Zervos v. Freedman Properties, Ltd.

• Decision Date: 14 December 1987
• Citation: 223 N.J.Super. 599,539 A.2d 336
• Parties: George ZERVOS, Plaintiff, v. FREEDMAN PROPERTIES, LTD., a limited partnership, Defendant.
• Court: New Jersey Superior Court

Page 599

223 N.J.Super. 599

539 A.2d 336

George ZERVOS, Plaintiff, v. FREEDMAN PROPERTIES, LTD., a limited partnership, Defendant.

Superior Court of New Jersey, Chancery Division,

Burlington County.

Decided Dec. 14, 1987.

Richard J. Jubanyik, for plaintiff (Jubanyik, Varbalow, Tedesco, Shaw & Shaffer, Cherry Hill, attorneys).

Gerald J. Muller, for defendant (Miller, Porter & Muller, Princeton, attorneys).

WELLS, J.S.C.

This is an action to confirm an award of arbitrators. N.J.S.A. 2A:24-1 et seq. The facts are as follows.

On April 30, 1984 plaintiff, George Zervos, entered into a contract with defendant, Freedman Properties, Ltd., to construct a commercial building. Paragraph 7.9.1 of the agreement provided that any disputes relating to the contract "shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association (AAA) then obtaining unless the parties mutually agree otherwise."

A dispute did arise between the parties which proceeded to arbitration. Hearings were held in late October 1986 and on May 12, 1987. At the last hearing the arbitrators set June 1, 1987 as the date for receipt of briefs and either asked for leave to hold executive sessions thereafter or simply told counsel they were going to do so. By letter dated July 28, 1987 Tom Cutrone, AAA Tribunal Administrator, advised the parties that the hearings had been declared closed on July 16, 1987 and that "pursuant to the Rules, the arbitrators will have 30 days from that date, or until August 15, 1987 within which to render an award." The award, rendered in favor of Zervos in the amount of $67,087, was signed by each of the three arbitrators on August 12, 13 and 17, 1987 respectively. By letter dated August 28, 1987 Gerald J. Muller, attorney for Freedman Properties, Ltd. asked Cutrone when the award would be submitted. By letter dated September 14, 1987, Muller advised Cutrone that he had received the award on August 31, 1987 and asserted for the first time that it was invalid since it was entered subsequent to the time limit prescribed by the construction industry association rules of the AAA.

On October 1, 1987 Zervos filed a verified complaint and order to show cause why the award should not be confirmed. In response, Freedman Properties, Ltd. moved to vacate the award on the ground that the arbitrators exceeded their authority by failing to make their award by July 1, 1987.

We must look to the applicable construction industry arbitration rules of the AAA for the resolution of this matter.

Rule 35 provides in pertinent part:

... If briefs are to be filed, the hearings shall be declared closed as of the final date set by the arbitrator for the receipt of briefs.... The time limit within which the arbitrator is required to make an award shall commence to run, in the absence of other agreements by the parties, upon the closing of the hearings. [Emphasis supplied]

Rule 38 provides:

Any party who proceeds with the arbitration after knowledge that any provision or requirement of these Rules has not been complied with and who fails to state an objection thereto in writing, shall be deemed to have waived the right to object.

Rule 39 provides in pertinent part:

The parties may modify any period of time by mutual agreement. The AAA for good cause may extend any period of time established by these Rules, except the time for making the award. The AAA shall notify the parties of any such extension of time and its reason therefor. [Emphasis supplied]

Rule 41 provides in pertinent part:

The award shall be made promptly by the arbitrator and, unless otherwise agreed by the parties, or specified by law, not later than thirty days from the date of closing the hearings....

The court finds that the due date for the award was July 1, 1987. Under AAA Rule 35 the hearings were closed on June 1, 1987. This was the date set for receipt of final briefs and the date by which they were in fact received. Under AAA Rule 41 the award was required no later than 30 days thereafter. The holding of executive sessions does not extend the date of the closing of the hearings. Furthermore, even if the parties had mutually agreed to the holding of executive sessions such agreement does not amount to an extension of either the time of the closing of the hearings or the time for the entry of the award. AAA Rule 41 requires that the parties expressly agree to such an extension. In his letter of July 28, 1987 Cutrone informed the parties that the hearings had been closed on July 16, 1987 and the award would be rendered by August 15, 1987, 30 days thereafter. Cutrone's letter gives no reason for selecting July 16, 1987 as the closing date. Moreover, it stands in contravention of AAA Rule 39 which expressly provides that the AAA may not unilaterally extend the time for making the award.

By closing the hearings almost two months after the submission of final briefs without the explicit agreement of the parties to this delay and the concomitant delay in the entry of its award the AAA acted beyond the scope of its authority. Arbitration is viewed favorably by the courts and for that reason judicial interference with the role of the arbitrator is strictly limited. However, a court may not defer to an arbitrator's decision when he exceeds the authority granted to him by the contract of the parties.

When parties have agreed, through a contract, on a defined set of rules that are to govern the arbitration process, an arbitrator exceeds his powers where he ignores the limited authority that the contract confers. The scope of an arbitrator's authority depends on the terms of the contract...