January 22, 2013
SILLS CUMMIS & GROSS P.C., PLAINTIFF-APPELLANT,
MATRIX ONE RIVERFRONT PLAZA, LLC, DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-295-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 21, 2011
Before Judges Fuentes, Graves, and Harris.
This appeal arises from a dispute concerning the scope of arbitration between Matrix One Riverfront Plaza, LLC, (landlord) and Sills Cummis & Gross P.C., (tenant) to determine the fair market rental value of the tenant's premises.
This is the second time this matter has been before us. Sills Cummis & Gross, P.C., v. Matrix One Riverfront Plaza, L.L.C., No. A-3630-08 (App. Div. Dec. 3, 2009). In the first appeal, we reversed the Chancery Division's instructions to the arbitrators and directed the arbitrators not to consider the "exquisitely precise" value of the tenant's parking rights under the lease. Id. at slip op. 23. We also indicated, however, that parking data from comparable leases could be considered by the arbitrators "in a principled fashion," if they determined that it was appropriate to consider that factor in making their fair market rental value determination. Ibid.
On remand, the arbitrators determined that the fair market rental value of the premises was $27.89/sq. ft. According to the arbitrators, this amount is equal to the sum of the previously calculated fair market value of the premises, without any considerations for parking or the value of the tenant's parking rights under the contract. On this record, the Chancery Division granted the landlord's motion to confirm the arbitration award, denied the tenant's motion to vacate the award in part, and confirmed the arbitrator's original award of $24.78/sq. ft., which did not include parking.
The tenant now appeals, claiming that the arbitration award should be vacated or modified because the arbitrators impermissibly considered the actual value of the parking spaces under the contract in violation of our directions in the first appeal. The landlord argues that the award reflected and is supported by information gleaned from comparable data from professional rental properties and is consistent with this court's prior instructions.
Mindful of our standard of review, we defer to the arbitrators and affirm the Chancery Division's confirmation of the award. These are the relevant facts.
The lease agreement at issue here became effective on September 1, 1989, between tenant and landlord's predecessor, the Newark Legal and Communications Center Urban Renewal Corporation (Legal Center Corp.). Under the lease, tenant agreed to rent commercial space located at the Newark Legal and Communications Center (Legal Center) in the City of Newark. The lease was subsequently assigned to the current landlord.
The original lease was for a term of twenty-five years at fixed rents. Section One of the lease defined the area rented by tenant, floors ten through thirteen, as "the premises." In Section Forty-Nine of the lease, the Legal Center Corp. also offered to provide tenant, "at no additional cost," the use of 150 parking spaces in the underground parking garage beneath the Legal Center, which was owned by NEDC Riverfront Corporation (NEDC). The Legal Center Corp. then entered into a Parking Agreement with NEDC, where it agreed to pre-pay the garage operator the cost of the 150 parking spaces for the twenty-five year lease period. The lease further provided that tenant would surrender one parking space for every 600 rentable square feet that was terminated during the lease term. The Parking Agreement also stated that if tenant's lease was prematurely terminated, the control of the 150 parking spaces would revert back to NEDC.
The parties amended or otherwise supplemented the lease agreement eight times over the course of tenant's possession of the premises. Although these amendments expanded the definition of "premises" under the lease, the parking spaces were never added to the definition. On May 31, 1997, the parties executed "Supplemental Agreement 3," which: (1) shortened the fixed term of the lease from twenty-five years to nineteen years, with two three-year extension options; (2) reduced the rent to ninety percent of the fair market value during the extension periods; and (3) contained an arbitration clause in the event of disagreement over the fair market value of the rent, authorizing and directing the arbitrators to determine: "What is the fair market rental value for the premises for the three (3)-year extension period?" The arbitrators were to "consider the premises in its 'as is' condition, as if the premises were vacant and unencumbered by the Lease." In determining the fair market rental value, the arbitrators were to consider "all appropriate factors."
Tenant exercised the first three-year extension option on June 25, 2008. When the parties were unable to agree on a fair market rental value, the matter proceeded to arbitration. As a threshold issue, the parties disagreed as to the scope of the arbitrators' authority and what factors could be considered in determining the fair market rental value. On November 25, 2008, tenant filed a "Complaint for Instructions to Arbitrators and Other Relief," seeking a judicial determination as to whether the arbitrators had the authority to consider the value of the 150 parking spaces available to tenant under the lease in determining the "fair market value" of the "premises." On January 16, 2009, landlord filed an "Answer To Complaint With Counterclaim," seeking the dismissal of the complaint and a Declaratory Judgment that the issue of parking must be considered by the arbitrators.
Soon thereafter, both parties filed summary judgment motions seeking the relief requested as a matter of law.
On March 27, 2009, the trial court entered an order granting landlord's motion for summary judgment (which was technically a cross-motion to tenant's motion for summary judgment) and directed the arbitrators to "consider all appropriate factors when determining the fair market rental value during the Extension Term including the one-hundred fifty (150) underground parking spaces made available to [tenant] under Section 49 of the Lease."
Tenant immediately sought appellate review of the trial court's ruling. While the appeal was pending, the parties agreed to proceed with arbitration according to modified instructions. Under the modified instructions, the arbitrators would make two fair market rental value determinations: (1) a fair market rent for the premises excluding any consideration of parking; and (2) a separate determination of the parking alone. On August 25, 2009, the arbitrators issued a decision stating that the fair market rental value of the premises without parking was $24.75/sq. ft.; the fair market rental value of the parking privileges was $170 per space per month, or $3.14/sq. ft. To arrive at this determination, the arbitrators relied on three "comparable leases," which had parking available within the building.
One of those leases included parking as part of the base rent. The arbitrators subtracted the value of the parking rights from the base rent for purposes of determining the fair market value of the rent without the cost of parking. Despite this attempt at eliminating parking from the equation, the arbitrators found the "inclusion of parking in any comparable lease and its value thereof must be considered in analyzing the effective rent." This part of the arbitrators' decision was not part of the appellate record in the first appeal. See Sills, supra, No. A-3630-08 at slip op. 11.
On December 3, 2009, we issued our opinion in the first appeal affirming in part, reversing in part, and modifying the trial court's order, holding that, under the terms of the agreement, the arbitrators could not consider the "exquisitely precise use of [the] 150 parking spaces" in determining a fair market rental value of the premises, but that they could take into account "all appropriate factors," which might include "evidence of other relevant and comparable parking rights in a principled fashion." Id. at slip op. 23. We stated that:
Supplemental Agreement No. 3 only required the arbitrators to wear blinders for the existing lease and its amendments. The parties did not expect [the arbitrators] to ignore potential economic realities that might include the value of parking spaces in comparable leases if there were competent proofs available to support those realities.
[Id. at slip op. 22.]
We remanded the matter to the Chancery Division for an entry of judgment that excised from the trial court's final judgment "the words in paragraph two 'including the one-hundred fifty (150) underground parking spaces made available to Plaintiff under Section 49 of the Lease.'" Id. at slip op. 23. Because we were "unsure" how this decision "would affect the arbitrators' decision-making," we suggested that "it would be appropriate for the parties to invoke N.J.S.A. 2A:23B-20(a) to request modification of the award pursuant to N.J.S.A. 2A:23B-24(a)(1)." Id. at slip op. 23. If modification proved impossible, we suggested three alternatives: (1) the arbitration may need to start anew; (2) the parties may agree on a pragmatic resolution on their own; or (3) the Chancery Division may need to once again be called upon to fashion a remedy. Ibid.
After this court's decision was released, both parties moved in the Chancery Division to confirm the arbitrators' previous award. Tenant moved to confirm the lower award ($24.75/sq. ft.) which excluded parking; landlord moved to confirm the higher award ($27.89/sq. ft.), which included parking. Tenant argued that this court's decision forbade the arbitrators from considering parking at all and thus the lower award was the correct expression of our ruling. Landlord argued that the arbitrators were permitted to consider parking as an "appropriate factor" to take into account when calculating the base rent. Landlord insisted that the arbitrators had done this when they calculated the higher amount.
On March 12, 2010, the Chancery Division denied both motions and entered an order which modified the arbitration award in accordance with its interpretation of our decision and remanded the matter back to arbitration to give the arbitrators an opportunity to reconsider their determination in light of this court's opinion.
Consistent with the intransigence that has characterized this case, the parties at arbitration disagreed as to the meaning of this court's decision. This resulted in the parties giving divergent instructions to the arbitrators. Tenant continued to argue that the arbitrators were not to consider parking at all; landlord maintained that the arbitrators could consider "comparable parking" data if they determined that parking was an "appropriate factor."
While the matter was pending before the arbitrators, tenant petitioned the Chancery Division for a supplemental order directing the arbitrators not to consider tenant's parking rights in their determination. The court denied tenant's application, but cautioned that, while the arbitrators could use comparable parking if done in a principled way, the arbitrators were not to take tenant's use of the parking spaces under the agreement into account in the fair market value determination.
On remand, the arbitrators had copies of our opinion and the trial court's decisions and transcripts of the proceedings. Landlord continued to argue that "comparable" parking rates could be a factor considered by the arbitrators and presented the expert testimony of Ray Cirz, of Integra Realty Resources, as to the value of parking in comparable leases.
Tenant, undaunted by previously unsuccessful attempts, again petitioned the Chancery Division by moving for an order in Aid of Litigant's Rights, seeking to have the court issue instruction to the arbitrators in their fair market rental value determination and preclude landlord from arguing to the arbitrators that they could consider tenant's right to use the 150 parking spaces. The trial court again denied tenant's motion. As it had done previously, the court also stated that parking rights in comparable leases could be considered but the arbitrators were not permitted to use tenant's entitlement to the 150 parking spaces in any fashion.
The arbitrators scheduled a supplemental arbitration hearing on September 14, 2010. To assist the parties, the arbitrators issued a memorandum on June 29, 2010, summarizing their understanding of the scope of their decision and collected supplemental materials addressing whether parking rights in comparable leases should be considered by the arbitrators and how parking rights should affect their decision. According to arbitrator David T. Houston, the purpose of the hearing was to determine "whether or not A plus B equals C or A equals C; in other words, whether the two get summed, but [the arbitrators] are not here to revisit the parking value or the rental rate that [they] found in [their] report."
Landlord presented Cirz's report, which valued parking rights based on nine comparable leases in Newark. He viewed parking as "an appropriate factor to consider in the final determination of the fair market value," and that the value of comparable parking rights ranged from $1.11/sq. ft. to $5.81/sq. ft.; Cirz recommended a fair market rental rate of $4.80/sq. ft. Although the expert testimony seemed to indicate that the Newark market generally "did not include parking as part of base rent," the arbitrators stated that "just because most of the space in the City of Newark does not include parking does not mean parking is -- has no value."
The arbitrators issued their written decision on October 18, 2010. They found the purpose of the arbitration was to determine "whether the parking rights of [tenant] at the project were to be inclusive in the determination of the fair market rental." The arbitrators determined the fair market rental value of tenant's premises was $27.89/sq. ft.
Tenant moved before the Chancery Division to vacate the award in part and to confirm the arbitrators' original award of $24.78/sq. ft., which did not include parking. Tenant argued that the arbitrators clearly added the value of their previous determinations of base rent and parking, which was ostensibly forbidden by our decision in the first appeal. Landlord filed its own motion to confirm the award. The trial court denied tenant's motion and granted landlord's motion.
In denying tenant's motion, the court explained that the scope of review of a private arbitration decision was very narrow and that the court would not "look behind the arbitrators' decision in this case." The motion judge explained that although the "mathematical issue" made the court "a little uncomfortable," he thought the use of parking rights in comparable leases was proper and that it did not run afoul of this court's earlier opinion. The judge reasoned that the arbitrators could properly consider parking because it enhanced the value of the -- of parking and that a tenant of this size would not normally enter into a lease without any consideration of parking and that therefore while they do not use the precise parking agreement between Sills and Matrix'[s] predecessor, they may use the fact of parking in a principled fashion.
Tenant now seeks in this appeal for us to reverse the trial court's order, vacate the part of the arbitration award that includes the fair market rental value of parking, and modify the decision by reinstating the initial base rent ($24.75/sq. ft.), as originally determined by the arbitrators.*fn1
We begin our analysis by reaffirming our standard of review. We review the trial court's decision to confirm an arbitration award de novo as a question of law. Del Piano V. Merrill Lynch, Pierce, Fenner & Smith, Inc., 372 N.J. Super. 503, 507 (App. Div. 2004), appeal dismissed by 195 N.J. 512 (2005). However, we are bound to accept the trial court's factual findings unless they are "clearly erroneous." Ibid. (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S. Ct. 1920, 1926, 131 L. Ed. 2d 985, 995-96 (1995)).
In Tretina Printing v. Fitzpatrick & Associates, our Supreme Court emphasized that reviewing courts should give a great deference to arbitration awards; the scope of judicial review of an arbitration award is thus very limited. 135 N.J. 349, 358 (1994); see also Fawzy v. Fawzy, 199 N.J. 456, 470 (2009) ("[T]he scope of review of an arbitration award is narrow. Otherwise, the purpose of the arbitration contract, which is to provide an effective, expedient, and fair resolution of disputes, would be severely undermined."). The revised version of the statute referred to in Tretina is New Jersey's Uniform Arbitration Act, enacted in 2003, N.J.S.A. 2A:23B-1 to -32. The statute governs the case at hand, even though the arbitration clause at issue was entered into in 1997. See N.J.S.A. 2A:23B-3(c). Despite the statute's slightly broader grounds for judicial vacation of arbitration awards, our review remains narrow. As we made clear in Kimm v. Blisset, L.L.C.:
Perhaps because arbitration is indeed a favored remedy, and perhaps because the essential purpose of arbitration is to offer a swift and efficient alternative to traditional litigation, courts have been relatively reluctant to interfere with arbitration awards and have understood their powers to do so as represented by the statutory language to be narrow. [388 N.J. Super. 14, 30 (App. Div. 2006), certif. denied, 189 N.J. 428 (2007).]
The 2003 Act thus "continues our state's long-standing policy to favor voluntary arbitration as a means of dispute resolution," meaning that the scope of judicial review of arbitration awards under the 2003 Act remains "limited." Block v. Plosia, 390 N.J. Super. 543, 551-52 (App. Div. 2007).
The 2003 Act allows a party to enforce an arbitration award
by seeking confirmation of the award in Superior Court. N.J.S.A. 2A:23B-22. Under certain conditions, the trial court is also authorized to vacate the award under N.J.S.A. 2A:23B-23, or modify or correct it under N.J.S.A. 2A:23B-24. The trial court can vacate the award if:
(1) the award was procured by corruption, fraud, or other undue means;
(2) the court finds evident partiality by an arbitrator; corruption by an arbitrator; or misconduct by an arbitrator prejudicing the rights of a party to the arbitration proceeding;
(3) an arbitrator refused to postpone the hearing upon showing of sufficient cause for postponement, refused to consider evidence material to the controversy, or otherwise conducted the hearing contrary to section 15 of this act, so as to substantially prejudice the rights of a party to the arbitration proceeding;
(4) an arbitrator exceeded the arbitrator's powers;
(5) there was no agreement to arbitrate, unless the person participated in the arbitration proceeding without raising the objection pursuant to subsection c. of section 15 of this act not later than the beginning of the arbitration hearing; or
(6) the arbitration was conducted without proper notice of the initiation of an arbitration as required in section 9 of this act so as to substantially prejudice the rights of a party to the arbitration proceeding. [N.J.S.A. 2A:23B-23(a).]
A court is authorized to modify or correct an award if:
(1) there was an evident mathematical miscalculation or an evident mistake in the description of a person, thing, or property referred to in the award;
(2) the arbitrator made an award on a claim not submitted to the arbitrator and the award may be corrected without affecting the merits of the decision upon the claims submitted; or
(3) the award is imperfect in a matter of form not affecting the merits of the decision on the claims submitted. [N.J.S.A. 2A:23B-24(a).]
In this case, tenant, as the opposing party, has the burden to prove that an arbitration award should be vacated or modified. This is so because an arbitrator's award "'is entitled to a presumption of validity.'" Twp. of Wyckoff v. PBA Local 261, 409 N.J. Super. 344, 354 (App. Div. 2009) (quoting Jersey City Educ. Ass'n v. Bd. of Educ., 218 N.J. Super. 177, 187 (App. Div.), certif. denied, 109 N.J. 506 (1987)).
Against this analytical backdrop, we now consider whether the trial court erred in refusing to vacate the award under N.J.S.A. 2A:23B-23(a)(4) because the arbitrators exceeded the scope of their authority. "[A]rbitration is 'at its heart, a creature of contract.'" Block v. Plosia, supra, 390 N.J. Super. at 555 (holding that the arbitrator had exceeded his authority when he awarded plaintiff homeowners treble damages for defendant contractor's breach of contract under the New Jersey Consumer Fraud Act, because the parties had not included consumer fraud or treble damages as issues subject to arbitration, and modifying the award by excising the treble damages) (quoting Kimm v. Blisset, supra, 388 N.J. Super. at 25 (vacating a supplemental arbitration award for counsel fees, because the arbitrator was not authorized by statute or contract to decide a post-award application)). The scope of an arbitrator's authority is, thus, defined by the terms of the parties' agreement. Ibid.
The scope of the arbitrators' authority in this case was defined by this court in our earlier decision. We directed the arbitrators not to consider the "exquisitely precise use of [the] 150 parking spaces" in determining a fair market value of the premises, but that they could take into account "all appropriate factors," which might include "evidence of other relevant and comparable parking rights in a principled fashion." Sills, supra, No. A-3630-08 at slip op. 23.
According to tenant, this language meant that "the availability of those parking rights was to be ignored as a matter of law." Tenant thus argues that the arbitrators and the trial court erred in allowing the parking rights to be considered, even indirectly. Under tenant's approach, our directive was clearly ignored when the arbitrators awarded an amount that totaled the exact sum of the previously determined base rent and the previously determined value of the 150 parking spaces.
We disagree with tenant's position. The language relied on by tenant in our prior opinion does not require that parking rights be completely ignored. In fact, the use of comparable parking rights was specifically contemplated when we held that the arbitrators could consider "evidence of other relevant and comparable parking rights in a principled fashion," so long as "there were competent proofs available to support those realities." Id. at slip op. 22. On its face, the award does not present definitive proof that the arbitrators improperly considered tenant's actual use of the parking spaces, as opposed to parking data from comparable leases.
We recognize that the arbitrators' statements that their goal was to determine "whether the parking rights of Sills at the project were to be inclusive in the determination of the fair market rental," (emphasis added), and that the purpose of the supplemental hearing was to determine "whether or not A plus B equals C or A equals C; in other words, whether the two get summed, but [the arbitrators] [were] not [t]here to revisit the parking value or the rental rate that [they] found in [their] report."
This language, considered in isolation, seems to indicate that it was, in fact, tenant's particular parking rights, and not parking rights more generally, that were considered by the arbitrators. However, as landlord points out, the arbitrators made clear in their June 29 memorandum that they had read and understood our prior instruction that they were not to use the "exquisitely precise use of [the] 150 spaces" in their fair market value determination. They were permitted, however, to "determine the fair market value of the lease, including all factors which may include the impact, if any, of parking in the market."
At the supplemental hearing, landlord's real estate expert testified that he viewed parking as "an appropriate factor to consider in the final determination of the fair market value," and that the value of comparable parking rights ranged from $1.11/sq. ft. to $5.81/sq. ft., concluding that $4.80/sq. ft. represented the "positive impact that parking has on the rent."
Although the arbitrators did not adopt this specific recommendation as to the value of those parking rights, the value adopted, $3.14/sq. ft., was within that range. The record shows that the arbitrators considered these data in a "principled fashion."
The arbitrators were presented with evidence of "comparable parking rights" and with expert proofs that such a factor was an appropriate consideration in determining the fair market value of tenant's rent. Given our standard of review, we discern no legal reason to vacate the award.
Tenant also argues that the trial court erred in refusing to modify the arbitration award under N.J.S.A. 2A:23B-24(a)(2) because the arbitrators made an award on a claim not submitted to them. We may modify an arbitration award if "'the arbitrator made an award on a claim not submitted to the arbitrator and the award may be corrected without affecting the merits of the decision upon the claims submitted[.]'" Block, supra, 390 N.J. Super. at 552 (alteration in original) (quoting N.J.S.A. 2A:23B-24(a)(2)).
Here, modifying the award in a way that would not affect "the merits of the decision upon the claims submitted," N.J.S.A. 2A:23B-24(a)(2), would only be possible if we were convinced that the arbitrators were required to completely disregard the value of parking. In that case, it would be within this court's discretion to modify the award by decreasing the amount by $3.14/sq. ft., thereby leaving intact the initial award of $24.75/sq. ft. that excluded parking. Because we have concluded that the arbitrators properly followed our earlier rulings, we likewise reject tenant's argument seeking modification of the award. The remaining arguments raised by tenant lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).