April 19, 2012
STRUCTURAL STEEL FABRICATORS, INC., PLAINTIFF-APPELLANT,
LACONTI MASONRY & CONCRETE, INC., DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-957-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 10, 2012
Before Judges Payne, Simonelli and Hayden.
In this construction case, plaintiff, Structural Steel Fabricators, Inc. (SSF), appeals the November 15, 2010 order of the trial court dismissing SSF's verified complaint and granting the motion of defendant, LaConti Masonry & Concrete, Inc., to compel arbitration before the American Arbitration Association (AAA) and to consolidate the matter with two other disputes that were subject to arbitration. We affirm.
The dispute in this matter arises from the construction of the Speedway Elementary School in Newark. The general contractor for the project was Delric Construction Company, Inc., which entered into a $33,626,000 contract with the New Jersey Schools Development Authority for the construction of the school. On October 22, 2007, Delric entered into a subcontract with LaConti to provide masonry and concrete services for the project, and on March 11, 2008, it entered into a subcontract with SSF to fabricate and erect structural steel and miscellaneous items. Both subcontracts stated:
Except as provided in paragraph 24.2 below, any and all disputes or claims arising out of and/or related to the Subcontract and the performance of the Work at the Project, 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. . . .
Each of the two subcontracts also contained a provision that stated:
In the event the Work of the Subcontractor is damaged, or should the Work of the Subcontractor be delayed or interfered with by any other subcontractor or other contractor on the Project, the Subcontractor and each such subcontractor or contractor shall be directly responsible to the other, each shall look solely to the other for compensation, and the Subcontractor will not seek compensation or damages from Delric Construction Company, Inc. by reason thereof.
The subcontract between Delric and SSF contained scheduling provisions that included a June 9, 2008 commencement date for the erection of structural steel and a final anticipated completion date of July 20, 2009, established to permit the school to be occupied during the 2009-10 school year. To obtain portions of the steel for the project, SSF entered into a subsub-contract with Consolidated Systems, Inc.(CSI). Subsequent to the execution of that contract, CSI informed SSF of an increase in the price of the steel of over thirty percent. The Schools Development Authority declined to authorize the increase. As a result, SSF refused to pay the additional cost, and CSI refused to deliver the steel. In response, SSF filed an order to show cause and verified complaint against CSI seeking damages for breach of contract and an order compelling delivery of the steel. By order dated June 25, 2008, the court entered a preliminary injunction against CSI compelling it to deliver all materials specified in the agreement with SSF by a date certain. The materials were delivered over a period of several months.
SSF filed an amended complaint on November 5, 2008, and on December 5, 2008, CSI filed an answer, counterclaim and third-party complaint against Delric. Thereafter, on February 26, 2009, SSF filed a second amended complaint naming as defendants, among others, Delric and its two principals, Biagio Della Cerra and Robert Ricciardi. In that complaint, SSF alleged that it was damaged by CSI's refusal to deliver materials and by the defective nature of the materials when delivered. SSF also alleged nonpayment of monthly requisitions by Delric as well as nonpayment by it for work performed that was outside the scope of that required by the contract. SSF asserted causes of action against Delric for breach of contract, violation of the Prompt Payment Act, amounts due on a book account, breach of the covenant of good faith and fair dealing, unjust enrichment/ quantum meruit, violation of the Trust Fund Act, conversion, and fraud. The last three causes of action were also asserted against Delric's principals.
Invoking the arbitration provision of its contract with SSF, Delric
successfully moved for dismissal of the action against it,*fn1
with referral of the matter to arbitration. SSF appealed from
the order of dismissal, and we affirmed the trial court's order in an
unpublished opinion. Structural Steel Fabricators, Inc., No. A-0445-09
(App. Div. November 16, 2010).
On May 29, 2009, Delric filed a demand for arbitration with the AAA, describing the dispute with SSF in the following terms:
Subcontract dispute between general contractor and structural steel prime subcontractor involving respondent's project delays, failure to pay suppliers and subcontractors and abandonment of work.
Claimant's damages include costs to accelerate to overcome delays caused by respondent and costs incurred to complete and correct respondent's work.
SSF filed an answer in the arbitration proceeding on August 7, 2009 and an amended answer, counterclaims against Delric alleging an excess of $1.2 million dollars in damages, and third-party claims against Delric's principals, Ricciardi and Della Cerra, on August 24, 2009. Discovery was conducted in the arbitration matter and, between April 27, 2010 and November 8, 2010, seventeen days of hearings took place, but were not concluded.
On April 22, 2010, LaConti, the masonry subcontractor, filed a demand with the AAA for arbitration of a dispute with Delric. In its demand, it stated:
LaConti entered into a subcontract with Delric for work on a project located at Speedway Elementary School. LaConti was damaged due to significant delays attributable to Delric and/or Delric's subcontractors including, but not limited to Structural Steel Fabricators, Inc. ("SSF"). There currently is a pending arbitration . . . between Delric and SSF involving similar claims deriving from the same project. LaConti believes consolidation is warranted so the various overlapping delay issues can be resolved efficiently in a single proceeding.
The matters were consolidated by an order entered on June 15, 2010 over SSF's opposition. Hearings in the LaConti action were ordered to follow those in the Delric action against SSF.
On August 26, 2010, LaConti served the report of its expert, Metropolitan Engineering Associates, Inc. on Delric and SSF. In an executive summary of the report, the expert stated:
As set forth in greater detail herein, LaConti is owed a total amount of $807,125.81. This includes the balance of the Subcontract funds due LaConti of $220,506.66, together with unexecuted change order requests/proposals of $41,921.77 and the costs, due to extensive delays by SSF as regards to the masonry, of $544,697.38.
Delric's failure to properly supervise, direct and coordinate the Delric Contract work resulted in an extended duration of LaConti's Subcontract work. This extended Subcontract duration was caused by SSF's failure to complete the structural steel, metal deck, and miscellaneous iron and the need for Delric to complete the remaining SSF Subcontract work and correct SSF's incorrect work. The delay(s) resulted in significant cost overruns. LaConti, for reasons beyond its control, was forced to extend its scheduled Subcontract duration twenty-six (26) weeks (6 months) from the Projected Subcontract Completion Date contemplated after the concrete foundations were substantially complete.
Total damages were fixed at $807,125.81.
On September 7, 2010, SSF filed the order to show cause and verified complaint that constitute the subject of this appeal against LaConti in the Superior Court, Essex County. In that complaint, SSF alleged that LaConti failed to perform its work in a timely fashion, failed inspections and tests, had its work rejected, and performed its work negligently, causing economic injury to SSF. It alleged additionally that claims for delay asserted by Delric against SSF were in fact the result of LaConti's negligence and failure to perform and complete its work in an orderly, timely and workmanlike manner.
Addressing the ongoing arbitration, SSF noted that "LaConti's expert report [in its dispute with Delric] is replete with claims that SSF delayed LaConti's work on the Project, resulting in alleged damages to LaConti in excess of $500,000. Thus LaConti has asserted through its expert report that SSF is responsible for its delays on the Project." Having noted that both the SSF and LaConti contracts contained provisions precluding the assertion of delay claims against Delric and requiring that they be asserted only against the subcontractor allegedly causing the delay, SSF claimed that "[t]his is the type of claim that was expressly contemplated in the Subcontracts, which require that LaConti bring its delay claim against SSF, and not Delric." Because there was no arbitration provision between SSF and LaConti, SSF asserted that the delay claims could not be litigated before the AAA and should be removed immediately from the arbitration pursuant to the New Jersey Arbitration Act, N.J.S.A. 2A:23B-1 to -32. Because the arbitration hearing was to recommence on September 8, 2010 with LaConti's participation, SSF sought a declaratory judgment summarily directing that LaConti's claims against SSF be removed from arbitration and brought in the Superior Court. Alternatively, it requested a stay pending appeal.
LaConti cross-moved to dismiss SSF's claims, remove them to arbitration, and to consolidate the SSF/LaConti arbitration with the SSF/Delric and the LaConte/Delric arbitration. The matter was transferred to Somerset County where SSF's initial action against Delric had been filed, and on November 15, 2010, the trial court granted LaConti's motion to dismiss and consolidated the SSF/LaConti arbitration with the SSF/Delric and LaConti/Delric arbitrations. Upon referral to arbitration, LaConti asserted claims for delay damages against SSF.
This appeal followed. While the appeal was pending, on June 24, 2011, the arbitrators issued their awards. The panel determined that there was an unpaid subcontract balance due from Delric to SSF in the amount of $789,554. However, the panel also found that Delric had sustained $679,725.94 in damages attributable to SSF, and that SSF was liable for counsel fees of $234,944.08, expert fees of $13,280 and costs of $4,862.11. Because those amounts exceeded SSF's award, SSF was required to pay Delric $143,258. Additionally, SSF was ordered to pay LaConti the sum of $474,062 on its claim for "impact cost summary due to extended subcontract time - January 20, 2009 through July 22, 2009." The arbitrators noted that Delric and LaConti had stipulated to an award of $161,291.25 in earned retainage plus an additional $5,945.75 for brick replacement. Claims against Ricciardi and Della Cerra were dismissed.
On appeal, SSF claims that, as the result of the absence of a contractual arbitration agreement between SSF and LaConti, and in light of the contract provision precluding the assertion of delay claims against Delric, the trial court erred in dismissing its Superior Court action and ordering that its claims against LaConti be consolidated in the ongoing Delric/LaConte/SSF arbitration. LaConti, on the other hand, argues that the parties' claims against Delric for nonpayment, which led to claims by Delric against SSF for "project delays, failure to pay suppliers and subcontractors and abandonment of work," were properly arbitrated, as the result of the arbitration provisions in each subcontractor's contract with Delric. LaConti further argues that the contracts did not preclude the joinder of claims by the subcontractors against each other for delay with the claims by the subcontractors against Delric. Finally, LaConti argues that the court properly compelled the subcontractors to arbitrate their claims against each other, despite the absence of an arbitration agreement between them, as the result of the application of principles of equitable estoppel.*fn2
We agree with LaConti's position in the matter, concluding that the trial court properly determined that the dispute between LaConti and SSF was equitably subject to SSF's agreement to arbitrate, N.J.S.A. 2A:23B-6b, and that the court's order dismissing SSF's action against LaConti and referring the dispute to the AAA for consolidation with matters pending there was legally warranted. N.J.S.A. 2A:23B-7b.
In reaching that conclusion, we rely, in large part, on our decision in Bruno v. Mark MaGrann Associates, 388 N.J. Super. 539 (App. Div. 2006). In that case, we held that the trial court properly dismissed a class action against heating subcontractors alleging defects in a development's heating units and referred the matter to arbitration for consolidation with an arbitration pending against the project's developer, despite the fact that the homeowners were not in contractual privity with the subcontractors and lacked arbitration agreements with them. We found the terms of the arbitration agreements between the homeowners and the developer, U.S. Home, together with the agreements between the developer and the subcontractors, to be sufficiently broad to permit arbitration. Id. 546-47. In reaching that conclusion, we relied on the Eleventh Circuit's decision in McBro Planning & Development Co. v. Triangle Electrical Construction Co., Inc., 741 F.2d 342, 344 (11th Cir. 1984). We described its holding in language that is relevant to the present matter as follows:
(contractor and project manager with no contractual relationship required to arbitrate their disputes because the claims were "'intimately founded in and intertwined with'" an underlying contract that contained an arbitration clause) (quoting Hughes Masonry Co. v. Greater Clark County Sch.
Bldg. Corp., 659 F.2d 836, 839, 841 n. 9 (7th Cir. 1981) (where plaintiff agreed in a contract with defendant to provide masonry service for construction of two schools, and contract contained arbitration provision, plaintiff was required to arbitrate with subcontractor without a direct contract because plaintiff's claim arose out of contract between plaintiff and general contractor)); Wasserstein [v. Kovatch,] 261 N.J. Super. [277,] 286 [(App. Div.), certif. denied, 133 N.J. 440 (1993)] (relationship of the claim to the subject matter of the arbitration clause determines arbitrability). [Bruno, supra, 388 N.J. Super. at 547.]
We noted as an additional reason to arbitrate the fact that the developer, with which plaintiffs had an ongoing arbitration, was an indispensable party to the dispute between plaintiffs and the subcontractors. Ibid. In that connection we noted that "[a] party is indispensable if it has an interest 'inevitably involved in the subject matter before the court and a judgment cannot justly be made between the litigants without either adjudging or necessarily affecting the absentee's interest.'" Ibid. (quoting Allen B. Du Mont Labs., Inc. v. Marcalus Mfg. Co., 30 N.J. 290, 298 (1959) (additional citations omitted)). We found the developer to be such a party. Ibid.
We held applicable the further ground "that the arbitration agreements between U.S. Home and its subcontractors render arbitration the only forum where all parties can proceed in a single action to have the dispute resolved. Permitting all parties to resolve the dispute in a singular proceeding avoids piecemeal litigation." Id. at 548 (citations omitted).
Finally, we concluded that, under the circumstances, the plaintiffs were estopped from avoiding arbitration. We held:
The subject complaint presents the same factual allegations as those in the Ocean County complaint. In both cases, the merits of the dispute are bound up with plaintiffs' contracts with U.S. Home. Plaintiffs cannot now avoid arbitration simply by omitting the general contractor from its complaint. Cf. JLM Indus. v. Stolt-Nielsen SA, 387 F.3d 163, 177-78 (2d Cir. 2004) (nonsignatory to arbitration agreement may compel signatory to arbitrate when issues to be litigated are intertwined with agreement containing arbitration clause); Choctaw Generation Ltd. P'ship v. Am. Home Assurance Co., 271 F.3d 403, 406 (2d Cir. 2001) (signatory to an arbitration agreement may be estopped from avoiding arbitration with a nonsignatory when the issue in dispute between the parties is bound up in a contract containing an arbitration clause) . . . . [Bruno, supra, 388 N.J. Super. at 548.]
See also EPIX v. March & McLennan Cos., 410 N.J. Super. 453, 465-66 (App. Div. 2009).
In the present matter, SSF entered into a contract with Delric that contained a broad arbitration clause permitting Delric to compel arbitration of "any claims, disputes or other issues arising out of and/or related to the Subcontract and the performance of the work." When SSF filed suit against Delric alleging nonpayment of monies owed to it, Delric, as was its right, invoked the arbitration clause to compel arbitration of the dispute before the AAA. In doing so, Delric asserted as ground for nonpayment SSF's "project delays, failure to pay suppliers and subcontractors and abandonment of work." It claimed as damages "costs to accelerate and overcome delays caused by respondent and costs incurred to complete and correct respondent's work." It is noteworthy that Delric's claim for damages as the result of delay was appropriately asserted, there being no prohibition of such a claim by Delric in Delric's contract with SSF.
Thereafter, LaConti sought arbitration of its claim for damages against Delric.*fn3 As set forth in LaConti's expert report, those damages included funds due from Delric to LaConti in the approximate amount of $260,000 plus delay damages of approximately $545,000, which the expert attributed to Delric's failure to properly supervise, direct and coordinate the Delric contract work, as well as to SSF's failure to complete the structural steel work on the project. We find it to have been appropriate for the trial court to have referred SSF's subsequent action for delay damages against LaConti to arbitration, so that the delay claims between the two subcontractors could properly be resolved as specified in their subcontracts, within the overall context of the resolution of the various interrelated claims between the parties.
In circumstances in which SSF's actions against Delric and LaConti had their basis in the provisions of the Delric/SSF contract, we find SSF to have been properly estopped from litigating a portion of its dispute in court. In that regard, we are satisfied that, like Bruno, in this matter, arbitration provided the only forum where all parties could proceed in a single action to obtain resolution of their dispute, and that precedent amply supported the trial court's decision to compel that arbitration.