Opinion
DOCKET NO. A-4955-14T2
02-22-2016
MARTIN MARANO, Plaintiff-Respondent, v. CHRISTOPHER GLANCEY, JOSEPH RAGUSA, ALFRED IANNELLI, JOHN CIRONE, NORTHSTAR SERVICES, LTD., and J&E, INC., Defendants/Third-Party Plaintiffs-Appellants, v. GEORGE GETTY, ATLANTIC NATIONWIDE TRANSPORTATION SERVICES, INC., JOHN WISEMAN, FALCON EXPRESS, INC., and TRANSPRO INTERMODAL TRUCKING, INC., Third-Party Defendants.
Timothy J. Bloh argued the cause for appellants (Fox Rothschild, LLP, attorneys; Mr. Bloh and Christopher C. Fallon, III, of counsel and on the brief; Mary M. McCudden, on the brief). John A. Guernsey argued the cause for respondent (Conrad O'Brien, PC, attorneys; Mr. Guernsey and Aya M. Salem, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Alvarez and Haas. On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No. L-686-15. Timothy J. Bloh argued the cause for appellants (Fox Rothschild, LLP, attorneys; Mr. Bloh and Christopher C. Fallon, III, of counsel and on the brief; Mary M. McCudden, on the brief). John A. Guernsey argued the cause for respondent (Conrad O'Brien, PC, attorneys; Mr. Guernsey and Aya M. Salem, on the brief). PER CURIAM
Defendants/third-party plaintiffs Christopher Glancey, Joseph Ragusa, Alfred Iannelli, John Cirone, Northstar Services, Ltd. (Northstar), and J&E, Inc. (J&E) (collectively defendants) appeal from a July 7, 2015 Law Division order denying their motion to dismiss or stay arbitration, thus permitting the arbitration to continue. We remand for further proceedings so that the trial court may determine on a complete record whether the parties clearly and unambiguously consented to arbitration.
I.
We derive the following facts and procedural history from the motion record. Plaintiff Martin Marano is the former owner of Northstar, a truck transportation company. Glancey, Ragusa, Iannelli, and Cirone (the individual defendants) own J&E, a company engaged in domestic warehousing and distribution.
On December 30, 2013, plaintiff agreed to sell all of his shares of Northstar to the individual defendants for $1.4 million. To effectuate the sale, the parties executed a Stock Purchase Agreement (SPA) and a Promissory Note (the Note) setting forth the terms of the transaction. Under the SPA, the individual defendants were to pay plaintiff $500,000 at closing, with the remaining monies to be paid in accordance with the payment schedule set forth in the Note. The individual defendants signed the Note, which was "secured by a guaranty along with a separate guaranty by J&E and Northstar [to be] delivered to [plaintiff] at closing."
The SPA also provided that J&E would execute an employment agreement with plaintiff under which he would work for Northstar after the sale was consummated. This agreement provided that Northstar could terminate plaintiff for cause.
The individual defendants paid plaintiff the $500,000 due at the time of closing. The next day, plaintiff and J&E signed the employment agreement.
Defendants' first payment on the Note was due on August 31, 2014, but they failed to make the payment. As a result, plaintiff notified defendants that, as a result of their default, he would immediately demand the balance of the purchase price as provided for in the Note.
On November 6, 2014, Northstar terminated plaintiff for cause. It alleged that plaintiff "'misappropriated checks payable to Northstar, cashed them without authorization and failed to account for the funds,' as well as 'refused to provide access to Northstar's Bank of America account.'"
The SPA contained two dispute resolution provisions. Section 11.9(a) dealt with choice of law and jurisdiction, and provided:
The parties acknowledge and agree that this Agreement shall be governed by the laws of the State of New Jersey, as to all matters including matters of validity, construction, effect, performance[,] and liability, without consideration of conflicts of laws provisions contained therein, and the courts of the State of New Jersey have exclusive jurisdiction of all disputes with respect to an alleged breach of any representation, warranty, agreement or covenant of this Agreement, including, but not limited to, any dispute relating to the construction or interpretation of the rights and obligations of any party, which is not resolved through discussion between the parties.
The terms of the sale were set forth in Article II of the SPA, which was captioned "PURCHASE AND SALE OF SHARES AND INTERESTS[.]" Other provisions in the SPA included "REPRESENTATIONS AND WARRANTIES," "COVENANTS," and "SPECIAL COVENANTS AND AGREEMENTS[.]"
Section 11.9(b) dealt with the subject of arbitration and, in pertinent part, stated:
With the exception of any controversy or claim under this Agreement for which specific performance is a permitted remedy, any controversy or claim arising out of or relating to this Agreement or the Promissory Note from Buyer to Seller contemplated herein shall be settled by binding arbitration administered by the American Arbitration Association ("AAA") in accordance with the then current Commercial Arbitration Rules, as modified or supplemented hereinafter. . . . This
Agreement, including the arbitration provisions, shall be governed by and interpreted in accordance with the laws of the State of New Jersey, excluding choice of law principles. The parties acknowledge that this Agreement evidences a transaction involving interstate commerce. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, any party may seek emergency equitable relief in any state or federal court located in New Jersey.
Section 11.9(b) also detailed the arbitrator selection process and the timeline for the arbitration.
Plaintiff's employment contract did not contain any similar arbitration provisions. On February 19, 2015, plaintiff filed a complaint in the Law Division against defendants concerning the termination of his employment. The complaint alleged breach of contract; breach of the implied covenant of good faith and fair dealing; aiding and abetting breaches of the employment agreement against the individual defendants; tortious interference with contractual relations against Northstar and the individual defendants; and defamation against Glancey. Plaintiff requested compensatory and consequential damages.
On February 23, 2015, plaintiff filed a demand for arbitration before the American Arbitration Association (AAA). Plaintiff alleged that Section 11.9(b) of the SPA conferred the arbitrator with jurisdiction to decide "any dispute arising out of or relating to the SPA or the promissory note contemplated in the SPA[.]" The demand alleged breach of the note; breach of Northstar's and J&E's guaranty; and breach of the SPA.
On April 17, 2015, defendants filed an answer to plaintiff's Law Division complaint; a counterclaim against plaintiff; and a third-party complaint against various third-party defendants. In their answer, defendants denied all of plaintiff's claims and asserted, as an affirmative defense, that "[t]his dispute is not arbitrable and should be decided in a [c]ourt of law." In their counterclaim, defendants asserted that plaintiff engaged in a host of deceptive and improper practices, which violated both the law and the terms of the SPA. Their counterclaim against plaintiff alleged fraudulent inducement; breach of the SPA; breach of the employment agreement; breach of the implied covenant of good faith and fair dealing; conversion; breach of the duty of loyalty; and conspiracy.
The third-party defendants are not involved in this appeal.
In the arbitration matter, defendants also filed an answer on April 17, 2015, denying that the arbitrator had jurisdiction over the dispute and raising other affirmative defenses. Defendants moved to dismiss or stay the arbitration. Defendants also filed a counterclaim against plaintiff. Similar to their Law Division claims, defendants asserted fraudulent inducement; breach of the SPA; breach of the employment agreement; breach of the implied covenant of good faith and fair dealing; conversion; breach of the duty of loyalty; and conspiracy. Thereafter, plaintiff filed an answer to this counterclaim in the arbitration action.
On May 12, 2015, the arbitrator conducted oral argument by telephone on defendants' motion to dismiss or stay the arbitration. Defendants alleged that the SPA's two dispute resolution provisions were contradictory. On the one hand, Section 11.9(a) stated that "the courts of the State of New Jersey have exclusive jurisdiction of all disputes with respect to an alleged breach of any representation, warranty, agreement, or covenant of" the SPA. Thus, defendants argued that plaintiff's claim that they breached the SPA had to be addressed in State court. To avoid piecemeal litigation, defendants also asserted that the entire controversy should be resolved in the Law Division, where plaintiff's employment action was already pending.
On the other hand, Section 11.9(b) provided that, with the exception of a claim for specific performance, "any controversy or claim arising out of or relating to [the SPA] or the . . . Note . . . shall be settled by binding arbitration [.]" Based upon this provision, plaintiff contended that his claims concerning defendants' default under the SPA and their failure to abide by the terms of the Note had to be arbitrated.
The parties did not submit any certifications to the arbitrator that might have further explained the differences between the two provisions. The arbitrator did not conduct a hearing or take any testimony on this issue.
On May 21, 2015, the arbitrator issued a written opinion denying defendants' motion to dismiss or stay the arbitration. He found that Section 11.9 was not ambiguous despite the reference in Section 11.9(a) to the jurisdiction of the New Jersey courts, and to an arbitration process in Section 11.9(b).
Based solely on his own interpretation of the pertinent language, the arbitrator reasoned that Section 11.9(a) did not "refer to the promises in the SPA by the buyers to pay seller the money at issue in this matter[.]" Instead, he found that the only matters that had to be litigated in the Law Division under that provision were those set forth in the articles in the SPA that were specifically captioned "COVENANTS" and "SPECIAL COVENANTS AND AGREEMENTS[.]" Because the SPA's provisions concerning the purchase price and promissory note were not captioned with these specific titles, but rather under the heading, "PURCHASE AND SALE OF SHARES AND INTERESTS[,]" the arbitrator found that Section 11.9(b) applied and, therefore, the matter was arbitrable before him.
At the same time, however, the arbitrator stated that his decision was made "without prejudice to [defendants] renewing the motion, or any part of it, at the conclusion of the hearings in this arbitration and [the arbitrator's] ability to review the complete evidence received regarding the circumstances of these agreements and the parties' intent." Thus, the arbitrator recognized that a definitive decision on arbitrability could not be made until after a plenary hearing.
Back in the Law Division action, plaintiff filed a motion on May 22, 2015, seeking to dismiss five counts of defendants' counterclaim. On June 11, 2015, defendants filed a cross-motion seeking to dismiss or stay the arbitration. Again, the parties did not submit any certifications regarding their respective interpretations of Section 11.9 of the SPA, and the Law Division judge did not conduct an evidentiary hearing to flesh out the meaning of either of its two dispute resolution provisions.
After oral argument on June 25, 2015, the judge rendered a very brief oral opinion, denying defendants' motion and permitting the arbitration to proceed. The judge stated:
I looked at the arbitrator's opinion -- which I thought was comprehensive and addressed the issues that [were] raised here -- the difference between [Sections 11.9(a)
and 11.9(b)] -- and [the arbitrator], I think, found that or determined that they actually went to, as plaintiff argues, different areas . . . to be addressed by arbitration.On July 7, 2015, the judge issued a confirming order, permitting the arbitration to proceed. The judge also denied plaintiff's motion to dismiss defendants' counterclaims. Defendants filed their notice of appeal on July 9, 2015.
I think his . . . reasoning is comprehensive and persuasive. W[hile] . . . I'm not approving or disapproving it -- I don't have to do that -- but the arguments that he makes, which [are] similar to the arguments made by the plaintiff, persuade me that . . . the claims under the [SPA] should be decided through arbitration.
On August 3, 2015, the judge denied defendants' motion to stay the arbitration pending appeal. Defendants filed an application for permission to file an emergent motion for a stay, which we denied on August 21, 2015 because it did not concern a genuine emergency. Thereafter, defendants did not file a motion for a stay in the ordinary course, and the arbitration proceeded.
At oral argument, the parties advised us that: the arbitrator conducted seven days of hearings; considered testimony and other evidence submitted by the parties on the arbitrability issue; and rendered a decision in plaintiff's favor. The arbitrator also considered some, but not all, of the counterclaims defendants raised against plaintiff in the Law Division action. Plaintiff has recently filed a motion in the Law Division to confirm the arbitration award and for a judgment in his favor.
We agree with the parties that the arbitrability issue raised on appeal is not moot. As we conclude here, the July 7, 2015 was improvidently granted and, therefore, the issue of arbitrability must be revisited by the trial court.
II.
On appeal, defendants contend that the judge erred in denying their motion to dismiss the arbitration proceeding "because Section 11.9 [of the SPA] is ambiguous in that it confers jurisdiction on both the Superior Court and the AAA to adjudicate the demand" for arbitration. For the reasons that follow, we conclude that the judge should have conducted an evidentiary hearing before determining whether the matter should proceed to arbitration, and therefore, we remand for further proceedings.
We review de novo the question of whether there is a valid and enforceable arbitration agreement. Hirsch v. Amper Fin. Servs., LLC, 215 N.J. 174, 186 (2013); Barr v. Bishop Rosen & Co. Inc., 442 N.J. Super. 599, 605 (App. Div. 2015). Though the Federal Arbitration Act, 9 U.S.C.A. §§ 1-16, and the New Jersey Arbitration Act, N.J.S.A. 2A:23B-1 to -32, reflect a preference for arbitration, "[a]rbitration's favored status does not mean that every arbitration clause, however phrased, will be enforceable." Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 440-41 (2014), cert. denied, ___ U.S. ___, 135 S. Ct. 2804, 192 L. Ed. 2d 847 (2015).
"Orders compelling arbitration are deemed final for purposes of appeal." Hirsch, supra, 215 N.J. at 186 (citing R. 2:2-3(a)). Plaintiff argues that the July 7, 2015 order was not "final" because it did not "compel" arbitration but, instead, merely denied defendants' motion to dismiss or stay the arbitration. This may be a distinction without a difference. However, we need not address this contention further here. Because of the unique procedural posture of this case, we would have no difficulty granting leave to appeal as within time, as permitted by Rule 2:4-4(b), even if the July 7, 2015 order were deemed interlocutory.
Recently, we reviewed the principles governing enforceability of arbitration contracts:
An agreement to arbitrate "must be the product of mutual assent, as determined under customary principles of contract law." [Id. at 442]. Mutual assent requires that the parties understand the terms of their agreement. Ibid. In considering whether an agreement includes a waiver of a party's right to pursue a case in a judicial forum, "clarity is required." Moore v. Woman to Woman Obstetrics & Gynecology, L.L.C., 416 N.J. Super. 30, 37 (App. Div. 2010). That is, the waiver "must be clearly and unmistakably established," Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124, 132 (2001), and "should clearly state its purpose," Marchak v. Claridge Commons, Inc. 134 N.J. 275, 282
(1993). And the parties must have full knowledge of the legal rights they intend to surrender. Knorr v. Smeal, 178 N.J. 169, 177 (2003). Although an arbitration clause need not identify "the specific constitutional or statutory right guaranteeing a citizen access to the courts" that are being waived, it must "at least in some general and sufficiently broad way" convey that parties are giving up their right to bring their claims in court or have a jury resolve their dispute. Atalese, supra, 219 N.J. at 447.
[Barr, supra, 442 N.J. Super. at 605-06.]
Because arbitration involves a waiver of the right to pursue a case in a judicial forum, "courts take particular care in assuring the knowing assent of both parties to arbitrate, and a clear mutual understanding of the ramifications of that assent." NAACP of Camden Cty. E. v. Foulke Mgmt. Corp., 421 N.J. Super. 404, 425 (App. Div.), certif. granted, 209 N.J. 96 (2011), and appeal dismissed, 213 N.J. 47 (2013). Mutual assent to an agreement requires mutual understanding of its terms. Atalese, supra, 219 N.J. at 442-43.
Here, the parties presented sharply conflicting interpretations of Section 11.9. On its face, this provision seemed to indicate that claims arising under the SPA may be brought in both the Superior Court and in an AAA arbitration proceeding. As the arbitrator expressly found, "complete evidence . . . regarding the circumstances of these agreements and the parties' intent" was needed to definitively resolve the issue of arbitrability.
When the trial judge considered defendants' motion to dismiss the arbitration, his resolution of the arbitrability issue depended upon his interpretation of the language of the SPA. Courts usually enforce contracts as written. Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960). However, when a contract is ambiguous in a material respect, the parties must be given the opportunity to illuminate the contract's meaning through the submission of extrinsic evidence. Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 268-270 (2006). A contract is ambiguous if its terms "are susceptible to at least two reasonable alternative interpretations[.]" Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997) (quoting Kaufman v. Provident Life & Cas. Ins. Co., 828 F. Supp. 275, 283 (D.N.J. 1992), aff'd 993 F.2d 877 (3d Cir. 1993)).
In attempting to resolve ambiguities in a document, courts may consider extrinsic evidence. While such evidence should never be permitted to modify or curtail the terms of an agreement, a court may "consider all of the relevant evidence that will assist in determining the intent and meaning of the contract." Conway, supra, 187 N.J. at 269. As the Court explained in Conway,
[e]vidence of the circumstances is always admissible in aid of the interpretation of an integrated agreement. This is so even when the contract on its face is free from ambiguity. The polestar of construction is the intention of the parties to the contract as revealed by the language used, taken as an entirety; and, in the quest for the intention, the situation of the parties, the attendant circumstances, and the objects they were thereby striving to attain are necessarily to be regarded. The admission of evidence of extrinsic facts is not for the purpose of changing the writing, but to secure light by which to measure its actual significance.
[Ibid. (alteration in original) (quoting Atl. N. Airlines, Inc. v. Schwimmer, 12 N.J. 293, 301-02 (1953)).]
Applying these principles, we conclude that the judge should have conducted a plenary hearing prior to deciding defendants' motion to dismiss the arbitration. In order to permit the arbitration to proceed, the judge had to conclude that Section 11.9 of the SPA presented only one plausible interpretation, which one-sidedly favored plaintiff's position. Here, however, the parties presented two plausible explanations of the critical language in the SPA. Therefore, the judge should have held a hearing to permit the parties to present extrinsic evidence that would enable the judge to determine whether the parties actually agreed that disputes over certain issues arising from the SPA, but not others, could proceed to arbitration. Because this hearing was not held, the issue of arbitrability cannot be determined on appeal. Therefore, we vacate the provision of the July 7, 2015 order that denied defendants' cross-motion to dismiss or stay the arbitration.
We do not disturb the only other provision of the July 7, 2015 order denying plaintiff's motion to dismiss defendants' counterclaims. --------
We also remand the matter to the trial court for further proceedings. On remand, the trial court shall consider the question of arbitrability anew based on a complete record. As discussed above, the record cannot be complete without an evidentiary hearing. However, the parties advised us for the first time at oral argument that the arbitration proceeding has now been completed and they presented testimony and other evidence on the issue of arbitrability to the arbitrator. Therefore, the record developed before the arbitrator may be sufficient to enable to the trial court to consider the question of arbitrability.
The court shall therefore conduct a case management conference within thirty days of this opinion, at which time a determination can be made whether the record developed before the arbitrator is adequate to enable the court to address the issue of arbitrability, or whether the parties need to supplement the record with additional evidence or testimony. The court can then set a briefing schedule and decide whether arbitration was permitted under the terms of the SPA on the complete record.
If the court determines that arbitration should not have occurred, then the arbitrator's award should be vacated for lack of jurisdiction and the entire dispute may proceed in the Law Division. If, however, the court determines that the SPA permitted plaintiff to seek arbitration, the court may proceed to consider the parties' motions concerning the confirmation of the arbitrator's award. In considering those motions, it would be appropriate for the court to consider consolidating the motions concerning the arbitration proceeding with the employment action so that all of the parties' claims can be resolved in a single proceeding. Of course, however, we do not express a preference for a particular result or preordain the outcome.
Vacated and remanded. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION