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D.R. Horton, Inc. v. J.J. DeLuca Company, Inc.

401 N.J. Super. 253, 981 A.2d 126 (App. Div. 2009)

ARBITRATION — Where the parties’ contract allows an arbitrator may consolidate two or more arbitrations or where the contract defers to the rules of an arbitration organization that allow an arbitrator to consolidate two or more arbitrations, the arbitrator may do so notwithstanding New Jersey’s arbitration statute that gives the same power to the courts because the power given to the courts is not an exclusive one.

A property owner and a general contractor entered into a construction contract. As part of the contract, the parties specifically and intentionally omitted a standard provision which would have given the parties the right to consolidate third-parties in their own arbitration proceeding. Under their agreement, the parties agreed to abide by the American Arbitration Association’s (AAA’s) rules of procedure in any matters relating to arbitration. Then, as a result of a dispute between the parties, the owner terminated the contract. The contractor brought a claim with the AAA. During the arbitration, an issue arose as to whether to consolidate the proceeding with a separate arbitration proceeding between the contractor and one of its subcontractors on the project. The applicable New Jersey arbitration statute states, in part, “upon application of a party to an agreement to arbitrate ***, the Court may order consolidation of separate arbitration proceedings as to all or some of the claims.” Believing that a court had to make the consolidation determination rather than the AAA, the owner filed an action in the Chancery Court seeking injunctive relief.

The lower court ruled in favor of the contractor, holding that it, the court, did not have exclusive authority to determine whether two arbitrations could be consolidated. It noted that there were no reported cases dealing with this issue. Then, the lower court tried to understand what was intended by the omission of the deleted section of the contract. It ruled that by eliminating the provision, the parties specifically removed any contractual limitations on consolidation and, when the contract directed the parties to use the AAA’s procedural rules, including those rules relating to substantively determining whether there should be a consolidation of two or more arbitrations, those AAA rules applied. It the held that the statute was not to be read as the exclusive procedure for determining arbitration consolidation where the contracting parties have agreed to abide by the arbitrator’s procedural rules if those rules are consistent with fundamental fairness. Further, the Court held that its review of the legislative history and the intent of the statutory provisions on consolidation showed no basis to believe the consolidation provision was to supplant the parties’ contractual agreement. Moreover, it noted that the statute’s legislative statement provided that many of the statutory provisions could be varied or waived by contract. The legislative statement lists the provisions that could not be waived. The consolidation provision was not among them. Thus, it concluded that the legislature did not intend to interfere with a well-crafted contract that called for institutional arbitration with an organization that provided a fair mechanism for consolidation. According to the Court, where there is no agreed-upon procedural mechanism providing for consolidation, it is free to exercise its statutory authority. Since this was not the case here, the Court ruled that the owner was not entitled to injunctive relief. It also believed such relief was not appropriate because the AAA had been managing the case for over a year and was more familiar with the matter’s complex factual issues and leaving the matter with the AAA would not cause irreparable harm to the owner.

On appeal, the Appellate Division affirmed for substantially the reasons expressed by the lower court. It merely added that, contrary to the owner’s contention on appeal, nothing in a later reported decision by the Appellate Division affirming the discretionary nature of the court’s authority in matters involving multiple arbitration consolidations, suggested that such jurisdiction was exclusive to the judiciary.

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