Emails Between Counsel Create Agreement To Arbitrate, Even Where Contractual Arbitration Provision Would Have Been Unenforceable

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Arbitration (pd)Generally, when you end an email to your adversary with "we'll be awaiting your motion," something has gone wrong. This was certainly true in So v. Everbeauty, Inc.

In So, plaintiff sued defendant, his former employer, alleging that defendant had violated his rights under the New Jersey Law Against Discrimination and the Workers' Compensation Law. Shortly after the lawsuit was filed, defendant's counsel suggested to plaintiff's counsel that the matter should be arbitrated under the arbitration provision in plaintiff's employment contract. Plaintiff's counsel initially responded that his client was "leaning towards . . . going to arb," but that counsel still needed to speak with plaintiff, who was away on vacation. Later, plaintiff's counsel emailed defendant's counsel as follows: "I was able to speak to my client and we will proceed to arbitration. I can draft stip of dismissal." Two weeks later, however, plaintiff apparently had a change of heart. His counsel wrote to defendant's counsel stating that plaintiff had "instructed him to make efforts to avoid arbitration." Seeing the writing on the wall, plaintiff's counsel ended the email, "we'll be awaiting your motion."

As expected, defendant moved to compel arbitration, but did so in a somewhat unusual way. Defendant's counsel acknowledged that the arbitration provision in plaintiff's employment contract was unenforceable because it was not "sufficiently specific." But defendant argued that the back-and-forth between counsel created a separate, binding agreement to arbitrate. The trial court denied the motion, holding that (1) the emails between counsel did not "evidence a bargained for exchange but only a statement by plaintiff's counsel as to what his intentions were going forward in response to inquiries from defense counsel," and (2) there was no consideration to support the alleged agreement to arbitrate. Defendant appealed.   

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Wait. This Is Arbitration? I Thought It Was Mediation.

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Early in the movie, My Cousin Vinny, Joe Pesci's character, Vincent Gambini, tells the judge that he has significant experience trying cases in New York. The judge does some research and learns that there is no record of anyone named Vincent Gambini trying any cases in New York. Gambini then does what one should never do, he lies to the judge. He tells the judge that he tried cases under the name Jerry Gallo. Gambini thinks this is a brilliant move because Jerry Gallo is a notable New York lawyer who Gambini has read about in the papers. Unfortunately for Gambini, however, he never read the articles about Jerry Gallo's death. Naturally, the judge finds out that Jerry Gallo is dead, and confronts Gambini, which leads to the following exchange:

I imagine this may have been similar to what the defendant in Marano v. The Hills Highlands Master Association, Inc. said when it received an unfavorable arbitration award. "Did you say binding arbitration? No. We were participating in non-binding mediation. Not arbitration." Things worked out for Vincent Gambini in the movie, they did not work out so well for defendant in Marano. 

In Marano, plaintiffs owned a unit in a condominium development. The relationship between unit owners, like plaintiffs, and the association was governed by the association's bylaws, which "arguably include[d] an arbitration provision." So, after a dispute developed between plaintiffs and the condominium association over a "flooding condition" in their backyard, plaintiffs' attorney wrote to the association's attorney to demand arbitration. He received no response, so he wrote again and stated that unless the association's attorney confirmed that he was "in the process of arranging for the arbitration proceeding," plaintiffs would sue to compel arbitration. The association's attorney responded by disputing some of the claims in plaintiffs' letter but agreeing to participate in "ADR" (alternative dispute resolution). Several weeks later, plaintiffs' attorney again wrote to the association's attorney asking for confirmation that the parties would proceed to an "arbitration hearing," with a hearing officer who would serve "as an arbitrator." In response, the association's counsel contacted a retired judge to determine his availability and willingness to serve as "the arbitrator."

Up to this point, it appears clear that the parties were discussing arbitration, not mediation. What happened next created the confusion that sent the case down the path that would eventually land it before the Appellate Division.  

Continue reading “Wait. This Is Arbitration? I Thought It Was Mediation.”

No Pay, No Play: Defendant’s Failure To Advance Arbitration Fees Is A Material Breach Of Arbitration Agreement And Precludes Enforcement Of Agreement

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Arbitration (pd)One of the more vexing procedural issues in arbitration arises when the other side refuses to pay its share of the arbitration fees. The arbitrator won't work for free so you are faced with a dilemma, advance the fees for the other side and try to recover them through the arbitration or have your arbitration dismissed. And, if you opt for the latter approach, can you then sue in court notwithstanding the admittedly valid and binding agreement to arbitrate? The New Jersey Supreme answered one aspect of this question in Roach v. BM Motoring, LLC, holding that defendant's refusal to advance arbitration fees as it was required to do under an arbitration agreement with plaintiffs was a material breach of the contract that precluded defendant from later trying to enforce the agreement.

In Roach, plaintiffs each purchased used cars, at separate times, from defendant. As part of their purchases, each signed a Dispute Resolution Agreement, which provided that "any and all claims, disputes or issues" would be resolved through arbitration. It further required that the arbitration be conducted "in accordance with the rules of the American Arbitration Association before a single arbitrator who shall be a retired judge or attorney," and that defendant would "advance both party's [sic] filing, service, administration, arbitrator, hearing, or other fees, subject to reimbursement by decision of the arbitrator."

After purchasing her car, Plaintiff Jackson filed an arbitration demand against defendant, alleging that defendant violated the Consumer Fraud Act. The AAA advised defendant that it was required to pay the applicable filing fees and arbitrator compensation, but defendant never did. Accordingly, the AAA declined to administer the claim and further advised (1) that it would not administer "any other consumer disputes" involving defendant as a result of defendant's failure to comply with the AAA's rules, and (2) that defendant should remove the AAA name from its arbitration agreement. Jackson never received a response from defendant's to her arbitration demand.

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NUB-ish! Arbitrator’s Preliminary Decision On Construction Lien Is Not Law Of The Case

by: Steve P. Gouin

 
In the recently decided Seavey Construction Inc. v. St. Peter, the Appellate Division reversed the Law Division and its construction of the New Jersey Construction Lien Law, N.J.S.A.  2A:44A-1, et. seq. (the Lien Law”).

Under the Lien Law, before a contractor may file a construction lien stemming from a residential project, he must file a Notice of Unpaid Balance and Right to File Lien (“NUB”) and Demand for Arbitration of the NUB with the AAA.  This added step is intended to prevent contractors from filing meritless lien claims against unsuspecting homeowners.  An arbitrator will be assigned to make certain determinations regarding the NUB, such as whether it was filed correctly and states a valid lien claim and whether the homeowner has any valid setoffs or counterclaims.  Once the arbitrator renders his decision, the contractor may file his lien, but may be required to post a bond, to the extent the arbitrator determines that the homeowner’s claims have merit.

In Seavey, the arbitrator ruled in favor of the contractor on the NUB arbitration.  In doing so, it found the homeowner’s counterclaims to be invalid.  Subsequently, the contractor filed a complaint in the Law Division seeking to foreclose on its lien.  The homeowner’s answered and asserted the same counterclaims that the arbitrator had found to be invalid.  The trial court dismissed these counterclaims, on the grounds that the arbitrator had already found them to be invalid.

On appeal, the Appellate Division held that the arbitrator’s determination merely established a “prejudgment lien” which still need to be confirmed in litigation brought pursuant to the lien law.  The arbitrator’s decision does not, as the trial division held, absolve the contractor of the burden of proving the validity of its lien claims at trial.  Moreover, it does not prevent the homeowner’s from raising the same counterclaims as were asserted during arbitration of the NUB.  The Court noted that, to do so, would require the parties “to have completed discovery for all non-lien causes of action within” the thirty day period provided by the Lien Law for the arbitrator to render a decision. 

The Appellate Division also reversed the trial court’s grant of summary judgment on the contractor’s breach of contract and unjust enrichment claims, which the trial court had granted based on the arbitrator’s decision.  The Appellate Court noted that the trial court improperly treated the arbitrator’s decision as one entitling the contractor to a money judgment.  Rather, pursuant to the Lien Law, the Appellate Division held that the arbitrator’s decision, while confirming the validity of the NUB and the underlying lien claim, is not to be used for res judicata or law of the case purposes.