Commerce Bank, N.A. v. DiMaria Const., Inc.

Decision Date17 April 1997
PartiesCOMMERCE BANK, N.A., Plaintiff-Appellant-Cross-Respondent, v. DiMARIA CONSTRUCTION, INC., Defendant-Respondent-Cross-Appellant (Two Cases).
CourtNew Jersey Superior Court — Appellate Division

Joseph H. Blum, Philadelphia, PA, argued the cause for appellant-cross-respondent (Frey, Petrakis, Deeb & Blum, attorneys; Mr. Blum, Norman W. Briggs, Bakersfield, CA, and William B. Jameson, on the brief).

Ellis I. Medoway, Haddonfield, argued the cause for respondent-cross appellant (Archer & Greiner, attorneys; Mr. Medoway, on the brief).

Before Judges LONG, SKILLMAN and CUFF.

The opinion of the court was delivered by

SKILLMAN, J.A.D.

This appeal requires us to consider the principles which govern the determination of whether a court or arbitrators should decide questions regarding the timeliness of a demand for arbitration or the satisfaction of other conditions of arbitration.

In December of 1993, defendant DiMaria Construction, Inc. (DiMaria) entered into two contracts with plaintiff Commerce Bank, N.A. (Commerce) to supervise and manage the construction of interior offices and the installation of heating and air conditioning units in Commerce's commercial office building in Mount Laurel Township. Each contract included a schedule for the completion of construction. On April 14, 1994, Commerce sent a notice to DiMaria terminating both contracts on the ground that DiMaria had breached the interior office contract by failing to complete construction in a timely manner.

During the following months, the parties exchanged correspondence regarding the termination of the contracts. When the parties were unable to settle their dispute, DiMaria submitted a demand for arbitration on October 21, 1994. Commerce then filed the first of the two actions involved in this appeal, seeking to enjoin the arbitration on the ground that DiMaria had failed to satisfy two conditions precedent to the right to arbitrate, namely, filing a claim within twenty-one days of the "occurrence" giving rise to its claim and obtaining a decision from the project architect. DiMaria responded by filing a motion to dismiss and a cross-motion for counsel fees. The trial court denied Commerce's application to enjoin the arbitration and dismissed the counts of the complaint implicated in this appeal. 1 The trial court concluded that under the arbitration clause contained in both contracts the arbitrators had the responsibility to pass upon Commerce's contention that DiMaria failed to satisfy the conditions precedent to arbitration. The court also denied DiMaria's application for counsel fees.

The arbitrators conducted hearings on twenty-two days over a six month period. Following the testimony of eleven witnesses and the introduction of more than 230 exhibits, the arbitrators rendered a decision, which concluded A. It is the opinion of the Tribunal that this contract was ended in a wrongful manner by Commerce Bank, N.A., .... As a result of this wrongful dismissal the Contractor of record "Di Maria Construction, Inc.", ... was harmed in a number of ways. Primarily they were placed in a position where other contracts were unavailable due to a lack of bonding ability and a lack of funds necessary to purchase material. Other harms were the loss of faith by subcontractors and material suppliers and the damage to the Corporate name relative to non-payment and suits against [Di Maria] by others related to this project.

B. This Tribunal has found that conditions precedent were not a factor in this case and therefore did not prevent the case from proceeding to a decision.

Accordingly, the arbitrators awarded DiMaria $205,270 for the interior office and HVAC contracts, $49,650 "related to all other contractual topics" and $69,554.66 for counsel fees.

Following the award, Commerce filed its second action, which sought to vacate the arbitration award on the ground that it was the product of "fraud, corruption or similar wrongdoing," and DiMaria filed a counterclaim seeking confirmation. The trial court rejected Commerce's challenge and confirmed the arbitration award. The court also denied DiMaria's application for counsel fees.

Commerce filed separate appeals from the dismissal of its actions seeking to enjoin the arbitration hearing and to vacate the arbitration award. DiMaria filed cross appeals from the denial of its claims for counsel fees. We consolidated the appeals.

I

On the appeal from the dismissal of its action seeking to enjoin arbitration, Commerce argues that the trial court erred in concluding that the arbitration clause in the contracts conferred responsibility upon the arbitrators to determine whether DiMaria satisfied the conditions precedent to arbitration. 2 Commerce relies upon cases such as Jersey Cent. Power & Light Co. v. Local Union No. 1289 of Int'l Bhd. of Elect. Workers, 38 N.J. 95, 102-03, 183 A.2d 41 (1962) and Laborers' Local Union Nos. 472 & 172 v. Interstate Curb & Sidewalk, 90 N.J. 456, 463, 448 A.2d 980 (1982), which hold that a court ordinarily must make the threshold determination whether the parties to a contract have agreed to submit a particular dispute to arbitration. The rationale for this rule is that because a party may be compelled to submit a dispute to arbitration only if it has agreed to this alternative form of dispute resolution, the question whether a contract requires a particular dispute to be submitted to arbitration--sometimes referred to as "substantive arbitrability," Standard Motor Freight, Inc. v. Local Union No. 560, Int'l Bhd. of Teamsters, 49 N.J. 83, 96, 228 A.2d 329 (1967)--is "an issue for judicial determination." AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648, 656 (1986). Consequently, arbitrators may decide whether a particular dispute is within the scope of the parties' agreement to arbitrate only if "an express contract provision" confers such authority. Laborers' Local Union Nos. 472 & 172 v. Interstate Curb & Sidewalk, supra, 90 N.J. at 463, 448 A.2d 980; see also First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985, 994 (1995) ("Courts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clea[r] and unmistakabl[e]' evidence that they did so," (quoting AT & T Techs., Inc. v. Communications Workers of Am., supra, 475 U.S. at 649, 106 S.Ct. at 1418-19, 89 L.Ed.2d at 656)).

However, once it is decided that the subject of a particular dispute is within the scope of an agreement to arbitrate, any question as to whether a party has satisfied the procedural preconditions of arbitration, such as the timeliness of a demand for arbitration,--sometimes referred to as a question of "procedural arbitrability," Standard Motor Freight, Inc. v. Local Union No. 560 Int'l Bhd. of Teamsters, supra, 49 N.J. at 97, 228 A.2d 329--generally should be decided by arbitrators rather than a court. John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 555-59, 84 S.Ct. 909, 917-19, 11 L.Ed.2d 898 (1964); PaineWebber, Inc. v. Elahi, 87 F.3d 589 (1st Cir.1996); Conticommodity Servs., Inc. v. Philipp & Lion, 613 F.2d 1222, 1224-27 (2nd Cir.1980); Enertron Indus., Inc. v. Mack, 242 N.J.Super. 83, 94 n. 3, 576 A.2d 28 (App.Div.1990); D'Arrigo v. New Jersey State Bd. of Mediation, 228 N.J.Super. 189, 196, 549 A.2d 451 (App.Div.1988), rev'd on other grounds, 119 N.J. 74, 574 A.2d 44 (1990); Mahony-Troast Constr. Co. v. Supermarkets Gen. Corp., 189 N.J.Super. 325, 331, 460 A.2d 149 (App.Div.1983). The essential rationale for this rule is that "where the parties have clearly agreed to arbitrate the subject of the underlying dispute between them, ... it is unlikely that they intended other issues related to the dispute, such as the timeliness of the submission of the claim, to affect the 'arbitrability' of the dispute." PaineWebber, Inc. v. Elahi, supra, 87 F.3d at 599. Moreover, " 'the fact that something is a condition precedent to arbitration does not make it any less a procedural question' to be determined by the arbitrator." Id. at 600-01 n. 12 (quoting Local 285, Serv. Employees Int'l Union, AFL-CIO v. Nonotuck Resource Assocs., 64 F.3d 735, 740 (1st Cir.1995)). Therefore, unless the contract expresses a contrary intent, the presumption is that parties intend such procedural questions to be decided by the arbitrator. Id. at 598-99.

We recognize that this court held in Moreira Constr. Co. v. Township of Wayne, 98 N.J.Super. 570, 238 A.2d 185 (App.Div.), certif. denied, 51 N.J. 467, 242 A.2d 15 (1968), that a trial court should decide whether a party demanded arbitration within the time required by the contract. However, the arbitration clause involved in Moreira conferred only limited powers upon the arbitrator; only one party to the contract could invoke arbitration and even that party's right to arbitrate "rested on a carefully circumscribed set of conditions." Id. at 576, 238 A.2d 185. We contrasted this narrow arbitration clause with "[c]lauses of that universality of coverage ... common in commercial agreements." Ibid. Consequently, Moreira is consistent with our more recent decisions which hold that, absent an expression of a contrary intent in the contract, any question whether a party has made a timely demand for arbitration should be decided by arbitrators rather than by a court. See Enertron Indus., Inc. v. Mack, supra; D'Arrigo v. New Jersey State Bd. of Mediation, supra; Mahony-Troast Constr. Co. v. Supermarkets Gen. Corp., supra; but cf. Brick Township Mun. Utils. Auth. v. Diversified R.B. & T. Constr. Co., 171 N.J.Super. 397, 402-04, 409 A.2d 806 (App.Div.1979).

In its action to enjoin the arbitration, Commerce argued that DiMaria was barred from arbitrating any claim relating to the termination of the contracts because it did not file a claim with the project architect...

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