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

• Citation: 160 N.J.Super. 559,390 A.2d 684
• Decision Date: 26 June 1978
• Docket Number: TRI-COUNTY
• Parties: BARCON ASSOCIATES, INC., a New Jersey corporation, Plaintiff, v.ASPHALT CORPORATION, a New Jersey corporation, Defendant.
• Court: Superior Court of New Jersey

Page 559

160 N.J.Super. 559

390 A.2d 684

BARCON ASSOCIATES, INC., a New Jersey corporation, Plaintiff, v. TRI-COUNTY ASPHALT CORPORATION, a New Jersey corporation, Defendant.

Superior Court of New Jersey, Law Division.

June 26, 1978.

J. William Barba, Newark, for plaintiff (Shanley & Fisher, Newark, attorneys).

Irwin I. Kimmelman, West Orange, for defendant (Kimmelman, Wolff & Samson, West Orange, attorneys).

STANTON, J. C. C. (temporarily assigned).

This is a summary action to confirm an arbitration award. N.J.S.A. 2A:24-7; R. 4:67. By way of counterclaim defendant seeks to have the award vacated because of the "evident partiality" of one of the arbitrators. N.J.S.A. 2A:24-8(b). Because of certain factual issues raised by the pleadings and moving papers, limited discovery has been allowed by special order of the court, and live proofs have been presented in open court concerning business dealings between the arbitrators and the parties and concerning the knowledge of the arbitrators and parties about those dealings. No proofs or arguments have been presented concerning the merits of the arbitration award.

I have decided to vacate the award because of the "evident partiality" of Vincent A. Spatz, one of the three arbitrators.

Barcon was the general contractor of a construction project at Chester Springs Shopping Center in Chester, New Jersey. It entered into a written subcontract for certain work on the project with Tri-County. The subcontract contained a provision that any dispute under the contract would be submitted to three arbitrators for decision. Each party would designate one arbitrator, and the two arbitrators so chosen would designate the third arbitrator. Any dispute would be determined by majority vote of the arbitrators. A dispute did arise under the subcontract. Barcon designated Vincent A. Spatz as an arbitrator, Tri-County designated Gareld R. Gray as an arbitrator, and Spatz and Gray designated Allan Arnowitz as the third arbitrator.

The arbitrators held hearings on January 17, 18 and 19, 1977, and on March 12, 13 and 14, 1977. On December 9, 1977 the arbitrators rendered an award favorable to Barcon. During the period between the first arbitration hearing and the rendering of the award, arbitrator Spatz had certain business dealings with Barcon. The existence of those dealings was not known to the other arbitrators or to Tri-County until after the award was rendered.

One of the dealings involved paving work done for Barcon by a corporation known as V. A. Spatz Excavating and Paving Co., of which Spatz was the president and principal stockholder. The work in question consisted of widening a public road immediately adjacent to the Chester Springs Shopping Center the same Chester Springs Shopping Center which was the site of the Tri-County work which gave rise to the arbitration dispute. Spatz' corporation had completed this work prior to the start of the arbitration hearings and there was no dispute as to the quality of the work or the sum to be paid for it. However, at the time the arbitration proceedings began in January 1977, the Spatz corporation had not been paid for this work, although the work had been completed in August 1976. The amount owed by Barcon for this work was $26,763.15 on the date of the first arbitration hearing.

In February 1977 Barcon paid $3,000 against this bill. On March 1, 1977 Spatz sent to the president of Barcon a follow-up bill reflecting a balance due of $24,527.05. On that bill, Spatz wrote, in hand: "Joe Since August!!! Please Vin." It should be noted that March 1, 1977 was after the first three arbitration hearings had been held and prior to the holding of the second three arbitration hearings. Following the March 1, 1977 reminder bill, Barcon paid the Spatz corporation $3,000 in March and $10,000 in April. No further payments were made prior to the rendering of the award on December 9, 1977. Thus, after making allowance for interest which was accruing on the bill monthly, Barcon remained indebted to the Spatz corporation in the amount of approximately $13,000 when the award was rendered.

The second business dealing in question involved a subcontract between Quail Ridge Corp. and V. A. Spatz Excavating and Paving Co. Under it the Spatz corporation was to do extensive paving work at the site of a residential apartment complex known as Quail Ridge in Washington Township, New Jersey. At all relevant times, Quail Ridge Corp. has been owned and controlled by the same persons who own and control Barcon.

The Spatz corporation had done work on the Quail Ridge project at various times prior to the start of the arbitration proceedings. The project is an ongoing one, and there still remains about $30,000 worth of work to be done by the Spatz corporation at Quail Ridge. At the hearing before me, Spatz indicated that his corporation had received approximately $400,000 over the years on account of work done at Quail Ridge. Payment records submitted to me show that the Spatz corporation received $65,602.68 from Quail Ridge Corp. while the arbitration proceedings were pending before the arbitrators.

Spatz has testified that the annual gross earnings of his corporation have been "several million dollars" in recent times. Aside from the fact that the sums involved in the Chester Springs and Quail Ridge projects are significant in general terms, I am satisfied that they are significant in terms of their relationship to the gross earnings of the Spatz corporation.

Arbitration in this State is fundamentally governed by the New Jersey Arbitration Act, N.J.S.A. 2A:24-1 Et seq. Judicial review of arbitrators' decisions is severely limited by the terms of N.J.S.A. 2A:24-8 and N.J.S.A. 2A:24-9 which set up the exclusive grounds upon which arbitrators' awards can be vacated, modified or corrected. An arbitrator's decision cannot be judicially altered because of a mistake of law or fact made by the arbitrator, and, broadly speaking, judicial review of an arbitrator's award is much more limited in scope than is appellate court review of a trial court decision. See Stanton, "Protection Against Uninsured Motorists in New Jersey," 3 Seton Hall L.Rev. 19, 35-36 (1971). When an arbitrator's award is presented to a court for confirmation and enforcement, the presumption is in favor of the award's validity, and the party opposing confirmation of the award has the burden of proof. International Brotherhood of Teamsters, etc., Local 560 v. Bergen-Hudson Roofing Supply Co., 159 N.J.Super. 313, 387 A.2d 1246 (Ch.Div.1978).

The sole statutory basis for opposing confirmation of the award in the present case is found in N.J.S.A. 2A:24-8:

The court shall vacate the award in any of the following cases:

b. Where there was * * * evident partiality * * * in the arbitrators, or any thereof; * * *.

Tri-County, the party opposing confirmation of the award, does not claim that arbitrator Spatz manifested any partiality by his actions, omissions or demeanor during the course of the arbitration proceedings. Nor does Tri-County claim that any partiality is evident on the face of the award itself. Rather, the thrust of Tri-County's argument in this case is that the mere existence of the business relationships and dealings between Spatz and Barcon (including the related corporation, Quail Ridge) is so strongly and objectively suggestive of the likelihood of favoritism or of dependence that it is incompatible with the concept that arbitration necessarily entails impartial decision making by arbitrators who are not beholden to any of the parties to the proceedings.

There are no controlling New Jersey cases, and there are no New Jersey cases which are even fairly closely relevant. The recent trial court decision in International Brotherhood of Teamsters, etc., Local 560 v. Bergen-Hudson Roofing Supply Co., supra, Sets forth some of the broad principles involved here, but the facts in that case are so different from the facts in the present case that the analysis of the court in that decision is not really helpful here. Certain out-of-state decisions are more pertinent in terms of their analysis of facts and issues. Those cases have been discussed by the attorneys in this case and will be discussed below.

Plaintiff Barcon points out that the present arbitration is private in the sense that it was not conducted under the auspices of the American Arbitration Association or of any other organization. In that connection it must be noted that § 18 of the rules of the American Arbitration Association would clearly have imposed upon arbitrator Spatz the affirmative duty to disclose the business dealings noted above. Barcon relies heavily upon the reasoning set forth in Astoria Medical Group v. Health Ins. Plan of Greater New York, 11 N.Y.2d 128, 227 N.Y.S.2d 401, 182 N.E.2d 85 (Ct.App.1962). That case, like the present one, involved a private arbitration in which each party designated an arbitrator, with the arbitrators so designated then designating the third arbitrator. One of the parties to the arbitration, a corporation, designated a member of its own board of directors as an arbitrator.

In Astoria Medical Group the New York Court of Appeals upheld the right of a corporation to appoint a member of its own board of directors to sit as one of three arbitrators in a proceeding to which the corporation was a party. In reaching this result the court pointed to contractual language giving each party the broad right (not qualified by any language of limitation) to appoint one arbitrator and to statutory language providing that "If, in the contract for arbitration * * * provision be made for a method of naming or appointing an arbitrator or arbitrators * * * such method shall be followed." N.Y.Civ.Prac. Act § 1452. Barcon correctly points out that the language in the Barcon/Tri-County contract is equivalent to that in Astoria Medical Group and that the New Jersey Arbitration Act contains a...