope of the arbitration to include its claims in the third-party complaint, and thus failed to exempt those claims from the arbitration.

"[O]nly those issues may be arbitrated which the parties have agreed shall be. Stated another way, the arbitrator's authority is circumscribed by whatever provisions and conditions have been mutually agreed upon." In re Grover, 80 N.J. 221, 229 (1979).

To submit additional claims to arbitration beyond those provided for by the arbitration clause in the contract between the parties, the parties must mutually assent. See, e.g., Ukrainian Nat'l Urban Renewal Corp. v. Joseph L. Muscarelle, Inc., 151 N.J. Super. 386, 395, 402 (App. Div.), certif. denied, 75 N.J. 529 (1977).

Here, there was no arbitration clause in Watchung Square's contracts with Elizabethtown or in Elizabethtown's contract with Vollers. Therefore, Watchung Square was not compelled under the entire controversy doctrine to pursue its claims against Elizabethtown and Vollers pursuant to those contracts in arbitration unless it consented to their resolution through arbitration. And, in contrast to Ukrainian, nothing in the record evidences to us that Watchung Square agreed to have its claims against Vollers regarding its work on the water main arbitrated. The original demand for arbitration, the amended demand for arbitration, and the supplemental demand for arbitration did not seek recovery from Vollers regarding its work on the water main. Although the arbitration award does not specifically reserve Watchung Square's claims against Elizabethtown and Vollers, as Watchung Square requested in its final brief submitted in the arbitration, the award stated at the onset that the arbitrators had been "designated in accordance with the Arbitration Agreements entered into . . . by contract between Watchung and Natoli, dated August 4, 1999, and Sub Contract between Natoli and Vollers, dated October 28, 1999," and thus the issues decided at the arbitration concerned those contracts, not Watchung Square's contract with Elizabethtown and Elizabethtown's subcontract with Vollers. Moreover, as the original, amended, and supplemental demands for arbitration show, Watchung Square did not submit as a claim to arbitration its claims against Elizabethtown and Vollers regarding their work on the water main, and so, contrary to Vollers's contention, the arbitration award did not deny Watchung Square's request to reserve Watchung Square's claims against Elizabethtown and Vollers.

The entire controversy doctrine is not a bar to this action.

IV

Vollers' final argument relates to whether Watchung Square's third-party complaint against it should have been dismissed on the basis of the Comparative Negligence Act, N.J.S.A. 2A:15-5.1 to -5.8. We see no merit to the claim. The arbitration claims rested primarily in contract, not tort.

The orders under review are affirmed, and the matter is remanded to the trial court for further proceedings.


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