Opinion
DOCKET NO. A-2588-11T3
04-10-2013
SUZANNE'S SPECIALTIES, INC., Plaintiff-Appellant, v. AMERICAN SUGAR REFINING, INC., Defendant/Third-Party Plaintiff-Respondent, v. INNOVATIVE SWEETENERS, INC., Third-Party Defendant-Appellant.
Victor A. Deutch argued the cause for appellants (Deutch & Associates, attorneys; Steven S. Polinsky, of counsel and on the brief; Mr. Deutch, on the brief). Robert Novack argued the cause for respondent (Bressler, Amery & Ross, attorneys; Mr. Novack and Risa D. Rich, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Fuentes, Grall and Hayden.
On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-5425-10.
Victor A. Deutch argued the cause for appellants (Deutch & Associates, attorneys; Steven S. Polinsky, of counsel and on the brief; Mr. Deutch, on the brief).
Robert Novack argued the cause for respondent (Bressler, Amery & Ross, attorneys; Mr. Novack and Risa D. Rich, on the brief). PER CURIAM
Plaintiff Suzanne's Specialties, Inc. (Specialties) and third-party defendant, Innovative Sweeteners, Inc. (Innovative), (collectively appellants) appeal contending that the trial court erred by staying the trial court proceedings pending completion of arbitration commenced by defendant counterclaimant and third-party plaintiff, American Sugar Refining, Inc. (American), and by denying appellants' motion to enjoin that arbitration. The court's rulings are memorialized in two orders filed following oral argument on January 20, 2012. Another order, entered on February 3, 2012, denies appellants' second motion to enjoin and their motion to stay the January 20 orders. In April 2012, a panel of this court stayed arbitration pending appeal. Orders compelling or denying arbitration are appealable as of right. See GMAC v. Pittella, 205 N.J. 572, 586 (2011) (holding "that Rule 2:2-3(a) be further amended to permit appeals as of right from all orders permitting or denying arbitration").
On appeal, as in the trial court, appellants argue in the alternative. They claim: 1) the parties' agreement to arbitrate is not in effect; and that even if the 1999 agreement were in effect 2) the agreement was not binding on Specialties, and 3) American waived its right to arbitrate by participating in the trial court proceedings. Finding all of those arguments lacking in merit, we affirm the trial court's determinations.
The dispute giving rise to this litigation concerns two commercial agreements. Susan E. Allen-Morano is the president of Specialties, and her husband, Dr. James R. Morano, is the president of Innovative. In March 1993, American entered into an agreement with Innovative accepting a "new product concept designated as Cereal Syrups (aka [Innovative] New Product Proposal No. 6)." Although the 1993 agreement was between American and Innovative only, American agreed to provide Specialties "exclusivity to own and market Cereal Syrups to the natural/health foods industry" at a specified price per hundredweight.
For ease of exposition, we refer to American when discussing its actions and the actions of those whose interests and obligations American acquired through a series of acquisitions and a merger. The 1993 agreement at issue in this dispute was between Innovative and Crompton & Knowles. Crompton & Knowles was acquired by Chr. Hansen, Inc. between 1993 and execution of a 1999 agreement with Specialties that is also at issue. In 2006, American Sweetener Corp. acquired Chr. Hansen Inc., and American Sweetener Corp. merged with American Sugar Refining, Inc. around the time this action was commenced.
In 1999, American and Innovative reached a second agreement concerning new product development. Although Specialties is not a party to the 1999 agreement, that agreement sets forth fees that Specialties will receive for "all sales of Cereal Syrups to the Natural Foods market sold under exclusivity by Suzanne's Specialties in cooperative effort" with American.
The 1999 agreement includes an arbitration clause. It provides:
Any dispute or controversy arising under or in connection with any provision of this Agreement shall be settled exclusively by arbitration, conducted in Newark, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.
Specialties' multi-count complaint in this lawsuit was filed in July 2010. It includes a claim that American breached the 1999 agreement, which Specialties alleges "memorializes" American's 1993 agreement to compensate Specialties for Cereal Syrups its sells to the natural foods market. Specialties asserted that it had a right to sue for breach as a third-party beneficiary of the agreements.
Specialties' complaint includes additional allegations: wrongful interference with prospective economic advantage; unfair competition; conversion and usurpation of Specialties' good will and business relationships with natural health food customers; fraudulent misrepresentation; and violations of the Consumer Fraud Act and a regulation promulgated pursuant to that act.
--------
From the outset, American gave notice of its intention to reserve its contractual right to arbitrate by moving to "dismiss claims subject to arbitration and/or to compel arbitration of such claims." That was the first affirmative defense asserted in American's initial answer filed in September 2010, and American included that affirmative defense in its amended answer and counterclaim filed in June 2011, and in its August 2011 answer to a counterclaim filed by third-party defendant Innovative in June 2011.
American first took action to enforce the arbitration clause in December 2011, when American filed an arbitration complaint with the American Arbitration Association Commercial Division and filed the motion to stay this litigation pending completion of that arbitration. By that time, Specialties had produced more than 13,000 documents in discovery and three depositions had been taken. The end date for discovery was set for February 4, 2012, and a request to adjourn a February 14, 2012 trial date was pending. Moreover, discovery had not been completed. Indeed, Innovative had a pending motion to amend its pleading, and Specialties had a pending motion to compel a deposition. Although appellants submitted logs detailing pleadings as well as discovery requests and responses, they did not assert any specific prejudice.
As previously noted, appellants advanced several arguments in opposition to American's motion for a stay pending completion of arbitration and in support of its cross-motion to enjoin arbitration. We address them in turn, beginning with those we deem wholly lacking in merit.
Relying upon a stipulation of settlement and mutual release executed by American and Innovative in September 2011, appellants argued that the arbitration clause in the 1999 agreement was no longer enforceable. With that stipulation and mutual release, American and Innovative resolved a civil action Innovative filed against American in Somerset County, L-840-10, and an arbitration complaint, Case No. 1425002026, that Innovative filed against American with JAMS, an arbitration provider. They contended that paragraph eleven of that document superseded the 1999 agreement and, thereby, rendered its arbitration clause unenforceable. Paragraph eleven provides:
This Stipulation shall supersede all prior agreements affecting the rights and obligations between the parties with respect to Cereal Syrups . . . and is intended to extinguish any claims brought or which could have been brought in the Arbitration or Action. However, nothing in this Stipulation shall prevent either party from relying on past agreements in other currently pending litigation.
[(Emphasis added).]
Because Specialties commenced this action in July 2010 and it was still pending when this stipulation of settlement and mutual release was executed in September 2011, Judge Kravarik rejected appellants' claim that the agreement was unenforceable in this action. He concluded that the sentence of paragraph eleven emphasized above "permits the parties to rely on past agreement in other current litigation." Paragraph eighteen, which includes a release and discharge of "claims and rights brought or which could have been brought" in that arbitration, must be read with paragraph eleven, which so clearly demonstrates the parties knowledge of and intention to proceed with "other currently pending litigation."
Appellants' reliance on the absence of an agreement to arbitrate in the stipulation of settlement and release is also misplaced. The stipulation plainly reserves American's right to rely on "past agreements in other currently pending litigation," and this action falls within that class. Because the arbitration clause is part of the 1999 agreement and this litigation was pending when the stipulation was entered, American retained the right to rely upon it.
Recognizing that our review of a trial court's interpretation of an agreement is de novo, we see no basis for disturbing the judge's rejection of this argument. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cantone Research, Inc., 427 N.J. Super. 45, 57 (App. Div.) (resolving a claim of arbitrability and noting that review of "contract interpretation" is de novo), certif. denied, 212 N.J. 460 (2012). The "intent expressed or apparent in the writing" memorializing an agreement controls. Friedman v. Tappan Dev. Corp., 22 N.J. 523, 531 (1956).
Specialties' contention that it could not be bound by Innovative's agreement to arbitrate has no greater merit than its reliance on the stipulation of settlement and mutual release. As Judge Kravarik concluded, Specialties is a third-party beneficiary of the 1999 agreement and as such is bound by the agreement to arbitrate. See Jansen v. Salomon Smith Barney, Inc., 342 N.J. Super. 254, 261 (App. Div.) (concluding that "intended successors to Jansen's interest in the accounts" were bound by the arbitration clause), certif. denied, 170 N.J. 205 (2001). As noted above, the 1999 agreement expressly provides fees for Specialties — an action unequivocally demonstrating the contracting parties' intent to benefit Specialties. See Mutual Benefit Life Ins. Co. v. Zimmerman, 783 F. Supp. 853, 866-67 (D.N.J.) (noting that the intent of the parties controls the analysis and determining that there was no basis for finding that the litigant seeking to enforce an arbitration clause was a third-party beneficiary of the agreement), aff'd, 970 F.2d 899 (3d Cir. 1992).
We also affirm the judge's determination that American's participation in this litigation did not amount to a waiver of its contractual right to arbitrate. This issue is much closer.
Without question, "'a waiver will preclude the enforcement of a contractual provision to arbitrate.'" Cole v. Jersey City Med. Ctr., 425 N.J. Super. 48, 56 (App. Div.) (quoting Spaeth v. Srinivasan, 403 N.J. Super. 508, 514 (App. Div. 2008)), certif. granted, 212 N.J. 198 (2012). A party to an agreement to arbitrate may "expressly or by implication" waive or revoke that agreement. McKeeby v. Arthur, 7 N.J. 174, 181 (1951); accord Wein v. Morris, 388 N.J. Super. 640, 650 (App. Div. 2006), aff'd in part and rev'd in part on other grounds, 194 N.J. 364 (2008). "Waiver under New Jersey law 'involves the intentional relinquishment of a known right and thus it must be shown that the party charged with the waiver knew of his or her legal rights and deliberately intended to relinquish them.'" Spaeth, supra, 403 N.J. Super. at 514 (quoting Shebar v. Sanyo Bus. Sys. Corp., 111 N.J. 276, 291 (1988)).
Waiver of a contractual right to arbitrate is generally found where the party seeking to enforce an agreement to arbitrate has participated in litigation in a manner inconsistent with a bona fide intention to enforce the agreement to arbitrate. For example,
in Farese v. McGarry, 237 N.J. Super. 385, 394 (App. Div. 1989), we determined that by "filing a complaint which alleged a claim for injury to the property and by filing an answer to the counterclaim which did not allege arbitration as a defense until it was amended approximately nine months after the complaint was filed and two weeks before trial," a landlord waived his right to arbitration under a lease . . . .
[Cole, supra, 425 N.J. Super. at 59.]
Indeed, we have noted that "[t]here is a presumption against waiver of an arbitration agreement, which can only be overcome, by clear and convincing evidence that the party asserting [the right to arbitrate] chose to seek relief in a different forum." Spaeth, supra, 403 N.J. Super. at 514. Absent litigation conduct that is unequivocally inconsistent with an intent to invoke an agreement to arbitrate — for example, where the claim is based on delay rather than inconsistency — a showing of "demonstrable prejudice" is required. Angrisani v. Fin. Tech. Ventures, L.P., 402 N.J. Super. 138, 150 (App. Div. 2008); cf. Wein v. Morris, 194 N.J. 364, 376-77 (2008) (finding unequivocal waivers without discussing prejudice where neither plaintiff nor defendant referenced arbitration in their original proceeding, both engaged in "five years of court-monitored discovery," and both objected to the court's compelling arbitration); McKeeby, supra, 7 N.J. at 182 (noting that prosecution of a claim amounts to an abandonment and revocation of an agreement to arbitrate); Farese, supra, 237 N.J. Super. at 394 (finding waiver without addressing prejudice where the plaintiff who did not raise arbitration in his complaint or answer raised the issue days before trial).
As previously noted, this case is a close one. American took about twenty months to seek a stay of the trial court proceedings to permit arbitration pursuant to the 1999 agreement. Nevertheless, when American sought the stay Innovative was not acting as if trial were imminent; in fact, Innovative had a pending motion to amend its pleadings. Additionally, while discovery had been taken under the supervision of the court, it was not yet complete — Specialties had a pending motion to compel a deposition.
American also engaged in litigation conduct inconsistent with its intention to proceed in the arbitral forum. We refer to the fact that American filed a counterclaim and a third-party complaint, thereby signaling an intention to proceed in the trial court and forego its right to arbitrate.
In this case, however, that conduct cannot be viewed as unequivocal. American not only asserted an affirmative defense based on the agreement to arbitrate in its initial and subsequent pleadings, but with each assertion of the defense American also reserved its right to seek an order compelling arbitration pursuant to the agreement. In the face of an express reservation of the right to move to compel arbitration pursuant to the contract, it would be quite difficult to find an intentional relinquishment of that right. See Spaeth, supra, 403 N.J. Super. at 514.
Moreover, Specialties, Innovative and the trial court were on notice of American's intention. Notice is relevant because a litigant who has been informed of another's intention to demand arbitration can consider the validity of the claim and guide his or her own litigation conduct accordingly. Because they continued discovery without seeking a resolution of the asserted arbitration defense, Specialties and Innovative are in a poor position to attribute any prejudice to American's delay.
In the absence of any attempt by Specialties or Innovative to articulate any specific prejudice or unfair strategic advantage American gained by reserving and delaying its assertion of the right to compel arbitration, we find no waiver here. Cf. Cole, supra, 425 N.J. Super. at 51 (deeming delay attributable to litigation strategy significant and detrimental to the adversary in a case where the delaying party had given no prior notice of its intention to seek arbitration and sought that relief three days prior to trial). This case, in which there was not only an assertion of an arbitration defense but a reservation of the right to invoke it, does not warrant a finding of waiver.
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION