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Sm Global Group, L.L.C v. Bergenfield Senior Housing

January 22, 2013

SM GLOBAL GROUP, L.L.C., PLAINTIFF-APPELLANT,
v.
BERGENFIELD SENIOR HOUSING, L.L.C., DEFENDANT-RESPONDENT.
BERGENFIELD SENIOR HOUSING, L.L.C., PLAINTIFF-RESPONDENT,
v.
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.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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.

I.

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.

II.

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 ...


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