Opinion
DOCKET NO. A-1441-15T1
06-03-2016
FRICK JOINT VENTURE, Plaintiff-Respondent, v. VILLAGE SUPER MARKET, INC., Defendant-Appellant.
Daniel J. McCarthy argued the cause for appellant (Rogut McCarthy, L.L.C., attorneys; Mr. McCarthy, on the briefs). Fred R. Gruen argued the cause for respondent (Gruen & Goldstein, attorneys; Mr. Gruen, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Reisner and Hoffman. On appeal from the Superior Court of New Jersey, Chancery Division, Union County, Docket No. C-096-15. Daniel J. McCarthy argued the cause for appellant (Rogut McCarthy, L.L.C., attorneys; Mr. McCarthy, on the briefs). Fred R. Gruen argued the cause for respondent (Gruen & Goldstein, attorneys; Mr. Gruen, on the brief). PER CURIAM
This case involves a dispute between plaintiff Frick Joint Venture, the owner of a shopping center, and its anchor tenant, defendant Village Super Market, Inc. Defendant appeals from an October 21, 2015 order granting plaintiff's application to compel arbitration. Defendant contends that the arbitration clause in the parties' lease does not apply to their underlying dispute over the landlord's proposed changes to the shopping center. Plaintiff asserts that the arbitration clause covers the underlying dispute and argues in the alternative that, regardless of the lease terms, defendant agreed to arbitrate this dispute. For the reasons that follow, we affirm the order on appeal. The trial court's February 18, 2016 order staying arbitration pending appeal is hereby vacated.
Our disposition of this appeal renders moot the issue of whether either party satisfied the standard for granting an injunction or a stay.
I
To put our legal discussion in context, we summarize the most pertinent facts. The parties had a twenty-year lease governing the rental of shopping center space for defendant's ShopRite supermarket. Section 2.3 of the lease strictly limited the landlord's ability to make changes to the configuration or uses of the shopping center. Before making changes, the landlord was required to send the tenant a Change Notice, wherever possible. Section 2.3 also provided for arbitration of disputes over Change Notices, or actual changes implemented by the landlord, which the tenant believed were in violation of its rights under the lease. We quote the provision in full:
2.3. No change, alteration, or addition shall be made to the Shopping Center, including but not limited to, the configuration of the Common Area, methods of ingress and egress, direction of traffic, curbing, building size, location, heights, and stories, the landscaping (which would affect visibility to the Demised Premises), and parking other than those changes, alterations, or additions which are in exact conformity with one of the Development Plans attached as Exhibits "A-2" to "A-8" or Exhibit K or Exhibit O (the limitations of A-2 to A-8 may not be expanded by any conditions imposed by Government Agencies in connection with necessary development approvals from the Government Agencies).
The foregoing limitations and restrictions are a material consideration for Tenant entering into this Lease, and should any change, alteration or addition be made to the Shopping Center, including, but not limited to, the configuration of the Common Area, methods of ingress and egress, direction of traffic, curbing, building size, location, the landscaping (which would affect visibility to the Demised Premises), and/or parking which change is not in exact conformity with one or more of the Development Plans attached as Exhibits "A-2" to "A-8" or Exhibit "K" or Exhibit "O", then after expiration of thirty (30) day notice and cure period (see below) and arbitration award if Landlord disputes Tenant allegation of violation of this Article 2.3, Tenant, in addition to any remedy it may have in law or equity, shall have the right to receive an abatement of all Rent (as hereinafter defined) and obligations hereunder for the total period of the interference.
Prior to making any such change, alteration or addition, Landlord shall endeavor to provide written notice ("Change Notice")
thereof to Tenant which shall include a plan or drawing sufficient to compare with Exhibits "A-2" to "A-8" so that Tenant may ascertain compliance with this Section 2.3. Tenant shall have thirty (30) days within which to accept or reject Landlord's proposed change, alteration or addition solely on the basis that it does not comply with this Section 2.3. In the event Landlord shall fail to provide a Change Notice or shall otherwise breach its Section 2.3 covenants, Tenant after learning of the breach will provide Landlord with notice detailing the breach. If Landlord fails to cure the breach by removing the unpermitted change, alteration or addition within thirty (30) days of the notice, it will be deemed in default of the Lease. Any dispute as to compliance shall thereafter be submitted to arbitration as set forth in Article 49 (except that the mediation referred to therein shall be eliminated) and if Tenant shall prevail, Landlord will remove the breach forthwith and Tenant may pursue enforcement in court th[r]ough injunction. During the pendency of the arbitration Landlord will not continue with the disputed improvement and Tenant may enforce this in court through injunction.
[(emphasis added).]
As appears from its language, section 2.3 is not a model of clarity with respect to the parties' obligation to arbitrate disputes. The undisputed evidence submitted to the trial court on the order to show cause (OSC) is, however, illuminating. Plaintiff filed an OSC, supported by legally competent evidence in the form of certifications and attached exhibits, which defendant failed to rebut with legally competent evidence. We summarize plaintiff's evidence as follows.
Beginning in January 2014, the landlord sent the tenant a series of Change Notices setting forth proposals for the use of vacant space formerly occupied by a gas station (the gas station pad) on the shopping center premises. The tenant rejected all of those proposals. By letter dated August 11, 2014, the landlord sent the tenant a notice of default under Article 30 of the lease, asserting that the tenant had unreasonably "demand[ed] constraints on Landlord's development . . . which . . . are beyond Tenant's authority under the Lease to demand." The letter asked the tenant's president to call the landlord's attorney to discuss "institution of arbitration and selection of a mutually agreeable arbitrator in lieu of American Arbitration Association [(AAA)] arbitration under lease article 49.3," which governed the procedures for arbitration under the lease.
Under Section 30 of the lease, if the tenant fails to cure a default after notice, the landlord may pursue any remedy available under the lease.
On September 9, 2014, the landlord sent the tenant a formal demand for arbitration under "Section 2.3, and Section 49" of the lease. In an email dated September 17, 2014, the landlord's attorney confirmed that the tenant had agreed that the parties would retain a private arbitrator in order to avoid the higher fees charged by AAA. On September 29, 2014, the landlord's attorney sent an email to the tenant's attorney confirming that the parties had agreed to arbitration before a retired judge instead of the AAA arbitration specified in the lease. The email also indicated that, in reliance on that agreement, the landlord's attorney had let AAA dismiss the landlord's petition. The email recited, in pertinent part, that
The tenant's OSC submissions to the trial court included two additional emails dated September 29, 2014, which actually confirm the landlord's version of events. Those emails confirmed that the parties not only agreed to arbitration before retired Judge Boyle but they held negotiation sessions to try to resolve their dispute prior to a scheduled October 31, 2014 arbitration session.
we have agreed to submit . . . the Frick claim respecting the gas station to arbitration by a retired judge. We have tentatively agreed to retain [J]udge [J]ack [B]oyle for that purpose if he is available in the near future. You were to give me suggested dates in November to clear with Judge Boyle and a list of the other issues you wish to submit to arbitration.
Thereafter, the parties engaged in additional discussions about the landlord's plans for the vacant space. On April 24, 2015, the tenant sent the landlord a letter stating that it "intends to disapprove" the proposed development of a Starbucks coffeehouse in the vacant space.
On May 13, 2015, the landlord's attorney sent the tenant's attorney a letter reminding him about the "prior discontinued arbitration proceedings" which the landlord had initiated and which the parties had agreed to submit to retired Judge Boyle. The landlord's attorney stated that the landlord "has determined to proceed with the arbitration respecting redesign and redevelopment of the gas station site" and asked his adversary to give him some proposed dates for the arbitration.
On May 20, 2015 the landlord sent the tenant a proposed site plan for the proposed Starbucks, and on May 29, 2015, the landlord's attorney asked the tenant's attorney to send him some proposed dates for the arbitration. In an exchange of emails dated June 1, 2015, the tenant's attorney stated that his client "is prepared to go forward with arbitration provided we can also address some additional issues" but requested a different arbitrator. The landlord's attorney responded with the names of some other retired jurists who would be acceptable as arbitrators.
According to a certification from the landlord's attorney, "[o]n June 10, 2015[,] the parties through their attorneys agreed in [a] telephone conversation to substitute retired judge . . . Thomas P. Olivieri for retired Judge . . . John M. Boyle as the arbitrator and to include additional disputes as requested by [tenant] even though not arbitrable under the terms of the Lease." The tenant did not produce any legally competent evidence disputing that certification.
On June 17, 2015, the landlord's attorney sent the tenant's attorney a formal Dispute Notice under Lease Article 49.2, which addressed the procedures for arbitration under the lease. However, the attorney also sent a letter requesting mediation instead of arbitration in light of the tenant's "continuing failure to provide suggested dates for arbitration." Under section 49 of the lease, the parties were ordinarily required to go to mediation before going to AAA arbitration.
In response, the tenant's attorney sent the landlord's counsel a letter dated June 18, 2015, formally disapproving the May 20 Change Notice. Significantly, however, the June 18, 2015 letter also confirmed the parties' agreement to go to arbitration: "As you know the parties have agreed to go to arbitration on this issue and several other issues." The letter also offered "to continue to meet with you prior to the arbitration in an attempt to resolve this issue."
Thereafter, the parties agreed on retired Judge Olivieri as a mediator and attempted to find mutually agreeable dates for the mediation. In a June 24, 2015 email, a copy of which was sent to the tenant's attorney, the landlord's attorney advised Judge Olivieri's office that the parties wanted him to conduct "a mediation mandated under an arbitration clause in a lease." Thereafter, the tenant's attorney failed to provide dates for the mediation and failed to appear for a mediation conference. As a result, the landlord's attorney sent the tenant's counsel a July 1, 2015 email stating that since the tenant appeared to be "purposefully thwarting and/or delaying the mediation process" the landlord would proceed to AAA arbitration.
On July 17, 2015, the landlord's attorney sent AAA a formal demand for arbitration. AAA contacted the attorneys on July 27, 2015 to confirm that an arbitration would be scheduled. However, by letter dated August 7, 2015, the tenant's attorney advised AAA that the tenant rejected the demand for arbitration, asserting that "its dispute with [the landlord] does not fall within any of the arbitration provisions contained in the Lease." As a result, the landlord filed its OSC with the General Equity judge, seeking to enforce arbitration.
The General Equity judge concluded that the parties' dispute was arbitrable under section 2.3 of lease and ordered that the parties proceed with arbitration. In an oral opinion issued October 9, 2015, the judge focused on the clause's language: "Any dispute as to compliance shall thereafter be submitted to arbitration." She noted that the clause did not give the tenant the sole right to demand arbitration, because "[i]t doesn't say at the option of the tenant." In a written statement of reasons issued with the order, the judge concluded that "[t]he clear language of the lease does not restrict the [arbitration] remedy to the tenant."
II
When a trial court's decision turns on its construction of a contract, our review of that determination is de novo. Manahawkin Convalescent v. O'Neill, 217 N.J. 99, 115 (2014). "Appellate courts give 'no special deference to the trial court's interpretation and look at the contract with fresh eyes.'" Ibid. (citation omitted).
"Orders compelling arbitration are deemed final for purposes of appeal." R. 2:2-3(a); Hirsch v. Amper Fin. Servs., L.L.C., 215 N.J. 174, 186 (2013). In reviewing such orders, we are "mindful of the strong preference to enforce arbitration agreements." Hirsch, supra, 215 N.J. at 186. Ultimately, the "'court shall decide whether an agreement to arbitrate exists' or a controversy is subject to an agreement to arbitrate." Id. at 188 (quoting N.J.S.A. 2A:23B-6(b)).
Where, as here, an agreement is ambiguous as to whether the parties intended for an issue to be arbitrated, "federal arbitration law must provide default rules and presumptions." There is a broad presumption of arbitrability requiring that "any doubts concerning the scope of arbitrable issues . . . be resolved in favor of
arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability."As with any other contract, in construing an ambiguous arbitration clause, we may consider the parties' course of conduct insofar as it illuminates their understanding of their agreement. See County of Morris v. Fauver, 153 N.J. 80, 103 (1998).
[Mid-State Securities Corp. v. Edwards, 309 N.J. Super. 73, 79 (App. Div.) certif. denied, 156 N.J. 379 (1998) (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765, 785 (1983)) (additional citation omitted).]
Our courts have recognized that, in certain circumstances, a party may be bound to arbitrate a particular dispute, either because the party has agreed to arbitration or because the party is estopped by its conduct from refusing to arbitrate a dispute. See Hirsch, supra, 215 N.J. at 189; Angrisani v. Fin. Tech. Ventures, L.P., 402 N.J. Super. 138, 153 (App. Div. 2008); see also Knorr v. Smeal, 178 N.J. 169, 178 (2003).
In this case, we begin with the clearest grounds on which to affirm the order on appeal. Based on our de novo review of the undisputed evidence, we have no hesitation in concluding that, regardless of whether the lease requires arbitration of all disputes over change orders, defendant agreed to arbitration of its dispute with plaintiff over the proposed use of the gas station pad. In a series of signed letters, as well as emails, both sides confirmed that they had an agreement to submit the dispute to arbitration. Moreover, even if we could not conclude that their exchange of correspondence constituted a formal contract, we would find that defendant was estopped by its conduct from repudiating its agreement to go to arbitration.
The documented history of this dispute illustrates that defendant agreed to go to arbitration, and that plaintiff relied to its detriment on that agreement by delaying its resort to AAA arbitration, agreeing to arbitration by first one and then another retired judge, and then agreeing to go to mediation. See Hirsch, supra, 215 N.J. at 193-94; Knorr, supra, 178 N.J. at 178. During this time, defendant engaged in stonewalling and delaying tactics, while the former gas station section of plaintiff's shopping center remained vacant. That inequitable course of conduct estopped defendant from later refusing to go to arbitration. See Hirsch, supra, 215 N.J. at 193-94. Thus, we affirm the order on appeal.
For completeness, and bearing mind that these parties have a twenty-year lease and may have future disputes arising under section 2.3, we will also address the arbitration clause. We agree with the trial judge's conclusion that section 2.3 does not restrict the arbitration remedy to the tenant. Defendant contends that the clause only permits arbitration if plaintiff actually begins construction of alterations that violate defendant's rights under the lease. Thus, defendant contends, the landlord's anticipatory breach of the lease, through insistence on making a non-conforming change, will not suffice. See Ross Systems v. Linden Dari-Delite, Inc., 35 N.J. 329, 340-41 (1961). Defendant asserts that, to be entitled to invoke the arbitration clause, the landlord must actually put the proverbial shovel in the ground. We conclude that defendant's interpretation of the clause would produce an absurd result, by requiring the landlord to commit an egregious breach of the lease in order to precipitate its right to arbitration. "Contracts should be read . . . ' in a fair and common sense manner.'" Manahawkin, supra, 217 N.J. at 118 (citation omitted).
Defendant's counsel clarified that position at the oral argument of this appeal. --------
Further, the parties' conduct in this case illustrates their mutual understanding of the clause when the landlord first invoked it, and contradicts the tenant's current interpretation of the lease. From the beginning, defendant agreed to plaintiff's invocation of the arbitration clause. It was not until almost a year later that defendant suddenly asserted that section 2.3 did not permit arbitration in this situation.
Following well established principles favoring the broad construction of arbitration clauses, we conclude that section 2.3 permits the landlord to demand arbitration (preceded by mediation as required by section 49 of the lease) when the tenant refuses to agree to a Change Notice and the landlord contends that the refusal violates the lease terms.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION