La Stella v. Garcia Estates, Inc.

• Decision Date: 21 January 1975
• Citation: La Stella v. Garcia Estates, Inc., 331 A.2d 1, 66 N.J. 297 (N.J. 1975)
• Parties: , 83 A.L.R.3d 988 Espedito LA STELLA and John Cafone, Plaintiffs-Appellants, v. GARCIA ESTATES, INC., Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 297

66 N.J. 297

331 A.2d 1, 83 A.L.R.3d 988

Espedito LA STELLA and John Cafone, Plaintiffs-Appellants, v.GARCIA ESTATES, INC., Defendant-Respondent.

Supreme Court of New Jersey.

Argued Nov. 6, 1974.

Decided Jan. 21, 1975.

Robert W. O'Hagan, Allenhurst, for plaintiffs-appellants(Stout, O'Hagan & Hertz, Allenhurst, attorneys).

Roland R. Formidoni, Trenton, for defendant-respondent(McLaughlin, Abbotts & Cooper, Trenton, attorneys).

The opinion of the Court was delivered by

JACOBS, J.

The Appellate Division reversed a Chancery Division judgment which had confirmed an arbitration award.128 N.J.Super. 173, 319 A.2d 274(1974).We granted certification on the plaintiffs' application.65 N.J. 568, 325 A.2d 702(1974).

The plaintiffs are tenants of premises leased to them by their landlord the defendant and used as a golf course.In 1971they sought to exercise a renewal option but the defendant refused to renew on grounds which need not be detailed here.The plaintiffs filed a complaint in the Chancery Division seeking to compel renewal of the lease and the defendant filed an answer and counterclaim in which it set forth, Inter alia, the following arbitration clause in the lease:

Any dispute arising under this lease shall be settled by arbitration.The Landlord and Tenant shall each choose an arbitrator, and the two arbitrators thus chosen shall select a third arbitrator.The findings and award of the three arbitrators thus chosen shall be final and binding on the parties hereto.

In its counterclaim the defendant sought judgment directing that arbitration proceed between the parties in the manner provided in their lease and in 1972 Judge McGowan entered judgment to that effect.Thereupon the plaintiffs selected an arbitrator, the defendant selected an arbitrator and these two selected a third arbitrator.The three arbitrators met and, although there were tentative votes in favor of the defendant, ultimately the three arbitrators rendered their final award with two of the arbitrators voting in plaintiffs' favor and the third voting in the defendant's favor.In 1973Judge McGowan entered a judgment confirming the award in the plaintiffs' favor by the majority arbitrators; he summarily rejected the defendant's contention that no award could lawfully be rendered by the arbitrators without the concurrence of all three of them.The defendant appealed to the Appellate Division which reversed on the ground that unanimity was required by Factors, Inc. v. Salkind, 5 N.J. 485, 76 A.2d 252(1950).In Factors this Court held that an award which was not signed by all of the three arbitrators was fatally defective; in his opinion Justice Case adhered to the common law rule which provided that in private arbitrations 'there must be unanimity of conclusion unless otherwise indicated by the terms of the submission.'5 N.J. at 492, 76 A.2d at 255.We granted certification on the plaintiffs' application in order to reconsider the subject and, after hearing oral argument, we are satisfied that the single issue of merit calling for present consideration and determination is whether the common law rule should not now be abandoned in favor of a rule that a majority determination is sufficient unless otherwise directed by the agreement to arbitrate.

The English common law at the time of the American Revolution was undoubtedly hostile to arbitrations.See Frank, J., in Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978, 983(2 Cir.1942), and Hough, J., in United States Asphalt R. Co. v. Trinidad Lake P. Co., 222 F. 1006, 1007(S.D.N.Y.1915).Thus it permitted either party to an arbitration of an existing dispute to withdraw at any time before the actual award and, beyond that, it declared that an agreement to arbitrate future disputes was against public policy and not enforceable.SeeKulukundis Shipping Co. v. Amtorg Trading Corp., Supra, 126 F.2d at 982--983; Birdseye, Arbitration and Business Ethics 62 (1926);Cf.Sayre, 'Development of Commercial Arbitration Law,' 37 YaleL.J. 595(1928).Whether the judicial hostility originated in ancient jealousies and fears of being ousted from jurisdiction (Lord Campbell in Scott v. Avery, 5 H.L.Cas. 811, 853, 10 Eng.Rep. 1121, 1138(1856)) or whether it originated in less ignoble considerations (6A Corbin, Contracts § 1433(1962)) need not concern us; that there was in fact judicial hostility which must have had its effect on common law doctrines bearing on arbitrations would appear to be beyond dispute.SeeShribman v. Miller, 60 N.J.Super. 182, 191, 158 A.2d 432(Ch.Div.1960).

The English common law permitting revocation prior to the award and declaring agreements to arbitrate future disputes to be unenforceable was carried over into the common law of the various states.See6 Williston, Contracts § 1919(Rev.ed.1938);6A Corbin, Supra, § 1433.In most states the common law has since been altered by statute.See6 Williston, Supra, § 1920;Sturges, Commercial Arbitrations and Awards§ 26(1930);Domke, The Law and Practice of Commercial Arbitration§ 4.01(1968).In some states it has been altered by judicial decision.SeeUnited Ass'n of Journ. & App. of Plumbing, Etc. v. Stine, 76 Nev. 189, 351 P.2d 965(1960);Park Const. Co. v. Independent School Dist. No. 32, 209 Minn. 182, 296 N.W. 475(1941);Ezell v. Rocky Mountain Bean & Elevator Co., 76 Colo. 409, 232 P. 680(1925).

In Stine, supra, the Nevada Supreme Court declined to follow the rule which had at common law declared tht covenants for arbitration of all future disputes are 'contrary to public policy'.76 Nev. at 204, 351 P.2d at 973.In the course of his comprehensive opinion, Justice Badt pointed to the questionable underfootings of the rule when originally enunciated and to the highly changed current circumstances; he quoted approvingly from Justice Wolfe's concurring opinion in Latter v. Holsum Bread Co., 108 Utah 364, 160 P.2d 421(1945), where the Justice had suggested that it was due time that courts evidenced 'a change in attitude to encourage rather than discourage use of arbitration machinery in cases where such machinery is well adapted'(108 Utah at 375, 160 P.2d at 426); and he hald that a provision in a labor agreement for the submission of future controversies to arbitration was entirely lawful and fully enforceable despite the earlier common law notions to the contrary.76 Nev. at 202--214, 351 P.2d at 972--978.

The common law unanimity rule was in all likelihood a subordinate incident of the judicial hostility to arbitrations; it was generally adopted by the various state courts without discussion of its origin or validity though at least one state rejected it with the following brief comment: 'Whatever may be the rule elsewhere, the rule in this state is that an award by a majority of arbitrators is valid, whether the matter submitted be private or under a rule of court(Lockart v. Kidd, 2 Mills, Const. 217;Leatherwood v. Woodroof, 2 Brev. 380), or by contract of the parties(Black v. Pearson, 1 McCord, 137), or whether the matter be public, as in this case(Abbeville Co. v. McMillan, 52 S.C. 72, 29 S.E. 540).'Greenville County v. Spartanburg County, 62 S.C. 105, 124, 40 S.E. 147, 153--154(1901).

In Omaha v. Omaha Water Co., 218 U.S. 180, 30 S.Ct. 615, 54 L.Ed. 991(1910), Justice Lurton noted that while in private matters the rule 'seems to be' that there must be unanimity unless otherwise indicated in the submission, the rule is otherwise 'when the submission is one which concerns the public.'218 U.S. at 192--193, 30 S.Ct. at 616, 54 L.Ed. at 997.Justice Lurton acknowledged that it was unclear why there was a distinction and he suggested that since public affairs are governed by majorities, perhaps 'by analogy, a majority should control when the submission is a matter which concerns the public.'218 U.S. at 193, 30 S.Ct. at 616, 54 L.Ed. at 997.However, he did not advance any reason whatever as to why a majority should not ordinarily control when the matter is a private arbitration.Cf.Comisky & Comisky, 'Commercial Arbitration--Panacea or Nightmare?'47 Temp.L.Q. 457, 473(1974).

In 1925the Congress enacted the United States Arbitration Act which was designed to make 'valid, irrevocable, and enforceable'(9 U.S.C.A. § 2) provisions for arbitration of disputes arising out of maritime and certain other contracts.9 U.S.C.A. § 1 et seq.The statute was silent with respect to the common law's rule of unanimity though it did contain a provision that the arbitrators 'or a majority of them' may issue subpoenas to compel the attendance of witnesses.9 U.S.C.A. § 7.In Marine Transit Corp. v. Dreyfus, 284 U.S. 263, 52 S.Ct. 166, 76 L.Ed. 282(1932), the contract was subject to the following provision: 'All disputes arising under this contract to be arbitrated before the Committee on Grain of the New York Produce Exchange whose decision shall be final and binding.'The Committee rendered its arbitration award which was, however, signed by only four of the five arbitrators.In rejecting the contention that the award was invalid under the unanimity rule Chief Justice Hughes said: 'The statute is silent with respect to a decision by a majority, but it does authorize action by a majority in compelling the attendance of witnesses (section 7).In the absence of statutory requirement, the question as to the necessity of unanimity in the decision on the merits would be determined by the arbitration agreement, and it does not appear that under the agreement in this instance unanimity was needed.'284 U.S. at 276, 52 S.Ct. at 169, 76 L.Ed. at 289.

Since the enactment of the United States Arbitration Act the federal courts have appropriately given it broad interpretative sweep.SeeScherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270, 276(1974).Thus in Kulukundis, supra, 126 F.2d 978, Judge Frank stressed that the intent of Congress was 'to shake off the old...