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City of Union City v. Ac Construction Corp

December 2, 2011


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

Per curiam.


Argued October 24, 2011

Before Judges Sabatino and Ashrafi.

This matter returns to our court following an evidentiary hearing the trial court conducted in November 2010, pursuant to a remand this court ordered in an unpublished opinion. City of Union City v. AC Constr. Corp., No. A-1645-09 (App. Div. Aug. 30, 2010). As a result of that hearing, the trial court reinstated its prior finding that the parties had contractually agreed to arbitrate any dispute arising between them, if such a dispute were not first resolved in mediation. Plaintiff, City of Union City ("Union City"), now appeals that ruling, contending that it never consented to arbitration and that the trial judge misconstrued the contract documents and the testimony adduced at the remand hearing. We affirm the trial court's decision.

We incorporate by reference the facts and procedural history set forth in our prior opinion. City of Union City, supra, slip op. at 1-5. By way of brief summary, this case arises out of a $2.159 million publicly-bid contract entered into in September 2007 by Union City and defendant, AC Construction Corp. ("AC"), for the building of an amphitheater. AC was the low bidder. Among other things, the agreement specified that soil remediation costs on the project would not exceed $50,000. Apparently, the soil remediation proved to be far more extensive and costly than expected, prompting AC to cease work in October 2008.

Union City was unable to get AC to complete its work. According to Union City's complaint, AC refused to cure the defects in its work and also refused "to properly shore up and/or secure the property." Union City therefore alleged that AC had breached its contractual obligations. AC, meanwhile, contended that Union City was liable to it for extra costs it sustained, asserting in its arbitration demand a claim for $213,850, plus counsel fees, interest, and arbitration costs.

The parties' dispute persisted, and they participated in a one-day mediation. The mediation was unsuccessful. The parties continued to wrangle over how the contract documents should be construed with respect to what process of dispute resolution should be pursued if mediation failed to produce a settlement. AC contended that the contract documents required binding arbitration if the mediation failed. Union City, which has a general policy of disfavoring binding arbitration, insisted that the contract documents did not require arbitration in this case and that Union City was entitled to pursue its claims in the Superior Court.

After AC served its arbitration demand and the one-day mediation failed, Union City filed its complaint in the Law Division and moved to have the dispute removed from arbitration. AC cross-moved, seeking to compel arbitration. The neutral attorney appointed by the American Arbitration Association ("AAA") as the arbitrator read the contract documents as requiring binding arbitration.

In her initial ruling in October 2009, Judge Mary K. Costello concluded that the dispute was required to go to binding arbitration. Union City appealed. Our panel found that the record at that time was inadequate to resolve the forum issues and remanded to Judge Costello for an evidentiary hearing and fact-finding. In particular, we directed the judge 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." City of Union City, supra, slip op. at 8.

The parties' "base" contract contains language in Article XV directing that "all disputes" arising under or relating to the agreement "shall be submitted to non-binding mediation[.]" Article XV of the base contract is silent as to what process should ensue if the mediation is unsuccessful. Article XV does state that "[n]othing in this section shall prevent the Owner [Union City] from seeking injunctive or declaratory relief in court at any time." Notably, this sentence does not address whether Union City could also seek monetary relief.

AC takes the position that the base contract is supplemented by provisions in an industry form document, AIA A201.*fn1 Section 4.6.1 of AIA A201 states that "[p]rior to arbitration, the parties shall endeavor to resolve disputes by mediation[.]" The next section of AIA A201, 4.6.2, states that "[c]laims not resolved by mediation shall be decided by arbitration [] unless the parties mutually agree otherwise."

AIA A201 was apparently not attached to the base contract. Union City maintains that AIA A201 should not be treated as though it were incorporated into the parties' agreement and that the AIA created that form to be used with a different "family" of form documents. AC contends that AIA A201 is, in fact, part of the agreement and that it is not in conflict with Article XV since Article XV does not say what should happen if mediation fails.

The base contract does have a "priority of supersession" clause, Section 00800, Provision, which instructs which terms control if such a conflict exists, and it gives the base ...

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