Perini Corp. v. Greate Bay Hotel & Casino, Inc.

• Citation: 610 A.2d 364,129 N.J. 479
• Parties: PERINI CORPORATION, a Massachusetts Corporation, Plaintiff-Appellant, v. GREATE BAY HOTEL & CASINO, INC., t/a Sands Hotel & Casino, Inc., a New Jersey Corporation, Defendant-Respondent.
• Decision Date: 06 August 1992
• Court: United States State Supreme Court (New Jersey)

Page 479

129 N.J. 479

610 A.2d 364

PERINI CORPORATION, a Massachusetts Corporation, Plaintiff-Appellant, v. GREATE BAY HOTEL & CASINO, INC., t/a Sands Hotel & Casino, Inc., a New Jersey Corporation, Defendant-Respondent.

Supreme Court of New Jersey.

Argued March 17, 1992.

Decided Aug. 6, 1992.

Edward A. Zunz, Jr., Morristown, for plaintiff-appellant (Riker, Danzig, Scherer, Hyland & Perretti, attorneys; Edward A. Zunz, Jr. and Stuart M. Lederman, of counsel; Stuart M. Lederman, Karen M. Patruno, and Roberta N. Samuels, on the briefs).

Steven A. Arbittier, Philadelphia, Pa., a member of the Pennsylvania bar, for defendant-respondent (Horn, Kaplan, Goldberg, Gorny & Daniels, attorneys; Steven A. Arbittier and Jack Gorny, Atlantic City, of counsel and on the briefs).

William J. Brennan, III, Princeton, submitted a brief on behalf of amicus curiae The Associated General Contractors of America (Smith, Stratton, Wise, Heher & Brennan, attorneys; William J. Brennan, III, and Wendy L. Mager, of counsel and on the brief).

The judgment of the Court was delivered by

O'HERN, J.

This appeal concerns the extent to which a court may invalidate an arbitration panel's award that was allegedly based on a mistaken determination of law. The issue arises in the context of a construction-management contract for an Atlantic City hotel and casino. The principal errors of law asserted are that the arbitrators (1) failed to observe settled principles of contract law by awarding damages that were not in the contemplation of the parties at the date of the contract and (2) awarded damages for lost profits after the date on which the project was substantially completed. We find that the asserted errors of law were not so gross, unmistakable, or in manifest disregard of the applicable law as to warrant judicial invalidation of the award.

I

The matter arises out of a 1983 construction-management contract entered into by plaintiff, Perini Corporation (Perini), and defendant, Greate Bay Hotel & Casino, Inc., trading as Sands Hotel & Casino (Sands). For purposes of this appeal, we adopt generally the version of the facts set forth in Perini's supplemental brief to this Court.

In 1981, Sands's parent company purchased the Brighton Hotel. The Brighton had experienced steadily-declining revenues for several years before Sands purchased it. Sands, however, was able to reverse that trend, making an $8,000,000 profit during its first year of operation. The Brighton's financial troubles had stemmed from several factors: (1) the hotel was a full block from the boardwalk; (2) there was no entrance visible from the boardwalk; and (3) the company had a poor marketing strategy. Sands realized that in order to increase its revenues, it had to draw a significant number of patrons from the boardwalk.

To achieve that goal, Sands decided to undertake major renovations. On July 21, 1983, it entered into a construction- agreement with Perini for a partial renovation of the hotel and casino. Under the terms of the agreement, Perini's responsibilities as construction manager were to coordinate with the owner and the owner's architect, supervise the trade contractors, and set a guaranteed maximum price for the project (originally $16,800,000) in exchange for a $600,000 fee plus reimbursement for actual expenses. If the cost of the project exceeded $20,000,000, Perini would be entitled to four percent of the project costs over $20,000,000 in addition to the agreed upon fee. The hotel and casino were continuously open and operating throughout the partial-renovation project.

The project had several component parts: (1) expansion of the existing casino gaming area; (2) creation of a new food court; (3) renovation of the nineteenth and twentieth floors and the addition of a new twenty-first floor to house an executive plaza club and seven luxury "high-roller" suites; (4) creation of an additional entrance at the southeast corner of the building (the new park entrance); and (5) the creation of a $400,000 ornamental, non-functional glass facade located outside of the east wall, which faces the boardwalk. Sands described the latter as a "new glitzy glass facade on the east side of the building which might act as a magnet to lure a new category of customers--strollers who might leave the boardwalk and walk the long block from the beach to the Sands."

The contract contained no completion date and no "time-of-the-essence" clause. At the time the parties entered into the contract, the owner's architect had not completed the plans, drawings, and specifications. Sands concedes that it would have been impossible to fix a completion date at the date of contracting; thus, the contract provided that "[a]t the time a [g]uaranteed [m]aximum [p]rice is established, * * * a [d]ate of [s]ubstantial [c]ompletion of the [p]roject shall also be established."

The contract defines "substantial completion" as "the date when construction is sufficiently complete * * * so the [o]wner can occupy or utilize the [p]roject or designated portion thereof for the use for which it is intended." Perini asserts that "substantial completion" is a term of art in the construction industry with uniformly-understood significance related to performance, warranties, payment, and damages. Most significantly, it asserts that under prevailing law no damages for delay may be awarded after substantial completion.

As noted previously, the contract did not contain a completion date because that date was to be fixed at the time that a guaranteed maximum price was established. However, when the guaranteed maximum price was set (originally at $16,800,000 and later increased to $24,000,000), a substantial completion date had not been placed in the contract.

Sands contends that the parties did agree ultimately to May 31, 1984, as the substantial completion date for the project. The record before the Court shows that the contractual completion dates submitted to the New Jersey Casino Control Commission required substantial completion of the project's three main components (the expansion of the casino, the construction of seven "high-roller" suites, and the new park entrance) on or before June 1, 1984. Significantly, Sands informed Perini that it would postpone the project until 1985 were Perini unable to complete the project before the start of the summer season.

Perini argues that the entire project and various portions thereof reached substantial completion, as defined in the contract, as follows: casino and food court, April 17, 1984; new park entrance and facade, August 31, 1984; suites, September 14, 1984; and the entire project, September 14, 1984. Perini contends that no one disputes that the revenue-producing portions of the work--the expanded casino gaming area and the food courts--were open and operational before Memorial Day and that Perini was entitled to an excusable extension of the completion date for the "high-roller" suites until August 22, 1984. Therefore, for all practical purposes, Perini argues that Sands's only delay claim related to an alleged four-month delay from May through August 31, 1984, in the substantial completion of the glass facade. After the entire project had reached substantial completion on September 14, 1984, Perini claims that in keeping with the term-of-art meaning of substantial completion, only "punch list" and warranty work remained to be completed at the site. However, Sands sought to terminate the contract by letter dated December 21, 1984, despite an asserted contractual provision that it could not terminate the contract after substantial completion.

After Sands's purported termination of the contract, Perini brought suit in the Superior Court, Atlantic County, Chancery Division. Perini sought a declaratory judgment that Sands could not terminate the contract after the renovation project had reached substantial completion. On Sands's cross-action, the court determined that the termination issue, as well as any other disputed matters, were subject to arbitration under the contract.

Perini and Sands submitted three issues to the arbitrators: (1) lost profit damages alleged by Sands; (2) contract balances due Perini; and (3) wrongful termination of the contract by Sands. By a two-to-one vote, with the attorney-arbitrator dissenting, the panel awarded Sands over $14,500,000 in damages for lost profits. The arbitrators failed to decide explicitly the issue of whether Sands had the power to terminate Perini's contract after substantial completion. During the arbitration proceedings the parties stipulated that Perini would receive $300,000 plus interest as its contract balance.

Sands sought judicial confirmation of the award in the Chancery Division, while Perini sought to vacate the award. Perini presented a variety of issues to the Chancery Division, not all of which have been made the subject of this appeal. Because we limited our grant of certification primarily to the question of mistake of law, we advert but briefly to the Chancery Division proceeding. Perini argued that there had been no competent evidence before the arbitrators to sustain the award. However the court found that with respect to the damage award, there was competent evidence before the arbitrators from "which they could have reasonably concluded as they did."

Next, the Chancery Division addressed the issue of lost profits. Although expressing concern about the damages awarded from September 1 through the end of December 1984, the Chancery judge concluded that the arbitrators had not committed "the kind of gross mistake or clear disregard of applicable law that is required to overturn an award."

In an unreported decision, the Appellate Division affirmed. It held that the arbitrators had not been clearly mistaken as a matter of law and thus refused to vacate the award. The court found that enough evidence had been presented to the arbitrators to allow them to conclude that lost...