Opinion
DOCKET NO. A-3042-11T3
06-06-2013
GRELU CONSULTING, INC., GREGORY LULKO, KIRIT D. PATEL and JAGDISH D. PATEL, Plaintiffs-Respondents, v. ARPAN M. PATEL and JKA-PLAINFIELD FRONT DONUTS, INC., Defendants/Third-Party Plaintiffs-Appellants, v. KISHAN DONUTS, INC., SWETA DONUTS, INC., and FALGUN DHARIA, Third-Party Defendants.
Daniel R. Guadalupe argued the cause for appellant (Norris, McLaughlin & Marcus, P.A., attorneys; Mr. Guadalupe, on the briefs). Sam Della Fera argued the cause for respondents (Trenk, DiPasquale, Della Fera & Sodono, P.C., attorneys; Richard D. Trenk, of counsel; Mark Y. Moon, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Grall, Simonelli and Accurso.
On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-4487-11.
Daniel R. Guadalupe argued the cause for appellant (Norris, McLaughlin & Marcus, P.A., attorneys; Mr. Guadalupe, on the briefs).
Sam Della Fera argued the cause for respondents (Trenk, DiPasquale, Della Fera & Sodono, P.C., attorneys; Richard D. Trenk, of counsel; Mark Y. Moon, on the brief). PER CURIAM
We review, on leave granted, the trial court's interpretation of an arbitration clause in a partnership agreement among a subset of the parties to this suit. Because the language of the clause, read as a whole, does not support the court's construction of the partnership agreement, we reverse.
This matter arises out of a dispute involving the purchase and operation of two Dunkin' Donuts franchises over the course of ten years. Because the facts of this dispute are not relevant to the issue under review, they are not related here. We note only that the partnership consisted of four partners, three of whom, plaintiffs Kirit D. Patel and Jagdish D. Patel, and third party defendant Falgun Dharia, are aligned against the fourth, defendant Arpan M. Patel.
In response to the verified complaint filed against him by Kirit D. Patel, Jagdish D. Patel, and others not parties to this appeal, defendant Arpan M. Patel filed a counterclaim against them and a third party complaint against Falgun Dharia and others also not parties to this appeal. Kirit D. Patel, Jagdish D. Patel, and Falgun Dharia, represented by the same law firm, moved to dismiss the counterclaim and third party complaint and refer the claims to arbitration pursuant to their partnership agreement. The judge granted the motion and ordered that any claims asserted in the verified complaint, counterclaim, or third party complaint by any signatory to the partnership agreement, that is Kirit D. Patel, Jagdish D. Patel, Falgun Dharia, and Arpan M. Patel, against any other signatory be dismissed without prejudice and referred to arbitration, and that any claims asserted by or against any non-signatory were to remain in the trial court for resolution.
The remaining parties, Grelu Consulting, Inc., Gregory Lulko, JKA-Plainfield Front Donuts, Inc., Kishan Donuts, Inc., and Sweta Donuts, Inc. were not affected by that order and are not participants in this appeal.
Kirit D. Patel, Jagdish D. Patel, and Falgun Dharia (hereinafter collectively, plaintiffs) do not have claims against one another. Their interests are aligned and all three are represented by the same law firm against their former partner, defendant Arpan M. Patel (hereinafter defendant). The dispute giving rise to this appeal arose after the court ordered the former partners to arbitration. Plaintiffs contended that the partnership agreement allows each of the partners aligned on their side to select an arbitrator with each of those arbitrators selecting another, for a total of six arbitrators, and that defendant may select one arbitrator who may likewise select another, for a total of two arbitrators. Thus plaintiffs contended there should be a panel of eight arbitrators, six of whom shall be appointed, directly and indirectly, by plaintiffs and two of whom shall be appointed in the same manner by defendant.
Although not a plaintiff, Falgun Dharia is aligned with plaintiffs and they are represented by the same law firm. We group him with plaintiffs for ease of reference with regard to the single issue on this interlocutory appeal.
Defendant objected to the obvious unfairness of such a lopsided panel and filed a motion with the trial court seeking to establish that each side should select one arbitrator with the court to appoint the third. The court denied the motion reasoning that as the arbitration clause required each party to appoint one arbitrator and for each arbitrator to appoint another, plaintiffs' interpretation of the agreement was sound. The court rejected defendant's concerns of unfairness finding there was no showing that the party-appointed arbitrators would be inclined to favor the party appointing them, and that defendant could always move to vacate any award resulting from evident partiality. We granted leave to appeal the ensuing order.
We review a trial court's construction of an arbitration clause de novo. Alfano v. BDO Seidman, L.L.P., 393 N.J. Super. 560, 573 (App. Div. 2007). The construction of contract language is generally a question of law unless its meaning is both unclear and dependent on conflicting testimony. Bosshard v. Hackensack Univ. Med. Ctr., 345 N.J. Super. 78, 92 (App. Div. 2001). Because the issue here is solely one of contract construction and does not turn on the trial court's assessment of the credibility of witnesses, we owe no special deference to the court's interpretation of the language. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
The partnership agreement, which was signed in 1996, would certainly not win any awards for legal drafting. We quote the arbitration provision in full.
18. Arbitration:
(a) That if any disagreement shall arise between/among the parties as to the conduct of the businesses, or as to dissolution, or as to any other matter, cause, or thing whatever, not otherwise provided for, including the physical or mental disability of a partner to perform his partnership duties, the same shall be decided and determined by arbitrators. Each party shall appoint one (1) such arbitrator, and such arbitrator shall appoint another arbitrator. The decision of majority of such arbitrators, when made in writing, shall be conclusive upon the parties.
(b) That the appointment of the arbitrator by the respective parties shall be made, as follows: The party seeking arbitration shall serve a notice in writing upon the other party, setting forth the
disagreement or disagreements that he desires to be arbitrated, as well as the name of his arbitrator; and then the other party(ies) shall, within ten (10) days after the receipt of such notice, serve upon the party seeking arbitration a notice in writing stating the name of his arbitrator.
(c) The failure of a party to appoint an arbitrator shall authorize the other party to make an appointment for the one so in default.
(d) If the arbitrator appointed shall fail, within ten (10) days after the last of the arbitrators shall have been appointed, to select another arbitrator, then any judgment of a Court upon application made by either party for that purpose, shall be authorized and empowered to appoint such third arbitrator.
(e) The award to be made by the arbitrator shall be made within five (5) days after the final arbitrator shall have been appointed.
(f) Costs of arbitration and reasonable attorney's fees for each partner in the conduct of the arbitration proceedings, if any, shall be paid by the partnership.
There is no question but that this appears as a somewhat unusual arbitration provision. The question is whether that was by design or inadvertence. The mechanism for the appointment of the arbitrators appears very similar to the ordinary tripartite arrangement in which each party appoints an arbitrator and those arbitrators appoint a third. The specific wording of subsection (a) of the provision, however, provides that "[e]ach party shall appoint one . . . arbitrator, and such arbitrator shall appoint another arbitrator." The agreement then continues somewhat incongruously that "[t]he decision of (sic) majority of such arbitrators . . . shall be conclusive upon the parties."
We say somewhat incongruously because, as the trial court interpreted the agreement, there will always be an even number of arbitrators, regardless of how one defines "party," and none will be neutral. Subsection (d) continues, even more incongruously, "[i]f the arbitrator appointed shall fail, within ten (10) days after the last of the arbitrators shall have been appointed, to select another arbitrator," then a court "shall be authorized and empowered to appoint such third arbitrator." (emphasis added). If subsection (a) is interpreted as plaintiffs urge, there should, of course, never be a "third arbitrator" appointed by the court as provided in subsection (d). Instead, the court would be appointing the second, fourth, sixth, or eighth arbitrator to the panel.
Our goal in interpreting the provisions of a contract is to ascertain the intention of the parties as revealed by the language used, taken as a whole, the parties' situation, the circumstances attendant to their agreement, and the objects they were striving to attain. Cruz-Mendez v. ISU/Ins. Servs. of S.F., 156 N.J. 556, 570-71 (1999). It is, of course, axiomatic that contract provisions are to be "read as a whole, without artificial emphasis on one section, with a consequent disregard for others." Borough of Princeton v. Bd. of Chosen Freeholders of Mercer, 333 N.J. Super. 310, 325 (App. Div. 2000), aff'd, 169 N.J. 135 (2001). "Literalism must give way to context." Ibid. Moreover, in weighing competing interpretations, the one to be adopted is that most in accord with justice and common sense and the probable intent of the parties. Krosnowski v. Krosnowski, 22 N.J. 376, 387 (1956).
Although the case has been aggressively litigated in the trial court with several motions filed, neither plaintiffs nor defendant has offered any information whatsoever with regard to the drafting of this clause. Neither has explained their purpose in 1996 of entering into an arbitration agreement in which each side picks an arbitrator and then each of those arbitrators picks another resulting in an unusually large, and consequently expensive, panel comprised entirely of party-appointed arbitrators and no neutral. Certainly no party has asserted that the partners bargained for the right to each appoint two arbitrators. Nor do they offer any explanation for the contradictory provision calling for a court to appoint a "third arbitrator" in the event of failure of an arbitrator, "after the last of the arbitrators shall have been appointed, to select another arbitrator."
We have analyzed the wording of this provision at length. Not having been provided by the litigants with any information regarding the choice of the language used, their intention in designing such an unusually large panel having no neutral members, or what object they were striving to attain by these choices, we fall back on another interpretive principle. Occam's razor posits that as between two competing theories, the simpler explanation is likely correct. We reflect on it here because the simple addition of an "s" in two places in this arbitration provision harmonizes all its competing parts and renders it an ordinary tripartite arrangement. So instead of the second sentence of subsection (a) reading that "[e]ach party shall appoint one (1) such arbitrator, and such arbitrator shall appoint another arbitrator," the line would read, "[e]ach party shall appoint one (1) such arbitrator, and such arbitrators shall appoint another arbitrator." Such addition would render the line following, that the decision of the majority of such arbitrators shall be conclusive, perfectly reasonable and not at all incongruous.
Literally, pluralitas non est ponenda sine necessitate, "plurality should not be posited without necessity."
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Similarly adding an "s" to the first line of subsection (d), changing the wording from "[i]f the arbitrator appointed shall fail, within ten (10) days after the last of the arbitrators shall have been appointed, to select another arbitrator, then any judgment of a Court upon application made by either party for that purpose, shall be authorized and empowered to appoint such third arbitrator," to "[i]f the arbitrators appointed shall fail, within ten (10) days after the last of the arbitrators shall have been appointed, to select another arbitrator, then any judgment of a Court upon application made by either party for that purpose, shall be authorized and empowered to appoint such third arbitrator," flows logically, and harmonizes the subsection with the other provisions of the clause.
Accordingly, accepting the simplest explanation for the wording of this clause, and in the absence of any other, we conclude that the unusual formulation of the arbitration panel here is the result of a simple drafting error. Our conclusion is buttressed by a similarly missing "s" in subsection (e) of the arbitration clause, which reads "[t]he award to be made by the arbitrator (sic) shall be made within five (5) days after the final arbitrator shall have been appointed." Further, paragraph 21 of the partnership agreement allows that all nouns and pronouns within the agreement "shall be construed in the singular or plural, . . . , as shall be appropriate to the context in which made or used." Our interpretation harmonizes the whole and avoids any "artificial emphasis on one section, with a consequent disregard for others." Borough of Princeton, supra, 333 N.J. Super. at 325. No other interpretation can claim that distinction.
It does not resolve the whole of the dispute, however. Defendant is still left facing the prospect of a five-member arbitration panel, three of whom will have been appointed by his adversaries. This despite the fact that the interests of his three partners are so aligned that they are represented by one law firm.
"Party" is not a defined term in the agreement, although it is often used synonymously with partner. Defendant contends that equating party with partner in this instance will result in a lopsided panel inherently unfair to him. Although acknowledging that arbitration is largely a creature of contract, Fawzy v. Fawzy, 199 N.J. 456, 469 (2009), he contends that the Supreme Court in Barcon Assocs., Inc. v. Tri-County Asphalt Corp., 86 N.J. 179 (1981), rejected the notion "that the parties' contract should prevail over all other considerations," id. at 189. He argues that the court's interest in insuring fair arbitration proceedings mandates that we reverse the trial court's order and direct each side, instead of each partner, to select one arbitrator each.
Plaintiffs counter that at the time the agreement was executed, no one could anticipate the disputes that might arise, and a framework that allowed each partner to appoint an arbitrator, irrespective of how the partners might be aligned in their disagreement, was on its face fair and equitable. Thus they contend there is nothing inherently unfair in the composition of an arbitration panel in which they will choose the majority of the members. They maintain that Barcon is inapplicable because it requires a showing of evident partiality, not possible here as no arbitrator has been appointed, and that defendant's challenge is, at best, premature.
We agree with defendant that equating "party" with "partner" in this instance, with the result that each of the plaintiffs may appoint an arbitrator, despite their interests being so aligned that they are represented by the same law firm, is inherently unfair. Although we acknowledge that Barcon may lend some support for this proposition, we need venture no further than the four corners of the parties' agreement to reach this result. In interpreting contractual provisions in accord with justice, common sense, and the probable intent of the parties, Krosnowski, supra, 22 N.J. at 387, we are to view the agreement as a business transaction entered into by practical people "to accomplish an honest and straightforward end." Ibid.
Here, while we may accept plaintiffs' argument that at the time the parties entered into their agreement that none could anticipate the disputes that might arise, it is beyond belief that any would agree to allowing his partners the right to each appoint one arbitrator when they would be so completely aligned against him that they could be represented by the same lawyer. The proposition is so utterly at odds with common sense and fairness that it can be rejected out of hand. Accordingly, we interpret "party" in the context of this dispute to be synonymous with "side." In accordance with fairness and common sense, the three partners constituting plaintiffs will be considered as one party for purposes of this arbitration, with defendant being the other.
Defendant also notes that the agreement provides that the partnership, which no longer exists, is to pay the "[c]osts of arbitration and reasonable attorney's fees for each partner in the conduct of the arbitration proceedings." As the partnership cannot now pay these costs, the only way to give effect to this provision is to apply it to the respective ownership shares of each of the partners in the partnership as they appear in the agreement. Aggregate costs and reasonable attorney's fees are for the arbitrators to determine. Finally, we also defer to the arbitrators the timing of their award dependent as it will be on the presentation of the proofs. Any other necessary guidance is to be derived from the controlling statute, N.J.S.A. 2A:23B-1 to -32. N.J.S.A. 2A:23B-3c ("[o]n or after January 1, 2005, this act governs an agreement to arbitrate whenever made").
We reverse the order of February 3, 2012, and remand for the entry of an order compelling plaintiffs and defendant to each select one arbitrator, which arbitrators shall select a third in accordance with the parties' agreement; directing that the costs and reasonable attorney's fees for each partner in the conduct of the arbitration shall be borne by the partners in accordance with their interest in the partnership as reflected in the agreement; and that the timing of the award of the arbitrators shall be determined by the panel.
Reversed and remanded.
I hereby certify that the foregoing is a true copy of the original on file in my office
CLERK OF THE APPELLATE DIVISION