James Stewart Polshek and Associates v. Bergen County Iron Works

• Decision Date: 04 June 1976
• Citation: 362 A.2d 63,142 N.J.Super. 516
• Parties: JAMES STEWART POLSHEK & ASSOCIATES, Plaintiff, v. BERGEN COUNTY IRON WORKS et al., Defendants.
• Court: New Jersey Superior Court

Page 516

142 N.J.Super. 516

362 A.2d 63

JAMES STEWART POLSHEK & ASSOCIATES, Plaintiff, v. BERGEN COUNTY IRON WORKS et al., Defendants.

Superior Court of New Jersey,

Chancery Division.

June 4, 1976.

Brett S. Dankoff, Jersey City, for plaintiff (Chasan, Leyner, Holland & Tarrant, Jersey City, attorneys).

Murray Laiks, Passaic, for defendant Bergen County Iron Works (Heller & Laiks, Passaic, attorneys).

Frank J. Cuccio, Hackensack, for defendant City of Englewood (Jones, Cuccio & Klinger, Hackensack, attorneys).

PETRELLA, J.S.C.

This dispute arises out of the construction of a certain building for the Department of Public Works of the City of Englewood. An order to show cause was entered why an injunctive order should not issue prior to the hearing before the arbitrators, restraining and enjoining defendants from proceeding with or obtaining an award against plaintiff based on the demand for arbitration filed by Bergen County Iron Works (Bergen Iron) against it; declaring and adjudging that plaintiff is under no contractual or legal obligation to arbitrate the cross-claim by Englewood; enjoining Englewood from proceeding with its cross-claim in arbitration, and severing the cross-claim.

Plaintiff James Stewart Polshek & Associates ('architect') entered into a January 26, 1973 agreement with the city to perform certain architectural services in connection with the building to be constructed, including supervisory duties over the various contractors and subcontractors.

Section 12 of the contract contains a requirement for binding arbitration in the event of controversy between the parties:

All claims, disputes and other matters in question arising out of, or relating to, this Agreement or the breach thereof shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining. This agreement so to arbitrate shall be specifically enforceable under the prevailing arbitration law.

Defendant Bergen Iron was not a party to the contract between architect and Englewood. However, its separate agreement with Englewood also contains a substantially identical arbitration clause.

The document also incorporates by reference Articles 1 through 14 of A.I.A. ¹ Document A.201 which provides, among other things:

Nothing contained in the contract documents shall created any contractual relationship between the architect and the contractor.

On April 5, 1976 Bergen Iron filed a demand for arbitration against both Englewood and architect. By letter of April 22, 1976 architect, through its New York attorney, participated in the selection of arbitrators and hearing dates reserving the right to contest jurisdiction. To date architect has refused to answer the demand for arbitration, denying that the American Arbitration Association had jurisdiction since it never contracted with Bergen Iron. However, since under the American Arbitration Association rules, arbitration proceeds despite a party's failure to answer the demand, architect thereupon commenced this action asserting that arbitration could not be effected since, although both architect and Bergen Iron had arbitration clauses in their contracts with Englewood, architect has no legal or contractual obligation to arbitrate with Bergen Iron, a party to which it was not in privity of contract. See Battle v. General Cellulose Co., 23 N.J. 538, 129 A.2d 865 (1957); and District 65. R.W.D.S.U. v. Paramount Surgical Supply Co., 117 N.J.Super. 125, 127--128, 283 A.2d 766 (App.Div.1971).

Architect argues that it is not a signatory to the agreement between Englewood and Bergen Iron and in absence of such privity of contract, or its consent to arbitration, it cannot be made an unwilling participant in a proceeding, since arbitration is by nature 'voluntarily' initiated by disputants. Architect primarily relies on the line of cases which reveal that arbitration is in essence the voluntary relinquishment of a right to have resort to the courts, a right which remains inviolate unless freely contracted away. See, E.g., Carpenter v. Bloomer, 54 N.J.Super. 157, 148 A.2d 497 (App.Div.1959). Architect is correct in its assertion as far as the direct claim by Bergen Iron.

Generally, submission to arbitration is a matter governed by contract and the parties may fashion whatever provisions they wish to limit the scope of the proceeding. Newark Milk & Cream Co. v. Local 680 of Intern. Broth. of Teamsters, etc., 12 N.J.Super. 36, 78 A.2d 839 (App.Div.1951); and Cf. 6 C.J.S. Arbitration, § 76, at 291--293. Our arbitration statute has been stated to be compatible with the common law. Carpenter v. Bloomer, supra, 54 N.J.Super. at page 163, 148 A.2d 497. Settlement by this procedure is favored by the courts of this State. Hudik-Ross, Inc. v. 1530 Palisade Ave. Corp., 131 N.J.Super. 159, 166, 329 A.2d 70 (App.Div.1974); Keppler v. Terhune, 88 N.J.Super. 455, 461, 462, 212 A.2d 683 (App.Div.1965); and Machine Printers Beneficial Ass'n of U.S. v. Merrill Textile Print Works, 12 N.J.Super. 26, 78 A.2d 834 (App.Div.1951). This view has also been expressed by the U.S. Supreme Court in Atkinson v. Sinclair Refining Co., 370 U.S. 238, 82 S.Ct. 1318, 8 L.Ed.2d 462 (1962).

The contracting parties are only bound to the extent of their contract and have the right to stand upon the terms thereof. Public Utility Workers, etc. v. Public Service Electric & Gas Co., 35 N.J.Super. 414, 419, 114 A.2d 443 (App.Div.1955). It also is axiomatic that arbitration agreements are to be construed according to usual methods of contract interpretation whereby 'a mutual, reasonable and meaningful design is sought from the language used by the parties and maximum effect is given to their intention.' Keppler v. Terhune, supra, 88 N.J.Super., at 462, 212 A.2d at 687. The scope of the agreement, of course, is a matter for judicial scrutiny. See Newark Milk & Cream Co., supra, 12 N.J.Super. at 41, 78 A.2d 839, and the cases cited therein.

In the matter under consideration Bergen Iron did not enter into a contractual agreement with plaintiff architect, and in fact Bergen Iron's contract with Englewood, by reference, denies any relationship with the architect. Architect may not then seek a direct award against Bergen Iron. Consequently, plaintiff is under no obligation to directly arbitrate the claim made by defendant Bergen Iron. ² However, plaintiff by the Broad language in its agreement with Englewood, is bound to submit that dispute which arises out of and relates to their contract to arbitration.

Bergen Iron counters that even if architect is correct in its assessment of the controlling legal principles, plaintiff has waived its right to dispute the demand because it participated in choosing the arbiters pursuant to the demand. Although the term 'waiver' is given varying definitions in varying contexts, it is generally taken to be the intentional relinquishment of a known right. See West Jersey Title & Guaranty Co. v. Industrial Trust Co., 27 N.J. 144, 152, 141 A.2d 782 (1958); Merchants Indemn. Corp. v. Eggleston, 37 N.J. 114, 130, 179 A.2d 505 (1962); 3A Corbin, Contracts § 752 (1960); 5 Williston, Contracts (3d ed. 1961) §§ 678, 679.

A claim of waiver cannot be successfully raised against the architect here for participating in the choosing of the arbiters relating to Bergen Iron's claim when there is no contractual or other basis for arbitration of that dispute. Furthermore, architect's participation was expressly subject to its objection to arbitration and was proper as a contingent measure in the event it was unsuccessful in this suit, since arbitration would have proceeded even it it refused to answer. By refusing to answer, architect risked at its peril being denied the opportunity to participate in the selection of arbiters in accordance with applicable rules.

The question now is, recognizing that the architect Englewood and the Englewood-Bergen Iron disputes must be arbitrated, and the resolving of either controversy will certainly affect the other, does the cross-claim fail because Bergen Iron has no arbitration right against plaintiff and is enjoined from proceeding against plaintiff, or should this court refuse to in effect sever the 'cross-claim' of Englewood? For practical purposes, this latter course would save time, expense and avoid any conflict or inconsistency in award.

It would be more form over substance to hold that the cross-claim would fall automatically and that Englewood must file a separate paper in arbitration labelled demand for arbitration against architect. In the circumstances the cross-claim was in effect a demand for arbitration. Even if it could not be so viewed the court would grant a stay for a reasonable period to allow the filing of such a demand and an application for consolidation. Indeed, the counterclaim of defendant can be construed to request such relief. Our liberal practice does not require such a formalistic approach, however.

Architect objects to the matters proceeding together, relying on Wm. C. Blanchard Co. v. Beach Concrete Co., 121 N.J.Super. 418, 297 A.2d 587 (Ch.1972) which held there could be no consolidation of arbitration actions because neither court rule nor statute authorized it. In Blanchard, the court was concerned with 'a web of claims and cross-claims' flowing from the construction of an office building. As in the case at bar, there were a number of contracts and subcontracts. Each contract contained an arbitration provision, but the clause did not refer to inclusion in arbitration of third-party claims or to consolidation of arbitrations.

The court in Blanchard reviewed our arbitration statute, N.J.S.A. 2A:24--1 Et seq., and concluded at page 429, at page 594 of 297 A.2d that:

. . . the use of 'may' in sections 3 and 5 does not show legislative intent to confer discretionary power to enforce or not to enforce an agreement for arbitration when the parties to the...