Highgate Development Corp. v. Kirsh

• Decision Date: 08 April 1988
• Citation: 540 A.2d 861,224 N.J.Super. 328
• Parties: HIGHGATE DEVELOPMENT CORP., Plaintiff-Appellant, v. Michael KIRSH and Marcia Kirsh, his wife, Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 328

224 N.J.Super. 328

540 A.2d 861

HIGHGATE DEVELOPMENT CORP., Plaintiff-Appellant, v. Michael KIRSH and Marcia Kirsh, his wife, Defendants-Respondents.

Superior Court of New Jersey Appellate Division.

Argued Dec. 16, 1987.

Decided April 8, 1988.

Mitchell S. Camp, Hackensack, for plaintiff-appellant.

Jack S. Zakim, Glen Rock, for defendants-respondents.

Before Judges GAULKIN, GRUCCIO and D'ANNUNZIO.

The opinion of the court was delivered by

GAULKIN, J.A.D.

Plaintiff Highgate Development Corp. (Highgate) brought this action to confirm an arbitration award entered against defendants Michael and Marcia Kirsh. On motion for summary judgment, the Law Division judge dismissed the complaint by an order determining that

the American Arbitration Association was not conferred with jurisdiction over the parties Highgate Development Corp. and Michael and Marcia Kirsh, as a result of the residential construction contract between those parties, which provided for an alternate means of arbitration.

By a separate order, the judge awarded the Kirshs costs and attorney's fees totalling $900 pursuant to R. 4:58. Highgate appeals from both orders.

The dispute arises out of a May 1982 contract under which Highgate agreed to construct a one family residence for the Kirshs. Paragraph 18 of the printed form contract provided:

Any disagreement, dispute, controversy or claim rising out of or relating to this Contract or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the Arbitrator[s] may be entered in any Court having jurisdiction thereof.

Attached to the printed contract was a three-page typewritten rider with 17 additional paragraphs. Paragraph 10 of the rider provided as follows:

Should any disputes arise respecting the interpretation or the meaning of the architect's plans, specifications or any of the terms contained in this Agreement, or with respect to the reasonable value of any extra work, etc., the parties agree to arrange for an immediate settlement conference with their respective attorneys, and make a sincere attempt to resolve their differences, so that construction can continue in an expeditious manner. In the event the parties and their respective attorneys are not able to amicably resolve the problem, the parties further agree that the dispute shall be referred for final determination to two (2) competent persons, as arbitrators, one of whom shall be employed by the Owners, and the other by the Contractor, and if the two arbitrators disagree, the dispute shall then be submitted to a referee or umpire to be named by the two arbitrators, whose decision shall be final and conclusive. Thereafter, the decision of the arbitrators will be binding as per Paragraph 18 of the Contract.

On May 12, 1983 Highgate filed a demand for arbitration with the American Arbitration Association (AAA) pursuant to paragraph 18. Highgate alleged that it had "duly performed substantially all of the construction work required of it," that a certificate of occupancy had been issued in December 1982 and that the Kirshs had taken occupancy. Highgate claimed $18,547.90 as the unpaid balance due on the base contract price and $37,307 for authorized extras.

Although the record before us is not complete, it appears that counsel for both parties submitted letter briefs to the AAA addressing the question whether arbitration should proceed under paragraph 18 of the contract or paragraph 10 of the rider. Counsel for the Kirshs argued that "there is no agreement to submit this dispute to the [AAA]" and asked for such a ruling from the arbitrator:

In determining whether or not there is an agreement between the parties to submit this claim to your association I only ask that you review the petitioner's demand for arbitration with specific reference to the list of charges for extras and make a determination based on the clear language in paragraph one (1) and ten (10) of the Rider.

Based on the parties' written submissions, the AAA arbitrator determined that he had jurisdiction to decide the dispute. In her October 5, 1983 letter advising of that ruling, the AAA administrator instructed the parties that they "may agree to appoint party-appointed Arbitrators to serve in addition to [the AAA arbitrator], and are to advise the [AAA] of their agreement to do so by October 12, 1983." Counsel apparently never responded to that invitation.

The Kirshs filed a general denial to the arbitration demand on October 13, 1983. Their response also set forth 13 affirmative defenses, all but one of which addressed the merits of the Highgate claim. The first affirmative defense was:

The construction contract (paragraph ten (10) of Rider) provided for a specific procedure to arbitrate any disputes, outside of the American Aribtration Association which has no jurisdiction over the within alleged dispute.

The response also incorporated a demand for discovery.

On November 7, 1983 the Kirshs filed a counterdemand for arbitration, alleging that Highgate had breached its contract, "resulting in additional expenses and damages" to the Kirshs. They demanded an award in their favor in the amount of $42,502. On February 29, 1984, however, counsel for the Kirschs gave notice to the AAA that they withdrew the counterdemand for arbitration because they had determined that Highgate and its principal were judgment-proof. Counsel advised, however, that he incorporated in his response to the Highgate demand all of the defenses set forth in the counterdemand.

The arbitration went forward. While we do not have the record of the proceeding, we are told that the hearings occupied five full days, during which both parties presented extensive proofs, including documentary evidence and expert testimony. The arbitrator issued his award on January 13, 1986. He awarded Highgate a total of $31,304, but directed that Highgate and its principal furnish releases of liens filed by Highgate creditors totalling $51,134.14.

The action to confirm the arbitration award was filed on March 21, 1986. As already noted, the complaint was dismissed by the Law Division judge upon a finding that the AAA did not have jurisdiction to hear and determine the dispute. Highgate appeals.

Although we have serious doubt about the soundness of the trial judge's determination that the arbitration should have proceeded under paragraph 10 of the rider rather than paragraph 18 of the form contract, we find it unnecessary to resolve that question. We conclude, rather, that the Kirshs' election to proceed with the paragraph 18 arbitration constituted a waiver of any right they might have had to demand arbitration under paragraph 10.

New Jersey law has long recognized that a party can waive, by conduct or otherwise, any objection he might have to an arbitrator's jurisdiction. The background and scope of that principle were explored in N.J. Manufacturers Insurance Co. v. Franklin, 160 N.J.Super. 292, 389 A.2d 980 (App.Div.1978). There we stated that "[e]ven in the absence of a contractual submission of an issue to arbitration, a party may by conduct or agreement waive his legal right to judicial determination," whereupon "objection to the arbitrator's jurisdiction is no longer viable." Id. at 298, 389 A.2d 980. Whether there has been a waiver "is dependent upon the course elected by the [objecting party] and the facts relating to the nature and degree of its participation in the arbitration proceeding." Id. at 299, 389 A.2d 980. "[M]ere participation" in the arbitration does not "conclusively bar" a party from challenging the arbitrator's jurisdiction; in particular, participation "does not dictate a finding of waiver" where the party gives timely notice of his objection to the arbitrator's jurisdiction. Id. at 300, 389 A.2d 980. While it is preferable for a party claiming that an issue is beyond an arbitrator's jurisdiction to seek an injunction of the arbitration, failure to do so will not alone justify a finding of waiver. Id.; accord In re Matter of Arbitration between Grover, 80 N.J. 221, 230, 403 A.2d 448 (1979).

The threshold question here, not directly addressed in our prior case law, is whether timely notice of the objection to the arbitrator's jurisdiction standing alone precludes a finding of waiver. We are satisfied that, just as mere participation in the arbitration does not dictate a finding of waiver, mere assertion of an objection does not dictate a finding of non-waiver. In both situations, the determination as to waiver is dependent upon all of the facts relating to the nature and degree of the objecting party's participation in the arbitration proceeding. Id. at 299, 403 A.2d 448.

It is not just analytic symmetry which...