January 22, 2013
SM GLOBAL GROUP, L.L.C., PLAINTIFF-APPELLANT,
BERGENFIELD SENIOR HOUSING, L.L.C., DEFENDANT-RESPONDENT.
BERGENFIELD SENIOR HOUSING, L.L.C., PLAINTIFF-RESPONDENT,
SM GLOBAL GROUP, L.L.C., DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket Nos. L-6140-11 and L-6358-11.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 19, 2012 -
Before Judges Ashrafi, Hayden and Lisa.
In the course of litigation regarding a dispute arising out of the failure to consummate an agreement of sale, the parties agreed to arbitrate, rather than continue the litigation. The arbitrator ultimately entered an award which favored the buyer, SM Global Group, L.L.C. (SM Global). The seller, Bergenfield Senior Housing, L.L.C. (BSH), filed an action seeking to vacate the award. BSH contended the award was beyond the scope of what the parties agreed to arbitrate, as a result of which the arbitrator exceeded his powers, as prohibited by N.J.S.A. 2A:23B-23(a)(4). SM Global filed a separate action seeking to confirm the award. SM Global contended the award was within the scope of the parties' agreement and BSH was otherwise precluded from seeking to vacate the award under principles of res judicata and waiver. The two actions were consolidated in the trial court.
The trial judge agreed with BSH and entered an order on September 23, 2011 in the consolidated actions that (1) denied SM Global's request to confirm the award, (2) granted BSH's request to vacate the award, and (3) ordered the appointment of a new arbitrator.*fn1 On November 9, 2011, the trial judge denied SM Global's reconsideration motion.
SM Global appeals from these orders, presenting the same arguments before us as it presented to the trial judge. We agree with SM Global that the award was within the scope of arbitration to which the parties agreed and that BSH was barred from challenging the award because of the preclusive effect of the final judgment ordering arbitration and because of BSH's full participation in the arbitration proceedings. Accordingly, we reverse.
In December 2007, the parties entered into a written contract by which SM Global agreed to purchase from BSH eighty-eight of the ninety units in a condominium complex owned by BSH for a total purchase price of $18,600,000. BSH had previously sold two units to third parties. Pursuant to the agreement, SM Global paid BSH $1,860,000 as a "non-refundable deposit except for willful default of [BSH]." The agreement provided for closing on March 7, 2008.
Because of disputes regarding performance under the agreement of sale, closing never occurred. Instead, litigation ensued between the parties, each asserting various claims against the other. An order for judgment was entered in that litigation (the prior litigation) on July 21, 2008. The judgment recited that SM Global was in default under the agreement because it failed to come to closing at the required time and BSH was ready, willing and able to close. The judgment ordered that the agreement for the sale of the eighty-eight condominium units be declared null and void and that a hearing on the issue of damages would be held on August 14, 2008.
In the year following that judgment, no damages hearing was conducted. The parties apparently continued to engage in negotiations in an effort to resolve their differences. Finally, on September 8, 2009, the matter came before a different judge, who we will refer to as the "settlement judge," for a damages hearing. Counsel and the principals for both parties were present, and, over a two-day period, they engaged in extensive negotiations, which included the assistance of the settlement judge. These negotiations were fruitful and resulted in a settlement, the terms of which were orally placed on the record on September 9, 2009. After both counsel laid out the terms of the settlement, both principals expressed their assent to those terms on the record.
The settlement reflected the continuing desire of both parties to see the sale consummated. In essence, the settlement constituted a new agreement of sale, the previous written agreement of December 2007 having been declared null and void. Under the terms of the new agreement, the purchase price for the eighty-eight condominium units would remain $18,600,000, and the $1,860,000 previously paid by SM Global would be credited toward the purchase price. There was no mention during the colloquy that the $1,860,000 deposit would be characterized as "nonrefundable." Further, the parties would enter into a lease for space in the building in which SM Global would operate an adult daycare center. A monthly payment schedule was placed on the record, and it was agreed that, if SM Global failed to make any of the payments when due, the parties could "walk away" from the agreement, but BSH would be entitled to entry of a judgment for the sum of $484,000 (or the balance of it that was not paid through the monthly payments referenced in the settlement agreement) to compensate it for an amount due "under a prior court order."
Closing was contemplated in twelve months, with allowance for reasonable six-month extensions, bringing it to a total of twenty-four months after the settlement was entered into. The parties further agreed that even if there was no closing, SM Global could continue with an initial five-year lease at the monthly rental of $24,000, and a second five-year term with rent to be increased based upon the Consumer Price Index. Of course, if closing were held, the lease would terminate because the leased space would belong to SM Global. The agreement also provided that, if requested by SM Global, BSH would take back a second mortgage in the amount of $3,000,000 for a five-year term with eight percent interest.
Both counsel and the settlement judge acknowledged that because this was a complicated transaction only the broad terms of the settlement were placed on the record and that a detailed agreement of sale, lease, and any other necessary documents would have to be prepared and signed by the parties. Both counsel agreed to devote their best efforts to achieving this result.
The settlement judge made it emphatically clear that the prior litigation would be dismissed with prejudice and that this was a full and final settlement for which there would be no recourse to the court. Everyone agreed. It was further agreed that a particular retired Superior Court judge would be designated as an arbitrator to resolve any disputes between the parties. This retired judge, who we will refer to as the "arbitrator," had served as a mediator for the parties during the interim one-year period between the liability judgment and the damages hearing. Both counsel and the principals for both parties were comfortable with this individual as the arbitrator.
In placing the settlement terms on the record, BSH's attorney stated that "[t]he parties have agreed that it would be done in a binding arbitration fashion, that it could be immediately reduced to judgment in the Superior Court." BSH's counsel further suggested that the parties would consider a "baseball type of arbitration, where essentially it would be formatted with maybe one choice or another to expedite the process, make it easy, and not, maybe leave us with a remedy that we haven't asked for." The judge interjected that binding arbitration can take various forms and the parties could choose whatever form they wish. The judge commented:
If there's a dispute in terms of money and you both agree to high-low, the arbitrator has the freedom to pick any number within that high-low or the baseball arbitration, which means both parties are obligated to present their best argument and the arbitrator is limited to choose of one or the other, not a compromise, he has to pick the best figure.
The judge then emphasized that the arbitrator's decision would be binding, that the litigation was settled with finality, and any disputes regarding the "wording of the agreement, or more importantly, the execution of the terms," would go to the arbitrator and would not in any manner "impact upon the finality of this settlement." The judge concluded: "This case is settled. The matter is dismissed."
Thus, the parties left that hearing with the prior litigation having been dismissed with prejudice and with a new agreement for the conveyance of the eighty-eight condominium units. Counsel were to collaborate in drafting the necessary documents, which their clients would then sign in accordance with the terms outlined on the record. If there were drafting disputes, the arbitrator was authorized to resolve them. If there were disputes in the "execution of the terms" of the agreement, the arbitrator was likewise authorized to determine the consequences.
Although a particular remedy was set forth in the event of a default by SM Global, no particular remedy was set forth should BSH default. However, the discussion clearly contemplated that any dispute regarding money was subject to resolution by the arbitrator. This could be done in accordance with any format the parties would choose, including, for example, a high-low-range format or a best-and-final-position format. Thus, it was clearly contemplated that either party could make a monetary claim if it asserted that the other party materially defaulted in the execution of the terms of the agreement.
Efforts to draft the necessary documents were met with disputes and delays. On October 26, 2009, counsel for SM Global wrote to the arbitrator seeking an award declaring BSH in default for failure to prepare documents. Counsel requested that the agreement for the sale and purchase of the eighty-eight units be declared null and void and that BSH be required to refund to SM Global the $1,860,000 security deposit. Counsel for BSH replied on November 16, 2009, arguing that SM Global's application was premature, that both counsel were working on preparation of the documents and they should be permitted to continue doing so. Counsel further contended that a refund of the deposit was never agreed upon as an authorized remedy and that the sole remedy for a breach was that the parties would walk away from the agreement and that BSH would be entitled to a $484,000 (or balance due) judgment.
On December 22, 2009, the parties met with the arbitrator. He apparently told them that because there was no written agreement appointing him arbitrator and because the settlement agreement had not been reduced to writing, he was not in a position to arbitrate their competing claims. This resulted in cross-motions by the parties under the prior litigation docket.
BSH filed its motion on January 6, 2010, seeking to enforce the settlement agreement. BSH argued that issues raised by SM Global were not within the scope of arbitration because "the relief sought by [SM Global] was not contemplated by the parties, was not on the record, not agreed to, etc." BSH expressed its position that either the settled case should be enforced or, if not, "we are entitled to relief for [SM Global]'s breach or just get a new trial date and try the case."
On January 28, 2010, SM Global filed its motion, seeking to compel arbitration. In a supporting certification, SM Global's counsel described the ongoing efforts to draft the necessary documents, including the recent exchange of drafts and correspondence between counsel. The certification clearly expressed "SM Global's position that BSH [had] breached the settlement agreement and SM Global [was] entitled to the return of its deposit. In accordance with the settlement agreement placed on the record, 'any and all disputes [were to] be resolved by [the arbitrator], retired Judge of the Superior Court.'" (referencing the transcript of the September 9, 2009 hearing).
The cross-motions were argued before the settlement judge on February 5, 2010. BSH's attorney argued that the order to arbitrate disputes referred only to the drafting of the documents and limited the arbitrator's authority to "dot[ting] i's [and] cross[ing] t's" in the contract documents. BSH's attorney further argued that the arbitrator was "not supposed to have a binding arbitration, win or lose, you take the money, I take the money, this phase of it is to get these agreements finalized." BSH's counsel characterized the arbitrator's role as being to resolve "the battle of the forms," and nothing more.
SM Global's counsel argued an opposite viewpoint:
What the contours of what [the arbitrator] is to do, what his powers are, is not just to dot the i's and cross the t's. What the agreement was, and I'm reading from Page 11 of the settlement -- of the transcript. It says, any -- and this is [BSH's attorney]'s words.
"Any and all disputes will be resolved by the [arbitrator], retired judge, in a simplified expedited form". This is a dispute between the parties about this agreement. Whether there's a breach or not.
And it has to go to him and he has the --and he has the authority to say whether there's a breach or not, not just cross the t's and dot the i's. That's it, Your Honor.
So I think he has that authorization.
The settlement judge rejected BSH's argument and agreed with SM Global. He reiterated that this was a settled case and the arbitrator's role was to resolve all disputes of any nature arising out of the settlement. This included not only drafting of documents to complete the conveyance of the eighty-eight units but any disputes that might arise. The settlement judge concluded "[his] view is to reaffirm that [the arbitrator] has full authority to mediate and/or arbitrate any and all disputes arising from the settlement of the case."
The settlement judge issued an order on February 5, 2010 granting SM Global's motion to compel arbitration, ordering the parties to proceed to arbitrate any and all disputes between them before the arbitrator, and ordering that the arbitration be conducted in accordance with the procedures deemed appropriate by the arbitrator and that the arbitrator's decision would be "final and binding on the parties." The settlement judge endorsed the following handwritten provision on the order:
As per the settlement agreement, set forth on the record on 9/9/09, and the Court's ruling as to the breadth of the arbitrator's authority to resolve any and all disputes arising from the memorialization and execution of the settlement, the arbitrator selected by the parties, has full authority to resolve all disputed issues of procedure and substance.
BSH did not appeal this order. Pursuant to the order, the parties proceeded to arbitration on the issue that had been raised by SM Global but which the arbitrator had previously declined to address. That issue was whether BSH was in breach of the agreement because of its failure to draft or approve the necessary transaction documents.
The arbitrator issued his decision on July 2, 2010. He found that both sides had, to some extent, delayed and been inattentive in the document preparation process. He noted that progress had been made and directed the parties to continue the process with diligence and good faith in order to finalize the documents and have them signed by the principals. Accordingly, the arbitrator considered but rejected SM Global's contention that BSH breached the agreement and that, as a result of the breach, SM Global was entitled to a refund of the $1,860,000 deposit.
On February 7, 2011, SM Global's attorney wrote to the arbitrator. He described the ongoing progress of the document preparation. He noted that the most recent version of the lease agreement was satisfactory. However, he complained that modifications made to the most recent draft of the agreement of sale did not comply with the terms of the settlement agreement and were not agreeable to SM Global. Counsel also urged that because of the delays in finalizing the settlement documents, monthly payments due should be tolled for a specified period of time.
On February 14, 2011, BSH's counsel replied that the changes to which SM Global objected were necessitated because the building is no longer a condominium building, it is a fee simple rental property owned by our client. As part of refinancing, the bank required that our client buy back the only two (2) units sold.
It cost them $600,000.00. He cannot now sever or partition them off. He cannot and will not just give these units away.
On April 4, 2011, SM Global's attorney wrote to the arbitrator and asserted that, by converting the condominium complex to a fee simple rental property, BSH breached the agreement, which provided for the sale of eighty-eight condominium units. Counsel stated that "SM Global did not consent to nor was it aware of BSH's intention to revoke the condominium status." SM Global requested that the arbitrator find BSH in breach of the agreement and order it to refund the $1,860,000 deposit.
By letter to the arbitrator of April 28, 2011, SM Global's attorney made a formal request for arbitration. He framed the issues to be addressed in the arbitration as follows:
The issues to be addressed are (i) whether [BSH] breached the settlement agreement between the parties by dissolving the condominium regime at the property, thereby rendering performance under the settlement agreement impossible, (ii) alternatively, whether the impossibility of performance renders all remaining obligations under the settlement null and void, and (iii) whether SM Global is entitled to the return of its deposit of $1,860,000.
BSH's counsel responded to the arbitrator, expressing the position that the matter had already been arbitrated and he did not believe any further arbitration was necessary, but that BSH would "abide by [the arbitrator]'s direction."*fn2
The arbitrator sent an e-mail to both counsel on May 19, 2011. He stated that he concluded from both attorneys' letters that "(a) both parties agree that the forum for resolution of this dispute is in my arbitrating the matter, and (b) the three issues to be addressed are set forth in the first paragraph of [SM Global's counsel's] letter." The arbitrator then asked the attorneys to submit dates for the arbitration hearing. In subsequent e-mails and correspondence, the parties ultimately agreed that, due to scheduling difficulties, the arbitrator was authorized to decide the issues before him on the papers.
Both parties briefed the substantive issues. SM Global persisted in its position that BSH breached the agreement by dissolving the condominium regime and requested as a remedy the return of the $1,860,000 deposit. BSH argued that dissolution of the condominium regime did not constitute a breach and that it could substantially comply with the agreement by conveying title to the project in its fee simple form. It urged the arbitrator to order SM Global to begin making payments as required by the settlement agreement.
In continuing efforts to arrive at a mutually convenient arbitration date, before the parties finally agreed to authorize the arbitrator to decide the issues on the papers, BSH's counsel e-mailed the arbitrator on July 13, 2011. After noting that the parties continued to be unable to resolve the matter on their own, he said: "We are agreeable with your Honor deciding the matter based on the last set of submissions, etc."
On July 15, 2011, the arbitrator issued his decision. He agreed with SM Global's position that, because the agreement required the sale and purchase of eighty-eight condominium units, the unwinding of the condominium regime rendered it impossible to convey those units. The arbitrator further reasoned that "[i]ndividual units as a portion of a whole property of rental units is not the same as condominium units, title to which condominium unit renders each able to be conveyed, mortgaged, etc., as an individual unit." The arbitrator noted that the ability of a purchaser to obtain financing as well as the value of the property would be adversely affected by this change. The arbitrator concluded:
The court could not write a contract for the parties different from that for which the parties bargained. The contract bargained for in the settlement put on the record involved condominium units. There are no more condominium units.
Accordingly [BSH] is deemed to have anticipatorily breached the settlement agreement. The transaction is at an end.
The deposit should be returned.
After SM Global and BSH filed their summary actions seeking, respectively, to confirm or vacate the award, the matter came before the initial trial judge (not the settlement judge) on September 12, 2011. He agreed with BSH that the settlement contemplated consummation of the new agreement of sale and the arbitrator's authority was limited to assisting or directing the parties toward that end. He was of the view that determination of a breach and remedy were not contemplated and not authorized as part of the arbitrator's authority. Further, the judge did not deem dispositive that BSH had consented to arbitrate the issues specified in the exchanges of correspondence and e-mails (which included breach and remedy). He reasoned that the arbitrator's authority was limited to that which was set forth in the September 9, 2009 transcript of the settlement. And, as we have stated, he read that authority as narrowly circumscribed and limited to any actions by the arbitrator directed toward having the transaction completed.
Accordingly, the trial judge issued an order on September 23, 2011 denying SM Global's request to confirm the award and granting BSH's request to vacate it. The order also required the parties to continue arbitration with a new arbitrator. On November 9, 2011, the trial judge issued an order denying SM Global's reconsideration motion.
On appeal, SM Global argues that the trial judge erred in vacating the award for three reasons: (1) Because the settlement judge's order of February 5, 2010 determined that the arbitrator's scope of authority included the power to determine whether there was a breach of the settlement agreement and, if so, to grant appropriate relief, the doctrine of issue preclusion barred BSH from subsequently challenging the award on the ground that those issues were not arbitrable. (2) The scope of arbitration, as determined by the colloquy in the record before the settlement judge and the orders issued by the settlement judge authorized the arbitrator to award the relief that he did. (3) BSH waived its right to object to the arbitration award on jurisdictional grounds because it fully participated in the arbitration proceeding.
"The judicial power to set aside an arbitration award is limited." Block v. Plosia, 390 N.J. Super. 543, 552 (App. Div. 2007). We review a trial court's decision to vacate an arbitration award de novo. Del Piano v. Merrill Lynch, Pierce, Fenner & Smith Inc., 372 N.J. Super. 503, 507 (App. Div. 2004), certif. granted, 183 N.J. 218, certif. dismissed as improvidently granted, 195 N.J. 512 (2005).
We conclude that each of the three arguments advanced by SM Global, individually, compel reversal of the orders before us. For the sake of completeness, we discuss all three arguments.
We first address issue preclusion. SM Global argues that a prior court ruling had determined that the arbitrator was authorized to resolve "any and all disputes" between the parties, and, more specifically, that the prior ruling determined that the scope of the arbitrator's authority included the power both to determine whether the settlement agreement had been breached and, if so, to grant an appropriate remedy. Thus, it argues, BSH was precluded from relitigating this issue.
Issue preclusion is an equitable doctrine that arises whenever an issue of law is litigated and results in a valid, final judgment and provides that such a determination shall be considered conclusive in any "subsequent action between the parties, whether on the same or a different claim." Hernandez v. Region Nine Hous. Corp., 146 N.J. 645, 659 (1996) (quoting Restatement (Second) of Judgments § 27 (1982)). The party asserting issue preclusion must establish that (1) the issue to be precluded is identical to the issue decided in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding. [In re Estate of Dawson, 136 N.J. 1, 20 (1994) (citations omitted).]
Even if these requirements are satisfied, however, the doctrine "will not be applied when it is unfair to do so." Pace v. Kuchinsky, 347 N.J. Super. 202, 215 (App. Div. 2002). The judicial considerations underpinning issue preclusion include "finality and repose; prevention of needless litigation; avoidance of duplication; reduction of unnecessary burdens of time and expenses; elimination of conflicts, confusion and uncertainty; and basic fairness." City of Hackensack v. Winner, 82 N.J. 1, 32-33 (1980).
"In deciding the similarity of issues," a court may consider "whether there is substantial overlap of evidence or argument," whether the same rule of law applies, 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). On February 5, 2010, in the prior litigation, the settlement judge was presented with the following issues: (1) whether the arbitrator's scope of authority authorized him to determine whether one of the parties had breached the settlement agreement, and (2) whether that authority included the power to fashion an appropriate remedy. In this proceeding, on September 12, 2011, the trial judge was confronted with the same questions concerning breach and remedy. Therefore, in issuing the orders now before us, the trial judge considered issues identical to those considered by the settlement judge on February 5, 2010; the law to be applied and the evidence to be heard in the two proceedings substantially overlapped. Both proceedings dealt with same issue of law, namely, the scope of arbitrability, and both proceedings relied on the same evidence, namely, the transcript of the settlement proceeding.
The second Dawson factor considers whether the issues were actually litigated and whether the parties had ample opportunity to contest the issues. Penn Salem Marina, supra, 190 N.J. at 354. The record fully supports the conclusion that this factor was satisfied. BSH submitted a letter brief in the prior litigation arguing that the arbitrator was not authorized to find a breach of the settlement because doing so would effectively void the settlement, not enforce it. This argument is identical to the argument that BSH advanced in this proceeding. Further, both parties presented oral arguments at the motion hearing on February 5, 2010, regarding the breadth of the arbitrator's scope of authority.
As to the third factor, the settlement judge's order of February 5, 2010, compelling arbitration of all disputed issues of form and substance, was a final judgment on the merits, appealable as of right. See Wein v. Morris, 194 N.J. 364, 380 (2008); see also R. 2:2-3(a). BSH did not appeal this order.
The settlement judge's order compelling arbitration hinged on a determination that the issues submitted for arbitration were within the arbitrator's scope of authority. Therefore, the scope-of-authority determination was essential to the order compelling arbitration, and the fourth factor is satisfied.
There can be no dispute regarding the fifth factor because BSH, the party against which the doctrine is asserted, was a party in the prior litigation.
Finally, we see nothing unfair in applying the issue preclusion doctrine here. This was a substantial commercial transaction. Both parties were well represented by counsel, had equal bargaining power, and operated on an equal footing.
We therefore conclude that the settlement judge's order of February 5, 2010 in the prior litigation, which determined that the scope of the arbitrator's authority included the authority both to determine whether BSH breached the settlement agreement and, if so, to grant an appropriate remedy, should have been considered conclusive in the subsequent proceeding before the trial judge which resulted in the orders now before us. BSH chose not to appeal the February 5, 2010 order, which was a final judgment appealable as of right. BSH should not have been permitted to relitigate the same issue.
We next consider whether, alternatively, even if the issue preclusion doctrine were not controlling, the parties' agreement to arbitrate authorized the arbitrator to award the relief he did. Stated differently, we consider whether the arbitrator exceeded the scope of authority delegated to him. We conclude he did not.
As applicable here, arbitration is the substitution of tribunals by consent. State v. Int'l Fed'n of Prof'l & Technical Eng'rs, Local 195, 169 N.J. 505, 513 (2001). Under the New Jersey Arbitration Act, N.J.S.A. 2A:23B-1 to -32, an arbitration award may be vacated if the arbitrator exceeds his or her powers. N.J.S.A. 2A:23B-23(a)(4). An arbitrator exceeds his or her authority "by disregarding the terms of the parties' agreement." State, Office of Emp. Relations v. Commc'ns Workers of Am., 154 N.J. 98, 112 (1998). This is premised on the notion that an arbitrator's authority is circumscribed by contract. Commc'ns Workers of Am., Local 1087 v. Monmouth Cnty. Bd. of Soc. Servs., 96 N.J. 442, 448 (1984). "The polestar of construction of a contract is to discover the intention of the parties." Kearny PBA Local # 21 v. Town of Kearny, 81 N.J. 208, 221 (1979). The parties' "intent may not be disregarded to create a new or better contract or to add to, subtract from, modify, or alter any terms of the agreement." Monmouth Cnty. Bd. of Soc. Servs., supra, 96 N.J. at 452.
On the other hand, "[a]n agreement to arbitrate should be read liberally in favor of arbitration." Marchak v. Claridge Commons, Inc., 134 N.J. 275, 282 (1993). This is because "public policy strongly favors arbitration." J. Baranello & Sons, Inc. v. City of Paterson, 168 N.J. Super. 502, 506 (App. Div.), certif. denied, 81 N.J. 340 (1979). It is well settled that the object of arbitration is the final disposition, in a speedy, inexpensive, expeditious and perhaps less formal manner, of the controversial differences between the parties. Arbitration can attain its goal of providing final, speedy and inexpensive settlement of disputes only if judicial interference with the process is minimized; it is, after all, meant to be a substitute for and not a springboard for litigation.
[Fawzy v. Fawzy, 199 N.J. 456, 468 (2009) (quoting Barcon Assocs., Inc. v. Tri-Cnty.
Asphalt Corp., 86 N.J. 179, 187 (1981) (quotation marks and citations omitted)).]
Our analysis of the scope-of-authority issue requires consideration of two components. The first is whether the agreement authorized determination of a breach of the settlement agreement. Second, if so, we must determine whether the arbitrator was also authorized to fashion remedies that were not specifically set forth in the agreement.
In general and consistent with New Jersey's strong policy encouraging arbitration, courts "should favor arbitration where parties have clearly expressed by contract an intention that certain of their disputes should be resolved by arbitration but have ambiguously or less clearly identified those issues which need not be so resolved." Yale Materials Handling Corp. v. White Storage & Retrieval Sys., Inc., 240 N.J. Super. 370, 375 (App. Div. 1990). More specifically, arbitration provisions incorporating phrases such as "arising out of" or "relating to" in defining which disputes are subject to arbitration have been interpreted as "indicative of an 'extremely broad' agreement to arbitrate any dispute relating in any way to the contract." Griffin v. Burlington Volkswagen, Inc., 411 N.J. Super. 515, 518 (App. Div. 2010) (citations omitted). See EPIX Holdings Corp. v. Marsh & McLennan Cos., 410 N.J. Super. 453, 472 (App. Div. 2009) (quoting with approval the Seventh Circuit's "expansive interpretation" of the arbitration provision found in Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Ltd., 1 F.3d 639 (7th Cir. 1993), which interpreted the phrase "arising out of the agreement" as encompassing "any dispute between the contracting parties that [was] in any way connected with their contract").
In the face of disputes regarding scope of arbitration, a presumption of arbitrability exists, which will not be overcome "unless it may be said with positive assurance" that the arbitration agreement "is not susceptible of an interpretation that covers the asserted dispute." Marsh & McLennan, supra, 410 N.J. Super. at 471. Doubts regarding the scope of arbitrable issues should be resolved in favor of arbitration, rather than litigation. Id. at 471-72. Because of the presumption of validity, the party seeking to vacate an arbitration award bears a heavy burden. Del Piano, supra, 372 N.J. Super. at 510.
Applying these principles, we reject BSH's contention that the arbitrator's authority was limited to dotting the i's and crossing the t's in the documents to be prepared in connection with the contemplated transaction. The parties settled the prior litigation with the intention and expectation that they would proceed to consummation of the sale of the eighty-eight condominium units. That, of course, required a new agreement of sale, setting forth the new terms. It also required a lease for the adult daycare center. Other documents were also contemplated.
However, the fact that the parties anticipated completion of the transaction does not necessarily mean that, if the documents were all prepared to both parties' satisfaction and signed by the principals, final closing would actually occur. The prior history, which led to the prior litigation, was certainly indicative that disputes and problems might arise. Thus, after the scope-of-authority issue was fully litigated before the settlement judge, he made clear that he rejected the limited scope urged by BSH pertaining only to document preparation. He included in his order the provision that the arbitrator possessed authority "to resolve any and all disputes arising from the memorialization and execution of the settlement. . . [with] full authority to resolve all disputed issues of procedure and substance."
"Memorialization" referred to preparation of the documents needed for the settlement. "Execution" referred to performance of those terms by the parties. This is reflected in the settlement judge's comments at the September 9, 2009 hearing, when the settlement was placed on the record. He said: "So if there are issues that come up regarding the -- in my view the wording of the agreement, or more importantly, the execution of the terms, those -- those disputes will go to [the arbitrator]. In no way will any of these issues impact upon the finality of this settlement." Thus, the judge distinguished between two aspects of the arbitrator's authority, document preparation and execution of the terms of the agreement once preparation was complete. As used here, "execution" did not refer to signing documents but to performing the terms prescribed in the anticipated documents.
In vacating the award, the trial judge reasoned that breach was not considered by the parties when they discussed settlement before the settlement judge, that no one anticipated a breach, and therefore the parties did not intend to authorize the arbitrator to deal with a breach. In denying SM Global's reconsideration motion, the trial judge amplified his reasoning by stating that the arbitrator's authority "was to make it a settled matter," but that, instead, the arbitrator "just took the settlement and threw it away."
This reasoning is flawed for two reasons. First, it is inconsistent with the broad language employed by the settlement judge on September 9, 2009 and February 5, 2010, authorizing arbitration regarding any and all disputes. That language expressly dealt with not only preparation of documents but also execution of the terms of those documents. The parties agreed to those terms and the settlement judge approved them. By failing to appeal the February 5, 2010 order clarifying any possible misunderstanding about the scope of authority in those broad terms, BSH acquiesced in their applicability and enforceability. The second flaw is that, in order for the prior litigation to have been concluded by an absolutely final settlement on September 9, 2009, any and all subsequent disputes would have to be resolved through arbitration. Otherwise, because the prior litigation was dismissed with prejudice and with the clear directive that the dispute could not return to the court, the parties would be left without a forum to resolve any disputes if final closing was not achieved for any reason.
We therefore conclude that the presumption of arbitrability was not overcome, and the broad language setting forth the scope of the arbitrator's authority included determination of a breach in the performance of the terms of the contract. We cannot say with positive assurance that the arbitration agreement was not susceptible of an interpretation covering the issue of breach within its scope. See Marsh & McLennan, supra, 410 N.J. Super. at 471. We note that, in denying SM Global's reconsideration motion, the trial judge said as much. After acknowledging that the argument advanced by SM Global's counsel was "a very good argument," he said:
I read [the settlement judge's decision] a couple times. More than once. I -- one time I said I agree with [counsel for SM Global] and the next time I said I agree with what I did [in denying SM Global's request to confirm the award and granting BSH's request to vacate the award] and I --I make the final call. I agree with what I said. Though I found the argument to be valid. It's not just made up. It's not one of these stretches. You know, you -- there may be somebody else whose going to have to decide this case.
Having concluded that the scope of authority authorized determination of whether a breach of the settlement agreement occurred, we now move on to the other scope-of-authority component, whether the arbitrator was authorized to fashion a remedy that was not specifically set forth in the settlement agreement.
We begin by noting that the settlement agreement expressly granted the arbitrator the authority to determine disputes regarding execution (i.e. performance) of the terms of the agreement. We could end our analysis here with the conclusion that this language necessarily embraced granting an appropriate remedy for damages caused by the breach. But we will analyze the issue more extensively.
BSH's argument is that the sole remedy provided for in the settlement agreement was the so called "walk away" provision. Under that provision, if the closing were not consummated because of SM Global's failure to make the required monthly payments, the parties could walk away from the agreement and BSH would be entitled to judgment for $484,000 (or the balance due on that sum). To accept this argument, we would have to conclude that the settlement agreement afforded BSH a remedy for breach by SM Global, but SM Global would have no remedy in case of a breach by BSH. We cannot accept that the parties contemplated such a disparate arrangement.
In general, arbitrators are not limited to the remedies specifically enumerated in an arbitration agreement. Local No. 153, Office & Prof'l Emps. Int'l Union v. Trust Co. of N.J., 105 N.J. 442, 452 (1987); see Int'l Fed'n. of Prof'l & Technical Eng'rs, supra, 169 N.J. at 521 ("To restrict arbitrators to remedies specifically set forth in the contract would negate arbitration as a method of dispute settlement or would result in cluttering contracts with numerous liquidated damages provisions that would invite more trouble than they could prevent." (quoting Frank Elkouri & Edna Asper Elkouri, How Arbitration Works 579-80 (Marlin M. Volz & Edward P. Goggin eds., 5th ed. (1985))).
The purpose of arbitration "is to get away from the judiciary, to get away from the strictures and limitations of law." Commerce Bank, N.A. v. DiMaria Constr., Inc., 300 N.J. Super. 9, 18 (App. Div.) (quoting Perini Corp. v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479, 542-43 (1992) (Wilentz, C.J., concurring)), certif. denied, 151 N.J. 73 (1997), cert. denied, 522 U.S. 1116, 118 S. Ct. 1053, 140 L. Ed. 2d 116 (1998). Equity is encouraged and arbitration awards should achieve "just and equitable" results. Greate Bay Hotel & Casino, supra, 129 N.J. at 543. Accordingly, if an arbitrator finds that there has been a breach, the arbitrator must then fashion an "appropriate remedy" in order to make the harmed party "whole as a result of the breach." High Voltage Eng'g Corp. v. Pride Solvents & Chem. Co. of N.J., 326 N.J. Super. 356, 363 (App. Div. 1999).
Applying these principles, we conclude that the arbitrator, possessing the authority to determine whether there was a breach, also possessed the authority to fashion whatever remedy he deemed appropriate to achieve a fair and just result.
Finally, we consider SM Global's argument that, if the issue preclusion doctrine does not control the outcome of the case and if the arbitrator exceeded the scope of authority provided by the parties' settlement agreement, BSH nevertheless waived its right to object to the arbitrator's jurisdiction because it participated fully in the arbitration.
The trial judge did not clearly articulate his reasons for rejecting SM Global's waiver argument. We surmise that he accepted BSH's argument that the scope of the arbitrator's authority was narrowly circumscribed to preparation of documents, that the parties could not expand that scope by their conduct or future agreements as the arbitration progressed, and that only the settlement judge could pronounce an expansion of the limited scope of authority BSH contends was originally authorized. We find these arguments unpersuasive.
"[A] party can waive, by conduct or otherwise, any objection" that he or she "might have to an arbitrator's jurisdiction." Highgate Dev. Corp. v. Kirsh, 224 N.J. Super. 328, 332 (App. Div. 1988). Courts must "consider the totality of circumstances to evaluate whether a party has waived the right to object to arbitration after the matter has been ordered to arbitration and arbitration is held." Morris, supra, 194 N.J. at 383.
Some of the factors to be considered in determining the waiver issue are whether the party sought to enjoin arbitration or sought interlocutory review, whether the party challenged the jurisdiction of the arbitrator in the arbitration proceeding, and whether the party included a claim or cross-claim in the arbitration proceeding that was fully adjudicated. [Id. at 383-84.]
A party's "participation in the arbitration does not dictate a finding of waiver." Kirsh, supra, 224 N.J. Super. at 333. "The relevant question here is not only whether the objecting party intentionally relinquished his objection to the arbitration, but whether he so conducted himself that he should be held to have made a binding election." Id. at 333-34.
The principle of waiver is invoked to assure that a party may not get two bites of the apple: if he chooses to submit to the authority and jurisdiction of an arbitrator, he may not disavow that forum upon the return of an unfavorable award. That important policy would be subverted if a party could enter a nominal objection to the arbitrator's jurisdiction, submit himself fully to the arbitration and still retain the option to demand a new hearing if he does not like the outcome of the arbitration. [Id. at 333.]
Applying these principles, we consider what happened in this case. On April 28, 2011, SM Global's attorney wrote to the arbitrator and BSH's attorney, formally demanding arbitration and expressly identifying the issues to be arbitrated:
The issues to be addressed are (i) whether [BSH] breached the settlement agreement between the parties by dissolving the condominium regime . . ., (ii) alternatively, whether the impossibility of performance renders all remaining obligations under the settlement null and void, and (iii) whether SM Global is entitled to the return of its deposit of $1,860,000.
On May 4, 2011, BSH's counsel responded as follows:
I thought we had already arbitrated the matter. We believe a further hearing is not necessary but will abide by [the arbitrator]'s direction.
After receiving this letter, SM Global's attorney sent an email to the arbitrator, with a copy to BSH's attorney, stating:
It's rather unclear whether BSH objects to your authority to decide the issues set forth in my prior letter . . . . However, BSH's position that it will "abide" by your direction, appears to be tacit consent to proceed with the arbitration. [Emphasis added.]
The arbitrator shared SM Global's conclusion that BSH consented to arbitrate the specified issues, as evidenced by the arbitrator's reply to both parties:
I conclude from the two letters (a) both parties agree that the forum for resolution of this dispute is my arbitrating the matter, and (b) the three issues to be addressed are [those] set forth in [SM Global's attorney's] letter.
I would like tentatively to schedule the hearing itself for Tuesday, June 28.
BSH's attorney responded: "June 28 is good for me." He did not object to the arbitrator's jurisdiction, nor did he correct the arbitrator's conclusions.
Moreover, BSH's arbitration statement, dated June 17, 2011, did not object to the arbitrator's jurisdiction. Instead, the brief contested the merits of SM Global's claims and asked that SM Global be compelled to start making immediate payments. The same is true of BSH's reply brief, dated June 24, 2011.
On June 29, 2011, BSH's attorney advised the arbitrator that the parties were attempting to resolve the dispute on their own. However, on July 13, 2011, BSH's attorney sent a follow-up email to the arbitrator, explaining:
We are unable to resolve on our own. We are agreeable with your Honor deciding the matter based on the last set of submissions, etc. [Emphasis added.]
Against the backdrop of these facts, BSH contends that, although it argued in the arbitration proceeding against a finding of breach and against the return of the deposit, the scope of the arbitrator's authority never changed. It argues that the record evidence does not demonstrate that it clearly and unequivocally relinquished its right to object to the arbitrator's jurisdiction. We do not agree.
The exchange of communications leading up to the arbitration constitutes an express and unequivocal assent by BSH to the authority of the arbitrator to decide the three specified issues. BSH did not object to the arbitrator's authority, did not seek to enjoin the arbitration, and did not return to court to seek clarification of the scope of authority. Further, BSH included in its arbitration submissions an affirmative claim of its own. This course of conduct firmly established BSH's submission to the authority and jurisdiction of the arbitrator to decide the three specified issues. It also established an intentional relinquishment of any objection it might have to the arbitrator's jurisdiction over those issues.
For the reasons we have expressed, the trial court orders of September 23, 2011 and November 9, 2011 are reversed. The matter is remanded to the Law Division for entry of an order confirming the arbitration award and dismissing BSH's complaint, which requested vacation of the award.