N.J. Supreme Court

APPEALS – Arbitration – Final Order – Right to Appeal

Wein et al v. Morris et al,

A-104 September Term 2006; opinion by Wallace, J.; decided April 14, 2008. On certification to the Appellate Division, 388 N.J. Super. 640 (App. Div. 2006). [Sat below: Judges Wefing, Parker and C.S. Fisher in the Appellate Division; Judge Gasiorowski in the Law Division.] DDS No. 34-1-0224 [29 pp.]

Plaintiffs Howard Wein, Patrick Delaney and Jeffery Realty Inc. entered into two lease commission agreements with defendant Jack Morris on behalf of defendant entities, through which plaintiffs became the exclusive agents to procure tenants and buyers for defendants’ properties. Plaintiffs’ underlying claims are based on defendants’ alleged breach of the contracts, each of which contained an arbitration clause.

Plaintiffs filed suit in the Superior Court. Defendants filed an answer raising several affirmative defenses and counterclaims, and demanding a jury trial. The parties did not seek arbitration. After almost five years of court-supervised discovery, both sides moved for summary judgment. Over the objection of the parties, all in agreement that the arbitration clause had been waived, the trial court ordered the matter to arbitration and dismissed the action. No party sought to appeal that order and the matter proceeded to arbitration without further objection.

Plaintiffs initiated arbitration with the American Arbitration Association (AAA). The arbitrator entered an award in favor of plaintiffs that did not include an award of counsel fees and did not award any commissions to plaintiffs based on potential lease renewals. The arbitrator later amended the award; the modified award granted plaintiffs commissions for any future lease renewals or extensions but did not award attorneys’ fees. Plaintiffs moved to enforce the award, and defendants moved to vacate it. The trial court confirmed the award and dismissed defendants’ motion.

The Appellate Division reversed, finding that the trial court’s order directing the parties to arbitration was improper because the parties waived arbitration, the trial court’s order was not final and appealable as of right, and defendants did not waive their right to appellate review to contest the arbitration issue. The Appellate Division also concluded that the arbitrator exceeded his authority when he amended the award. The Court granted plaintiffs’ petition for certification.

Held: The trial court erred in ordering the parties to arbitrate. A new rule, to be applied prospectively, deems that an order compelling arbitration is a final order. Even if the order was not final, under the circumstances presented defendants waived their right to contest the arbitrator’s jurisdiction. The arbitrator lacked the authority to modify the arbitration award to include future damages.

At the time the complaint was filed, the New Jersey Arbitration Act was applicable. When evaluating whether a party has waived the right to object to arbitration after the matter has been ordered to arbitration and arbitration is held, a court considers the totality of circumstances. Here, the parties engaged in almost five years of court-monitored discovery and expressed their desire to waive arbitration. The Appellate Division noted that defendants filed a full response on the merits, filed a counter-demand for AAA arbitration that was withdrawn, proceeded from discovery through a full litigation of all of the issues over a two-year period, and never sought a judicial determination that the matter was not arbitratable under the contract. The Court found, under the totality of the circumstances, that arbitration was mutually waived and it was error for the trial court to order the matter to arbitration. The Court noted that it would be a great waste of judicial resources to permit defendants to have a second run before a trial court.

Plaintiffs further asserted that the order compelling arbitration was a final order, and that defendants were required to file an appeal within the prescribed 45-day time limit or accept the judgment as binding. Alternatively, plaintiffs asserted that defendants’ participation in the arbitration proceedings without seeking an interlocutory appeal or raising an objection with the arbitrator precluded them from challenging the arbitrator’s jurisdiction. Plaintiffs added that a contrary view would undermine the finality of arbitration awards and erode the strong public policy in favor of arbitration.

Defendants argued that the trial court’s order directing the parties to arbitrate was an interlocutory order, not subject to the 45-day time limit. Defendants contended that they did not waive their right to appeal the order compelling arbitration because they lodged an objection in the Law Division. Defendants also argued that their participation in the arbitration proceedings was involuntary and therefore, they did not waive their right to appeal.

The trial court ordered the parties to arbitration and dismissed the action; that would appear to be a final judgment appealable as of right. Here, the Court recognized, however, that if the trial court had followed the procedure provided under the then-applicable Arbitration Act, on determining that the matter should be referred to arbitration, the court should have stayed the action. The order would not have been final because it merely suspended the litigation until after the arbitration proceedings were complete, at which time the dispute would be subject to final resolution by the court. The Court found that when parties are ordered to arbitration, the right to appeal should not turn on whether a trial court decides to stay the action or to dismiss the action. To avoid further uncertainty, and to provide a uniform procedure and a speedy resolution of disputes, the Court exercised its rulemaking authority and amended Rule 2:2-3(a) to add an order of the court compelling arbitration to the list of orders that shall be deemed final judgments for appeal purposes. As a new rule, it will be applied purely prospectively and not to the parties of this appeal.

Lastly, the Court agreed with the reasoning of the Appellate Division in finding that, under the rules of the AAA, the arbitrator was without authority to amend the award to include renewal commissions.

Chief Justice Rabner and Justices Long, LaVecchia, Rivera-Soto and Hoens joined in Justice Wallace‘s opinion. Justice Albin did not participate.

– By Debra McLoughlin

For appellants – Brian F. Curley (Curley and Ronald M. Sturtz on the briefs). For respondents – Michael J. Canning (Giordano, Halleran & Ciesla; Canning and Kelly D. Gunther on the brief). For amicus curiae National Employment Lawyers Association of New Jersey – Andrew Dwyer.