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Appellate Division Finds That Portion of Arbitrator’s Award Was Properly Vacated

This matter arises from a contractual dispute between Gallen Contracting Inc. (“Gallen”) and Centurion Construction, Inc. (“Construction”).  Construction had hired Gallen to perform concrete work for an automobile dealership in Wayne pursuant to a written agreement.  The agreement required that the parties submit disputes to mediation, followed by binding arbitration if mediation failed.  The issue in Centurion Companies, Inc. v. Gallen Contracting, Inc., 2025 N.J. Super. Unpub. LEXIS 861 (App. Div. May 27, 2025) was whether the arbitration award entered against not only Construction but also Centurion Companies, Inc. (“Companies”), a similarly named but separate corporation, was properly entered or whether the award entered against Companies should have been vacated. 

After a dispute arose under the contract, Construction fired Gallen and Gallen sued Construction.  Gallen subsequently amended its complaint and identified defendant as “Centurion Construction Inc., a/k/a Centurion Companies.”  However, Gallen’s amended complaint failed to assert any specific allegations against Companies. 

Construction filed a motion to compel mediation and arbitration, which the trial court judge granted.  Thereafter, Gallen and Construction entered into a June 2018 arbitration agreement delineating plaintiff Gallen Contracting, Inc. and defendants, Centurion Construction, Inc. and Glen Poppee, individually, as the parties participating in the arbitration.  The arbitration agreement specifically provided a signature line for Centurion Construction, Inc. and the individually named defendant.  It did not contain any signature line for Centurion Companies, Inc.

The arbitration hearing took place, and the arbitrator awarded damages to Gallen under the contract in the amount of $408,645.  The arbitrator directed Gallen to prepare a consent order to memorialize the award.  After the issuance of the arbitrator’s letter opinion, Construction objected to the inclusion of “a/k/a Centurion Companies” in any order memorializing the award.  Construction requested that the arbitrator issue a corrected award, reflecting that the entry of the award was against Construction, not Companies.  Construction contended that the arbitrator made an evident mistake in his identification of the parties bound to the award.

The arbitrator rejected that request.  The arbitrator found that Companies played an active part in the work associated with the contract and concluded that he had the discretion to amend Gallen’s pleading under the court rules and rules of evidence. 

Thereafter, plaintiffs filed a verified complaint and order to show cause to vacate the award against Companies.  Plaintiffs argued that the arbitrator exceeded his powers because Companies was not a party to the contract, Companies did not agree to arbitrate, and Companies did not sign the arbitration award.  Plaintiffs argued that the arbitrator made an evident mistake in entering the award against both Companies and Construction.  Further, plaintiffs argued that the arbitrator exceeded his power and lacked authority to issue an award against an entity (not a party) on a claim never submitted.

The trial court determined that the arbitration award was entered in error against Companies because Gallen did not properly advise Companies of the notice of the claim against them and Companies did not have a fair opportunity to defend.  Thus, the trial court judge found that the arbitration award entered in the matter as to Companies was contrary to clearly established public policy.

This order was appealed to the Appellate Division.  Gallen argued that the trial court judge made a mistake in vacating the arbitration award entered against Companies.  The Appellate Division rejected that argument.

The Court noted that the arbitration agreement was clear and unambiguous.  It bound Gallen and Construction only.  Companies was not a party to the agreement, nor did it sign the agreement.  There was nothing in the arbitration agreement that indicated Companies agreed to mediate or arbitrate any disputes under the contract because Companies was not a party to that agreement.

The Appellate Division noted that the general rule is that an action on a contract cannot be maintained against a person who is not a party to it.  While there are some exceptions to that rule, the Appellate Division pointed out that Gallen failed to present any of these exceptions to the arbitrator in support of the entry of the award against Companies as a non-party to the contract and the arbitration agreement.

Further, the Appellate Division agreed with the trial judge’s conclusion that the arbitrator exceeded the scope of his authority by entering the award against Companies.  The arbitrator had acknowledged that Construction and Companies were two separate and distinct entities, as well as recognized that only Gallen and Construction had signed the contract.

Based upon these findings, the Appellate Division ruled that the arbitrator expanded the clear and unambiguous terms of the contract to Companies, a non-party.  The Court also agreed with the trial court judge that Gallen did not provide notice that it was asserting claims against both Companies and Construction.  The Appellate Division pointed out that an arbitrator may not issue an award in the absence of indicia that all parties to the arbitration have reasonable advanced notice of the claim.

Hence, the Appellate Division upheld the trial court’s decision to vacate the arbitration award against Centurion Companies, Inc. and affirmed the trial court’s decision. 

Appellate Division Finds ADR Provision Enforceable Even if Contractor Reserved Its Right to File Certain Claims in Court

Plaintiff John Lahoud entered into a contract with Anthony & Sylvan Corp., t/a Anthony Sylvan Pools (“A&S”) to install a pool at his home.  The contract contained an Alternate Dispute Resolution (“ADR”) provision which required that the parties submit to arbitration any claim arising from the contract, except the contractor reserved the right to file in a civil court to collect monies it claimed were due under the contract.  A dispute arose during the excavation of the pool, upon which the plaintiff declared that the contractor was in material breach of the contract and informed the contractor that he was terminating the contract.  The issue in the published decision of Lahoud v. Anthony & Sylvan Corp., t/a Anthony Sylvan Pools, 2025 N.J. Super. LEXIS 11 (App. Div. Feb. 6, 2025) was whether the arbitration provision was unenforceable because it contained a reservation of rights as to the contractor only to sue in court to collect monies it claimed may be due under the agreement.

The plaintiff filed a lawsuit against the contractor A&S, claiming a breach of contract, a violation of the New Jersey Consumer Fraud Act, and for declaratory relief declaring that the arbitration provision violated the public policy of the State and was not enforceable.  In lieu of filing an Answer, A&S filed a motion to dismiss the plaintiff’s complaint based on the ADR clause.  Plaintiff cross-moved for a declaratory judgment, contending that the arbitration clause violated public policy and that the court should find it unenforceable. 

The trial court granted A&S’s motion to compel arbitration and ordered the parties to abide by the contractually agreed dispute resolution mechanism and dismissed the complaint without prejudice.  The court concluded that the ADR provision did satisfy New Jersey case law and was enforceable.   The court found that the reservation of rights provision that permitted the defendant contractor to bring legal action in the courts of New Jersey for the collection of money, but prohibited plaintiff from doing so, did not violate New Jersey law.

The plaintiff appealed this ruling to the Appellate Division.  He made two arguments, as follows: “1) The ADR language does not advance the public policy supporting enforceability of arbitration provisions; and 2) the motion court erred in upholding the one-sided ADR provision.”

The Appellate Division agreed with the trial court that the ADR provision met the standard under New Jersey law to be enforceable.  The Court noted that it “clearly and unambiguously evidences a waiver of plaintiff’s right to pursue any claims against A&S in a judicial forum and obligates plaintiff to resolve his claims for remediation in arbitration.”  It found that this contract was not a contract of adhesion.  It was not presented to plaintiff on a take it or leave it basis.  Plaintiff selected A&S to install his pool and had the express right under the contract to retain counsel to review and negotiate contract terms, as well as a three day right of rescission.  Thus, the Appellate Division rejected plaintiff’s contention that the ADR provision made the contract unconscionable. 

However, the Appellate Division did have an issue with the reservation of rights provision.  Based upon the wording of this provision, although A&S could pursue a claim in court for money damages, plaintiff would be precluded from asserting a counterclaim or defense if A&S did exercise its reservation of rights.  The contract was very clear that all of plaintiff’s claims must be brought in arbitration, if mediation was unsuccessful, and not in court.

The Court found that this “grossly unbalanced approach” to the availability of a court of law to the contractor only constituted a harsh and unfair one-sided term that lacked mutuality and, therefore, was not enforceable.  Hence, the Appellate Division found that A&S was not entitled to summary judgment as a matter of law on the issue of unconscionability with regard to the reservation of rights provision. 

However, the Appellate Division continued in its review of the contract and noted that it contained a severability clause which stated that “if a judge or arbitrator finds any provision of this agreement invalid or illegal under applicable law or regulation, the remaining provisions will still be valid and remain in effect.”  The Court further pointed out that this severability clause is only mentioned in the ADR provision in the contract and not elsewhere.

The Appellate Division noted that courts can sever an invalid provision of a contract “unless striking the illegal provision defeats the primary purpose of the contract.”  The purpose of the severability clause would be indicative of the parties’ intent that the agreement as a whole should survive the excision of an unenforceable provision.

The Court found that the one-sided nature of the reservation of rights provision could be cured by striking it from the contract based upon the severability clause.  That would leave the remaining portions of the contract enforceable, including the ADR provision.

In summary, the Appellate Division found: 1) the ADR provision clearly waived plaintiff’s right to bring a civil lawsuit; 2) the reservation of rights provision was unconscionable and unenforceable; and 3) the reservation of rights provision would be severed from the contract.  The Court also ruled that the trial court made a mistake in failing to stay plaintiff’s complaint pending the arbitration.  Thus, it remanded the matter back to the trial court to enter a new order reinstating plaintiff’s complaint and staying the complaint pending the resolution of any mediation and arbitration proceedings. 

Court Enforces Strict Deadline for Filing Demand for Trial De Novo

Plaintiff Arabruny Lindor, as Administrator Ad Prosequendum of the Estate of Roosevelt Rene, filed a wrongful death lawsuit against defendant Janoris Jenkins which was arbitrated on September 21, 2022.  The arbitrator assessed liability at 50% to each party and awarded plaintiff gross damages of $800,000 with a net award of $400,000.  The issue in Lindor v. Jenkins, 2024 N.J. Super. Unpub. LEXIS 348 (App. Div. Mar. 5, 2024) was whether the defendant timely filed a demand for a trial de novo, rejecting the arbitration award.

Pursuant to the New Jersey court system, this lawsuit was required to be submitted to an arbitration proceeding.  However, under the court rules, if either party is dissatisfied with the award, the party may reject the award and request a trial de novo, as long as the request with the filing fee is made within 30 days of the award.  The problem in the Lindor case was that the arbitrator verbally informed counsel of the decision and completed the arbitrator’s award on the date of the proceeding.  However, the court, through the eCourts system did not notify counsel that the arbitration award was filed until September 22, 2022, the day after the proceeding. 

On October 24, 2022, defendant filed his request for a trial de novo.  The form indicated that the hearing date was September 21, 2022, but the defendant added that the arbitration award was not entered until September 22, 2022.

On October 31, 2022, plaintiff filed a motion to vacate the trial de novo and confirm the arbitration award, arguing that defendant’s request for a trial was untimely as the last day to file for a trial de novo was October 21, 2022.  In opposing the motion, defendant argued that the time to file ran from the court’s filing date of the arbitration hearing, September 22, and not the date of the hearing, September 21.  Because October 22 was a Saturday, defendant claimed that his filing on Monday, October 24 was timely.

At the trial court level, the judge granted plaintiff’s motion and vacated the entry of the trial de novo and confirmed the arbitration award.  The trial court judge agreed that the defendant had miscalculated the time period by which to file for the trial de novo.  The judge found that the time ran from the date the arbitration award was filed on September 21, 2022, and, hence, the demand for a trial de novo was due no later than Friday, October 21, 2022.  Thus, defendant’s demand for a trial de novo filed on Monday, October 24, 2022, was untimely. 

The defendant appealed this ruling to the Appellate Division.  Unfortunately, for the defendant, the Appellate Division agreed with the plaintiff.  It strictly construed the court rule which stated that a party has 30 days after filing of the arbitration award to file a notice, served upon the civil division manager and all other parties, rejecting the award and demanding a trial de novo.  The Court found that there was no ambiguity in the rule.  This rule has been in place since 1986 and there has been no change in the meaning of the “filing date” of an award. 

In this case, the date was stamped on the award, September 21, and counsel was advised through eCourts that the award was filed on September 21, even though counsel was unable to view it in the eCourt system until September 22.  The Appellate Division found that it would be confusing to accept the defendant’s interpretation that the award was not considered filed until the court system recorded the filing.  The Court found that such an interpretation would lead to different time frames in every case.

Here, the date was clear and conveyed to the parties on the award itself and through the eCourts notification and on the case jacket.  Thus, the Appellate Division agreed that the trial de novo request was untimely.  It found no reason to disturb the trial court’s decision that the defendant’s demand for a trial de novo was untimely and that the arbitration award should be confirmed. 

Appellate Division Dismisses Auto Insurer’s Appeal Seeking to Avoid Remand Back to Arbitration Proceeding

By: Eric Richwine, Law Clerk

Editor: Betsy G. Ramos, Esq.

The issue before the New Jersey Superior Court, Appellate Division in Hackensack Meridian Health v. Citizens United Reciprocal Exch., 2023 N.J. Super. Unpub. LEXIS 1088 (App. Div. June 29, 2023) was whether Citizens United Reciprocal Exchange (“CURE”), an auto insurer, was liable for the remainder of a hospital invoice from Hackensack Meridian Health (“Hackensack”) after CURE only agreed to cover approximately one-fifth of the total. This lawsuit arose from the cost of almost a month of inpatient treatment following the motor vehicle accident of Andrew Manley, who was insured by CURE, and, therefore, able to benefit from the insurance policy’s personal injury protection (“PIP”) benefits. The specific issue raised upon appeal was whether CURE properly established an “accord and satisfaction” in order to avoid liability of the remainder of the cost.  

Mr. Manley was critically injured after a motor vehicle accident on September 8, 2019, and required twenty-five days of inpatient care at Hackensack’s facility. The cost of this treatment totaled $360,172.42. Months later, CURE disputed the billed amount via letter and expressed that it approved $67,445.67 per what was reasonable under PIP. CURE ultimately issued a check for $69,169.52, soon after which Hackensack deposited.

Hackensack followed CURE’s PIP appeal process and sought the full amount of the inpatient care originally sought, filing for PIP Arbitration pursuant to the Alternative Procedure for Dispute Resolution Act (“APDRA”), N.J.S.A. 2A:23A-1 to -32. Upon arbitration, the Dispute Resolution Professional (“DRP”) found in favor of CURE. The DRP reasoned that pursuant to the doctrine of accord and satisfaction, Hackensack had manifested the intent to accept the offer when it deposited the check.  

Hackensack appealed to the New Jersey Superior Court, Law Division, where it argued that CURE failed to comply with the requirements to deal in “good faith” with regard to a “bona fide dispute” in accordance with accord and satisfaction law by not responding to the original invoice within ninety days and by paying significantly less than what was owed. The trial court agreed and ultimately remanded the matter back to arbitration, finding that CURE’s payment did not constitute an accord and satisfaction because the amount paid was not in genuine dispute since both parties agreed that at least that much was owed, leaving the remainder of plaintiff’s bill as the actual amount in dispute.

CURE filed an interlocutory appeal in response to the trial court’s ruling. Notably, it did so without seeking leave. The appeal specifically argued against the trial court’s finding that accord and satisfaction did not apply and remand of the matter to the APDRA.

Upon appeal, the Appellate Division noted that the Court only considers appeals from final orders of a trial court and other orders expressly designated as final for purposes of appeal, as set forth by New Jersey Court Rules 2:2-3(a)(1), (3) and relevant case law, primarily relying upon Janicky v. Point Bay Fuel, Inc., 396 N.J. Super. 545, 549-50 (App. Div. 2007), which held that if a party seeks to appeal an order that is not final, then the party must seek leave to appeal from the Appellate Division. Because CURE failed to seek leave to appeal, the Court turned to the very narrow “nunc pro tunc” exception which permits the Appellate Division to grant leave to appeal in particular circumstances but found that it did not apply here, as it is only to be reserved for circumstances that warrant the “most extraordinary relief.”

The Appellate Division admonished CURE, noting that it knew the dispute had been remanded for further arbitration and had asserted on “appeal” the sole issue decided by the trial court, that of accord and satisfaction, as a strategic device in order to undermine the “alternative dispute mechanism” in the absence of a final order.

The Appellate Division further expressed that under the APDRA, there is a high standard for appellate review of an arbitration award per the state statutory procedures for PIP arbitration, citing N.J.S.A. 2A:23A-18(b), which does not permit appeal, and case law that has upheld the statute, such New Jersey Supreme Court’s holding in Mt. Hope Dev. Associates v. Mt. Hope Waterpower Project, L.P., 154 N.J. 141, 148-52 (1998). The Court did note that there is the opportunity for “limited review” per a public policy exception, but that this exception did not apply here and instead was reserved for matters deemed necessary, giving the example of a child support order.

Ultimately, the Appellate Division determined that CURE failed to “adher[e] to the rules” and that any affirmative outcome would be an “injustice to Hackensack.” As such, the Court dismissed the appeal.

Court Confirms Arbitration Award Despite Plaintiff’s Counsel’s Claim of Failure to Receive Notice that Award Was Posted on E-Courts

Defendant Richard Bahadurian contracted with plaintiff Deegan Roofing, Inc. to repair a section of roof on a commercial building defendant owned.  After the work was performed and defendant failed to pay for the work, plaintiff filed a breach of contract lawsuit to recover the unpaid invoice, interest, cost and attorney’s fees.  The lawsuit proceeded to the court-ordered arbitration, in which the arbitrator ruled in favor of plaintiff, entering an award, plus counsel fees to be determined by the court.  The issue in Deegan Roofing, Inc. v. Bahadurian, 2023 N.J. Super. Unpub. LEXIS 764 (App. Div. May 19, 2023) was whether the defendant was entitled to relief from the 30-day period to file for a trial de novo after the arbitration award because he did not receive an e-mail from the court stating that the award had been posted on e-Courts.

Defendant had admitted that he did not pay for the work performed but claimed that the contractor plaintiff caused “extensive and significant damage” to his building, as well as to his commercial tenant’s equipment and personal property.  The parties conducted discovery and, thereafter, attended the court-ordered arbitration on September 30, 2020.  The arbitrator ruled in favor of plaintiff, awarding $34,150, plus counsel fees and costs to be determined by the court and dismissing defendant’s counterclaim.  At the hearing, the arbitrator advised counsel that the decision would be uploaded into e-Courts.  On October 1, 2020, in fact, the arbitration award was entered into e-Courts. However, defendant’s counsel claimed that he never received the notice that the award had been entered into e-Courts.

In New Jersey State court, e-Courts is an electronic filing system in which all pleadings, correspondence, orders, etc., including an arbitration award are posted onto the on-line docket.  Once they are posted, all counsel of record, would normally receive an e-mail notifying that there was an item posted to the e-Court docket for that particular case.

Following the arbitration hearing, defense counsel e-mailed plaintiff’s attorney expressing his dissatisfaction with the award and advised that a request for a trial de novo would be filed.  The de novo request was due in thirty (30) days from the date the arbitration award was entered into e-Courts.  Hence, it was due by November 2, 2020.  While it is mandatory to participate in the court arbitration, any party can file and serve a notice of rejection of the award and a demand for a trial de novo.  

If the case has not been settled and no party has filed for a trial de novo, within fifty (50) days of the award, any party can file a motion to confirm the arbitration award.  On November 3, 2020, plaintiff did file a motion to confirm the arbitration award.  Defendant opposed the motion, claiming that he never received an e-mail advising the award was uploaded into e-Courts, nor did he receive a copy of the award.  One week after the motion to confirm the award was filed, defendant’s counsel filed a notice of demand for a trial de novo.

Thereafter, the trial court granted plaintiff’s motion to confirm the arbitration award.  The court found that the defendant had failed to comply with the court rules which required a party to file a notice of rejection of the arbitration award and demand for a trial de novo within the thirty (30) day period after the filing of the award.

The court found that the award was uploaded to e-Courts on October 1, 2020.  Even though defendant’s counsel claimed he did not receive an e-mail stating the award was posted on e-Courts, that did not relieve him from filing a demand for a trial de novo within the thirty (30) day period.  The court found that the failure to receive this notice did not provide the “extraordinary circumstances” necessary to permit the filing of a trial de novo outside the prescribed thirty (30) day period.

Thereafter, the court granted plaintiff’s motion for attorney’s fees and ordered that the defendant pay plaintiffs $8,001 in counsel fees and costs.  The defendant appealed the court’s order denying the rejection of the trial de novo request and asked for the attorney’s fee award to be overturned as well.

Upon appeal, the Appellate Division agreed with the trial court decision.  The Court noted that “extraordinary circumstances” to extend the thirty (30) day time frame should be strictly construed and it does not include excusable neglect nor does it encompass an attorney’s or their staff’s negligence or carelessness. 

The Court rejected defendant’s argument that his failure to receive an e-mail advising him that the arbitration award was posted as constituting “extraordinary circumstances” to extend the mandatory thirty (30) day filing period and permit the untimely November 10 de novo filing. 

The Court also affirmed the award for attorney’s fees, finding that attorney’s fees were permitted for the contract language.  Further, although the trial court should have permitted oral argument, it did perform a thorough analysis to arrive at the award.  The Appellate Division found no abuse of discretion in the counsel fee award.  Hence, the trial court’s decision to confirm the arbitration award was affirmed, as well as the trial court’s award of attorney’s fees. 

Extraordinary Circumstances Not Found to Support Untimely Trial De Novo Request After Arbitration Award

Plaintiff M.M., a minor by his parents, Woodelyne Nathan Milbin and Ralph Milbin, appealed from an order confirming an arbitration award, entering a $25,000 judgment in plaintiff’s favor.  Plaintiff had attempted to reject the award and request a trial de novo but failed to timely file the request for a trial de novo.  The issue in M.M. v. Dr. Lena Edwards Academic Charter School, 2023 N.J. Super. Unpub. LEXIS 261 (App. Div. Feb. 24, 2023) was whether the plaintiff had demonstrated the extraordinary circumstances necessary to permit his untimely request for a trial de novo. 

This case involved a claim that the minor plaintiff, while enrolled at the defendant’s school was assaulted on several occasions by his classmates and both verbally abused and physically assaulted by his English teacher.  Plaintiff sued the Principal, the Assistant Principal, the teacher, and the school.  Thereafter, plaintiff filed an Amended Complaint, seeking damages for pain and suffering on various basis including negligence theories and violations of the Anti-Bullying and Law Against Discrimination statutes.  The Complaint also included a battery claim against the teacher. 

A mandatory non-binding arbitration was held on April 21, 2021.  On that date, the arbitrator issued an award, assessing 100% liability as to the school and awarding plaintiff $25,000.  The arbitrator did not assess any liability as to the individual defendants and found that plaintiff’s injuries did not meet the tort claim threshold, pursuant to N.J.S.A. 59:9-2.

Thereafter, on June 7, 2021, defendants moved to confirm the arbitration award and enter a judgment.  On June 15, 2021, plaintiff moved on a pro se basis for a trial de novo.  In support of that motion, the plaintiff attached a letter to the court, “contending the family had quickly rejected the arbitrator’s award, but counsel failed to file a timely motion for a trial de novo.”  Further, the plaintiff alleged as a reason for the failure to timely file the request to reject the award was as follows: “since counsel used to always give us excuses based on his health and that of members of his family, we thought that perhaps this may have caused the requisite exigent circumstances that interfered with him filing this trial de novo timely.  Or he has just been negligent!”

The trial court considered the plaintiff’s motion as opposition to defendants’ motion.  The court noted that the plaintiff’s motion was filed beyond the 30 day deadline prescribed by the court rules to reject the award and file for a trial de novo.  The judge further found that plaintiff failed to demonstrate extraordinary circumstances to extend the deadline.

In its rationale, the trial court noted that there have been numerous cases which have held that an attorney’s heavy work load or improper supervision of staff did not constitute extraordinary circumstances.  Further, failure to supervise staff has been found insufficient to constitute extraordinary circumstances.  The trial court found that there was no dispute but that the request for a trial de novo was filed untimely and found that, under the prior precedents, plaintiff’s situation did not rise to the level of extraordinary circumstances.  The court noted that the plaintiff may have a valid claim for malpractice arising out of this issue but that issue was not before the court.  Hence, the trial court affirmed the defendants’ motion to confirm the award.

Thereafter, plaintiff’s attorney moved to withdraw as counsel.   Plaintiff retained new counsel who then pursued this appeal.  In this appeal, plaintiff urged the Appellate Division to reverse the trial court’s order in the “interest of justice.”

The Appellate Division noted that the timing for challenges to an arbitration award is mandated by both statute and our court rules.  Pursuant to the court rules, an order shall be entered dismissing the action following the filing of the arbitrator’s award unless one of two events occurs: either within 30 days after the filing of the award, a party files and serves on all other parties a notice of the rejection of the award and demand for a trial de novo or within 50 days after the filing of the arbitration award, any party moves for confirmation of the arbitration award and entry of judgment thereon.  (Additionally, the parties may file a notice of settlement within 50 days).

The Appellate Division noted that the rationale for this rule is to provide a short deadline for filing a trial de novo demand “to insure that the Court will promptly schedule trials in cases that cannot be resolved by arbitration.”  Further, the Court noted that the Court’s power to extend the time frame “must be sparingly exercised” to the end that the arbitration proceedings achieve finality.

The Court did note that courts do have the power to enlarge the 30 day period to file a demand for a trial de novo but such power should be exercised only “in extraordinary circumstances.”  The parties seeking to enlarge the time would need to show that the circumstances for missing the filing deadline was exceptional and compelling and must not arise from mere carelessness or lack of due diligence.

The plaintiff’s stated reason for the failure to timely file a trial de novo in this case was speculation that their attorney’s health issues were the cause of the action.  The Appellate Division found that the plaintiff’s “bald assertions fell far short of establishing extraordinary circumstances.”  Hence, the Appellate Division found no reason to disturb the trial court’s order and affirmed the order entering judgment of $25,000, as awarded at the arbitration hearing. 

Arbitration Provision Between Sophisticated Parties Found to be Enforceable Despite Lack of Explicit Waiver of Access to the Courts

The plaintiff County of Passaic contracted with defendant Horizon Healthcare Services, Inc. to manage the County’s self-funded health plan.  That relationship ended in December 2019.  The County filed a lawsuit against Horizon in 2021, claiming, among other things, that Horizon breached their contract by failing to implement certain modified reimbursement rates.  Horizon successfully moved to compel arbitration based upon a provision in the 2009 written agreement that disputes between parties shall be submitted to binding arbitration under the commercial roles of the American Arbitration Association.  The issue in County of Passaic v. Horizon Healthcare Services, Inc., d/b/a Horizon Blue Cross Blue Shield of New Jersey, 2023 N.J. Super. LEXIS 10 (App. Div. Feb. 8, 2023) was whether the arbitration provision was unenforceable because it lacked the explicit waiver of access to the courts as set forth in the Supreme Court’s landmark decision in Atalese v. U.S. Legal Services Group, 219 N.J. 430 (2014).

In this published decision by the Appellate Division, the Court rejected this argument and affirmed the trial court’s decision to enforce the arbitration provision.  It found that even though the arbitration provision did lack an explicit waiver of the right to seek relief in a court of law, the County was a sophisticated contracting party and not, as in Atalese, an employee or consumer lacking sufficient bargaining power to resist the extraction of an agreement to arbitrate.

The Court noted that both the Federal Arbitration Act and the New Jersey Arbitration Act both express a general policy favoring arbitration “as a means of settling disputes that otherwise would be litigated in a court.”  Under the federal statute, a written arbitration provision “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract period.”

The Appellate Division distinguished the Atalese decision because, in that case, it involved a consumer contract.  Atalese, as well as other decisions from the New Jersey Supreme Court, “focus on the unequal relationship between the contracting parties or the adhesional nature of the contract when holding that an arbitration agreement could not be enforced without an express waiver of the right to seek relief in a court of law.”

In reviewing the cases that relied upon the Atalese decision, they were all in the context of employment and consumer contracts.  As the Appellate Division pointed out in this case, the Court’s “concern for those not versed in the law or not necessarily aware of the fact that an agreement to arbitrate may preclude the right to sue in a court or invoke the inestimable right of trial by jury, on the other hand, vanishes when considering individually – negotiated contracts between sophisticated parties – often represented by counsel at the formation stage – possessing relatively similar bargaining power.”  Hence, the Court was satisfied that an express waiver of the right to seek relief in a court of law to the degree required by Atalese was unnecessary when dealing with parties to a commercial contract who were sophisticated and possessed comparatively equal bargaining power.

In this case, the parties were represented by counsel at all relevant stages of their negotiations and during the formation of the relevant contract documents over the course of their 17 year relationship.  Further, the Court found that the parties understood the difference between the right to seek relief in a court of law and being relegated to arbitration under AAA’s commercial rules.  Thus, the Appellate Division agreed with the trial judge that the arbitration provision was enforceable, notwithstanding its lack of an express waiver of the County’s right to seek relief in a court of law.

Using Mediation or Arbitration to Resolve Disputes: the Pros and Cons

Alternate Dispute Resolution, known as ADR, has become a frequently used tool to resolve disputes. Mediations or arbitrations are both ADR tools that now are commonly used to settle lawsuits. There are pros and cons for each type of proceeding.

What is the difference between the two? Mediations use a mediator, often a retired judge or a lawyer trained in dispute resolution, to act as a mediator to facilitate a settlement. Unless court ordered, mediations are voluntary and the outcome is not binding on the parties. The mediator has no power to mandate a resolution. It is an entirely voluntary process and it is up to the parties to decide whether or not to settle and, if so, upon what terms. Typically, the parties share the cost of the mediator, which is sometimes a flat fee by the day but usually an hourly rate.

The main advantage of a mediation is that the parties entirely control the process from the choice of a mediator, to the location of the mediation (and now whether in person or by zoom), the length of the proceeding (could be part of a day or multiple days), the information presented to the mediator, as well as the adversary, and whether or not an agreement can be reached to resolve the dispute. If no resolution is reached, then the lawsuit continues on to a trial unless the case is settled or dismissed by motion at a later date.

Arbitrations, on the other hand, are designed to produce a final outcome, which is binding on the parties. Arbitrations sometimes use one or a three arbitrator panel (again typically retired judges or lawyers trained in dispute resolution). The format of the proceeding and the number of arbitrators will depend upon whether the arbitration is required under a contract or the parties are voluntarily submitting their dispute to arbitration. Typically, the parties do share equally the cost of the arbitrators. While an arbitration can be less expensive than a trial, it is not necessarily cheaper, depending on the formality used in the arbitration proceeding and the cost of the arbitrators and any filing fees.

That the outcome is binding is both a pro and a con for using arbitration to resolve a dispute. Especially with the backed up courts due to the Covid pandemic, many court dockets are very behind in reaching trials. An arbitration may produce a quicker result than waiting for a trial date.

But, while an arbitration hearing produces finality through a binding award, unlike a trial, there is a very limited right to appeal an arbitration award. While there are many basis to appeal an unfavorable trial verdict, under New Jersey law, there is a limited basis to vacate an arbitration award (such as the award was procured by corruption, fraud, or other undue means or there was evident partiality by an arbitrator; corruption by an arbitrator; or misconduct by an arbitrator prejudicing the rights of a party to the arbitration proceeding.) (N.J.S.A. 2A:23B-23).

New Jersey courts do mandate arbitrations for all personal injury matters (except professional malpractice and products liability cases). Depending on the county, either one or two individuals serve as arbitrators. If two, it would be a plaintiff’s counsel and a defense counsel. If one, it could be either.

There is a limited basis to remove a personal injury lawsuit from the arbitration process, such as the case involves a novel legal issue or unusually complex factual issues. (Rule 4:21-1(c)(1)). But these types of arbitration proceedings, while mandatory to participate in, are not ultimately binding on any dissatisfied party. Any party dissatisfied with the award, within 30 days after entry, may reject the award and file a demand for a trial de novo. The court will thereafter list the matter for a trial.

Thus, while both mediations and arbitrations can be used to resolve disputes, which would be better tool to resolve your dispute? It depends on your goals and what is most important. Is it more important to control the outcome and not be bound by the proceeding? Or is it more important, and worth the risk, to reach a quick and final resolution (recognizing the limited right of appeal of an unfavorable arbitration award)?

LAD Arbitration Limitation Struck Down By Federal Court

In 2019, when the New Jersey Law Against Discrimination (“LAD”) was amended at the height of the “Me Too” movement, one change made was adding a provision that precluded an employer from requiring an employee to waive their right under the LAD to a jury trial.  Most employment law practitioners understood that this provision was designed to prevent employers from requiring that all work-related disputes be resolved through arbitration, which is expressly allowed under federal law, specifically the Federal Arbitration Act (“FAA”). The FAA requires enforcement of all such arbitration agreements, and expressly favors the use of arbitration to resolve legal disputes. It was expected that at some point this provision of the LAD would be struck down as unenforceable because no state law can conflict with the requirements of federal law, which is supreme under our constitutional system of government. That decision finally came down from a United States District Court judge here in New Jersey last week in N.J. Civil Justice Inst. v. Grewal, No. 19-17518, 2021 U.S. Dist. LEXIS 57437 (D.N.J. Mar. 25, 2021).

The U.S. Chamber of Commerce, the New Jersey Civil Justice Institute, and members of those groups such as Comcast Corp. and PricewaterhouseCoopers LLP all sued in New Jersey Federal Court to stop enforcement of Section 12.7 of the LAD that ostensibly was intended to protect the right of employees to have LAD claims heard by a jury. Arguing that this provision was a direct assault on arbitration rights protected under the FAA, the foregoing groups sought to preclude enforcement of Section 12.7.  Noting that similar provisions have already been struck down under California and New York law for violating the FAA, and was similarly invalidated by a lower New Jersey state court, the Federal Court here likewise concluded that Section 12.7 could not be enforced to the extent that it would prevent employers from utilizing arbitration agreements to resolve workplace disputes under the LAD.  In its decision, the Court specifically rejected an argument that Section 12.7 had no bearing on arbitration rights because no mention is made of arbitration anywhere in that section.  The Court ultimately rejected this argument, because Section 12.7 prohibits the waiver of the right to a jury trial, which is the “primary characteristic” of arbitration. Thus, the lack of any mention of arbitration did not preclude the Court’s ruling that enjoins further enforcement of Section 12.7.

With more and more employers utilizing arbitration agreements, this ruling is an important decision in reaffirming the right of employers to continue to use arbitration agreements, even in light of Section 12.7.  Now, it is clear that Section 12.7 does not pose any impediment to the continuation of the use of arbitration agreements relating to employee LAD claims, and for other similar types of work-related disputes.

While this seems to temporarily resolve the issue, there is a chance that the matter will be appealed. We will keep a close eye on the progress of the case.

 

Ralph R. Smith, 3rd is Co-Chair of the Employment and Labor Practice Group. He practices in employment litigation and preventative employment practices, including counseling employers on the creation of employment policies, non-compete and trade secret agreements, and training employers to avoid employment-related litigation. He represents both companies and individuals in related complex commercial litigation before federal states courts and administrative agencies in labor and employment cases including race, gender, age, national origin, disability and workplace harassment and discrimination matters, wage-and-hour disputes, restrictive covenants, grievances, arbitration, drug testing, and employment related contract issues.

Arbitration Clauses: Valid or Invalid?

The answer is “Valid,” thanks to the efforts of Capehart Scatchard shareholder Laura D. Ruccolo, Esq. who won a landmark decision on June 5, 2019, which will impact business entities in New Jersey for many years to come.

Who Decides Whether an Arbitration Clause in a Commercial Contract is Valid?  

“The arbitrator,” said the New Jersey Supreme Court in the commercial contract case argued by Ruccolo this past February.

What was the Court’s Ruling?

The Court ruled that arguments and claims about the validity of commercial contracts should not be resolved by the courts when the arbitration agreement in the contract is not challenged. This is particularly so when the agreements to arbitrate contain straightforward and  conspicuous language (drafted by Ruccolo) that empowered the arbitrator, not the courts, to decide whether a dispute under a contract is subject to arbitration or can or should be decided by a court.

What’s the Policy Issue Behind the Decision?

The general policy is that arbitration is favored as opposed to court proceedings. Why? Arbitration is more cost-effective, is binding (the parties are limited in their appeals), and gets to the “finish line” much quicker than initiating an action in the courts.  Also, Congress has declared a national policy favoring arbitration (over litigation) and has said that states cannot require court intervention when the parties agreed to resolve their differences by arbitration.

What Does this Decision Mean for Agreements that have Arbitration Clauses?

In general, it means that if you carefully draft an agreement to arbitrate any disputes, and the arbitration clause of the agreement is not specifically challenged, disputes about the agreement must be decided by the arbitrator, not the courts.

What Should Our Business Do if We Want to Avoid Litigation? First, consult your legal professionals, and for clients who would like further information on this critical decision and your business, you may contact Laura D. Ruccolo, Esq. at lruccolo@capehart.com, Betsy G. Ramos, Esq. at bramos@capehart.com, or myself at csaginario@capehart.com. As we say, “forewarned is forearmed.” This means that with knowledge of what you can and cannot do, you may avoid trouble down the road. Second, carefully review your contracts and agreements to ensure that they comply with well-settled law on arbitration agreements.

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