Barcon Associates, Inc. v. Tri-County Asphalt Corp.

• Decision Date: 28 May 1981
• Docket Number: TRI-COUNTY
• Citation: 86 N.J. 179,430 A.2d 214
• Parties: BARCON ASSOCIATES, INC., Plaintiff-Appellant, v.ASPHALT CORPORATION, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 179

86 N.J. 179

430 A.2d 214

BARCON ASSOCIATES, INC., Plaintiff-Appellant, v. TRI-COUNTY ASPHALT CORPORATION, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Nov. 18, 1980.

Decided May 28, 1981.

J. William Barba, Newark, for plaintiff-appellant (Shanley & Fisher, Newark, attorneys; J. William Barba and Charles A. Reid, III, Newark, on the briefs).

Irwin I. Kimmelman, West Orange, for defendant-respondent (Kimmelman, Wolff & Samson, West Orange, attorneys; Irwin I. Kimmelman and Ronald E. Wiss, West Orange, on the brief).

The opinion of the Court was delivered by

PASHMAN, J.

In this case we are called upon to decide whether the existence of an undisclosed, substantial business relationship between a party-designated arbitrator in tri-partite arbitration and the party designating that arbitrator constitutes "evident partiality" under N.J.S.A. 2A:24-8(b) and is therefore grounds for vacating the arbitration award.

Both the trial court and the Appellate Division held that it did constitute partiality. We granted Barcon's petition for certification, 84 N.J. 422, 420 A.2d 334 (1980). Because we share the Appellate Division's concern "for the rightness in this way of doing business, open, aboveboard and candid," 172 N.J.Super. 186, 189, 411 A.2d 709, and for the need to prohibit "any appearance of bias sufficient to discredit this useful adjudicatory tool sanctioned in the law and controlled by its statutes," id. at 190, 411 A.2d 709, we now affirm its judgment to vacate the arbitration award.

In addition, we establish prospectively the requirement that every arbitrator, whether party-designated or "neutral," disclose to the parties, prior to the commencement of arbitration proceedings, any relationship or transaction that he has had with the parties or their representatives. This disclosure should also include any other fact which would suggest to a reasonable person that the arbitrator is interested in the outcome of the arbitration or which might reasonably support an inference of partiality.

I

In 1974 plaintiff, Barcon Associates, Inc. (Barcon) a general contractor, entered into a construction subcontract with defendant Tri-County Asphalt Corporation (Tri-County). Disagreements arose under the subcontract which led Barcon to institute a suit against Tri-County in September 1975.

In December 1975, on Tri-County's motion, the trial court stayed the suit pending arbitration pursuant to terms of the parties' subcontract. That subcontract provided that any disagreement

shall, upon written notice of either to the other party, be submitted to three arbitrators for decision. Each party shall choose one arbitrator..., the third to be chosen ... by the two thus selected.

Tri-County designated as its arbitrator Gareld R. Gray, an officer of an international contracting firm. ¹ Barcon chose Vincent Spatz, a New Jersey general contractor, as its arbitrator. Gray and Spatz agreed upon Allen Arnowitz, a New Jersey consulting engineer, as the neutral arbitrator and chairman of the panel.

Arbitration hearings were held in January and March 1977. Several months later the arbitration panel informed the parties that by a two-to-one vote the panel had decided in favor of Barcon, and that Tri-County should pay Barcon $29,500 "in settlement of all claims" between the parties.

In December 1977, Barcon sought confirmation of the award in the Superior Court pursuant to N.J.S.A. 2A:24-7. ² Tri-County counterclaimed that the award should be vacated on grounds of the "evident partiality and misconduct" of Spatz, the arbitrator designated by Barcon.

The basis of Tri-County's counterclaim was the business dealings that Spatz had with Barcon in 1977 throughout the pendency of the arbitration proceedings. Tri-County contended that Spatz "transgressed into the realm of 'evident partiality' when he failed to disclose" these dealings. In fact, Spatz had done business with Barcon for approximately twenty years by the time of his designation as Barcon's arbitrator in this case. Two transactions between Spatz's construction company and Barcon were ongoing during the arbitration proceedings in 1977.

One involved paving work completed by Spatz's firm in August 1976. ³ Spatz's firm billed Barcon $25,215.84 for this work on August 31, but by the time arbitration hearings began in January 1977 Barcon had made no payments on this account and owed Spatz $26,763.15, the original balance due plus interest, against this bill. In February 1977 Barcon paid $3,000 and on March 1 Spatz sent to the president of Barcon a bill showing a balance due of $24,527.05, on which Spatz wrote "Joe Since August!!! Please. Vin." Barcon made further payments of $3,000 in March and $10,000 in April, but at the time the arbitration panel rendered its award on December 9, 1977, Barcon still owed Spatz over $13,000 on this account.

The second ongoing transaction involved paving work done by the Spatz firm for Quail Ridge Corporation, a wholly-owned subsidiary of Barcon. This was part of a long-term project that commenced before the arbitration and continued after. Payments received on this account included one of $43,005.78 made in July 1977 while the arbitration panel was still deliberating.

In April 1978 the trial court, in a decision from the bench, vacated the arbitration award because of Arbitrator Spatz's "evident partiality within the meaning of N.J.S.A. 2A:24-8(b)." ⁴ However, in response to Barcon's subsequent motion to settle the form of judgment, R. 4:42-1, the court held further evidentiary hearings to determine whether Tri-County had knowledge, before or during the arbitration proceedings, of Spatz's dealings with Barcon and thereby waived its right to object after the proceedings had ended. Following these hearings, Judge Stanton rendered a thorough written opinion supporting his decision to vacate the award. The trial court said that although "reasonable men would expect a party-designated arbitrator to have a general cast of mind broadly favorable to the position of the designating party," such a "broadly favorable predisposition of mind ... cannot be permitted to become bias or to degenerate into partisanship, nor can objective appearances of bias or partisanship be permitted." 160 N.J.Super. 559, 570, 390 A.2d 684.

On appeal, the Appellate Division affirmed, expressing its strong disapproval of "any appearance of bias sufficient to discredit this useful adjudicatory tool." 172 N.J.Super. at 190, 411 A.2d 709. In addition, the court adopted a requirement, based on Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 149, 89 S.Ct. 337, 339, 21 L.Ed. 301, 305 (1968), that "arbitrators disclose to the parties any dealings that might create an impression of possible bias."

II

Commercial arbitration is a long-established practice in New Jersey consistently encouraged by the Legislature. Even under seventeenth century colonial rule, arbitration was fostered by statute, Boskey, A History of Commercial Arbitration in New Jersey (pt. 1), 8 Rut. Cam.L.J. 1, 5 (1976), reflecting a public policy unchanged to the present day and embodied in the current arbitration act, N.J.S.A. 2A:24-1 to -11, Hudik-Ross, Inc. v. 1530 Palisade Ave. Corp., 131 N.J.Super. 159, 166, 329 A.2d 70 (App.Div.1974).

The courts of this State have also favored arbitration. E. g., Kearny PBA Local # 21 v. Town of Kearny, 81 N.J. 208, 221, 405 A.2d 393 (1979); Daly v. Komline-Sanderson Engineering Corp., 40 N.J. 175, 177, 191 A.2d 37 (1963); Ukrainian National Urban Renewal Corp. v. Muscarelle, Inc., 151 N.J.Super. 386, 396-97, 376 A.2d 1299 (App.Div.1977), certif. denied, 75 N.J. 529, 384 A.2d 509 (1977); Public Utility Construction and Gas Appliance Workers, Local 274 v. Public Service Elec. & Gas Co., 35 N.J.Super. 414, 419, 114 A.2d 443 (App.Div.1955), certif. denied, 19 N.J. 333, 116 A.2d 828 (1955); Eastern Engineering Co. v. City of Ocean City, 11 N.J.Misc. 508, 510, 167 A. 522 (Sup.Ct.1933); Fennimore v. Childs, 6 N.J.L. 386, 388 (Sup.Ct.1797). Because it has retained this status in the law and because it offers significant advantages to the parties, arbitration is a widely-used means of resolving commercial disputes. See Boskey, supra (pt. 2), 8 Rut.-Cam.L.J. 284, 309-10 (1977).

Arbitration is "a substitution, by consent of the parties, of another tribunal for the tribunal provided by the ordinary processes of law," and its object is "the final disposition, in a speedy, inexpensive, expeditious and perhaps less formal manner, of the controversial differences between the parties." Eastern Engineering, supra, 11 N.J.Misc. at 510-11, 167 A. 522, quoted in Carpenter v. Bloomer, 54 N.J.Super. 157, 162, 148 A.2d 497 (App.Div.1959). 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." Korshalla v. Liberty Mutual Ins. Co., 154 N.J.Super. 235, 240, 381 A.2d 88 (Law Div.1977). Consequently, "every intendment is indulged in favor of the award and it is subject to impeachment only in a clear case." Carpenter v. Bloomer, supra, 54 N.J.Super. at 168, 148 A.2d 497; accord, Kearny PBA Local # 21, supra, 81 N.J. at 221, 405 A.2d 393 ("An arbitrator's award is not to be cast aside lightly."); Eastern Engineering, supra, 11 N.J.Misc. at 511, 167 A. 522; International Brotherhood of Teamsters, Local 560 v. Bergen-Hudson Roofing Supply Co., 159 N.J.Super. 313, 315, 387 A.2d 1246 (Ch.Div.1978); Leslie v. Leslie, 50 N.J.Eq. 103, 108, 24 A. 319 (Ch.1892), aff'd, 52 N.J.Eq. 332, 31 A. 724 (E & A 1894).

These principles are incorporated in the arbitration act, N.J.S.A. 2A:24-1 to -11. The act grants arbitrators extremely broad powers and extends judicial support to the arbitration process subject only to limited review. A court may compel an uncooperative party to...