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Godfrey v. Martin

A-0862-08T2 (N.J. Super. App. Div. 2009) (Unpublished)

ARBITRATION; UNIFORM ARBITRATION ACT — New Jersey’s version of the Uniform Arbitration Act mandates that a court grant a stay of arbitration rather than a dismissal in a judicial proceeding.

Homeowners entered into a home-improvement contract and an architectural services contract. Both contracts required disputes to be submitted to arbitration. The architect’s arbitration clause reads, “[t]he award rendered by the arbitrator *** shall be final and judgment may be rendered upon it in accordance with applicable law in any court having jurisdiction thereof.” On the other hand, the home-improvement contract contained no language that adequately conveyed the concept of a waiver of the right to sue. The homeowners also engaged a chimney sweep company to perform work at their home without a written contract. The homeowners subsequently had disputes with all three of the contractors and sued each of them, alleging violations of the New Jersey Consumer Fraud Act (CFA). The architect and home-improvement contractor filed motions to compel arbitration and to dismiss the homeowners’ suit.

Prior to the lower court rendering a decision, the homeowners advised the court that the parties had consented to present all of their issues in a single arbitration proceeding. The court found that both arbitration clauses were sufficiently broadly worded to encompass the CFA claims because they arose out of the failure to perform under the contracts. It also found that the homeowners’ allegations were sufficient to state claims on which relief could be granted. Nevertheless, the court ultimately dismissed the claims brought by the homeowner based on the homeowners’ failure to prosecute an action against the contractors. Rather than file a demand for arbitration, the parties negotiated a non-binding mediation agreement. Notwithstanding such agreement, after two years passed without any mediation proceedings taking place, the homeowners filed a motion to reinstate the case to the active trial list. The court held that the burden was on the homeowners to pursue arbitration, and that the homeowners could have requested court action to compel arbitration, but did not do so. The court also found the arbitration clauses were enforceable and that the case had been dismissed, not stayed. The homeowners appealed.

The Appellate Division reversed, agreeing with the homeowners that the lower court erred in dismissing their complaint because the Uniform Arbitration Act (UAA), as adopted in New Jersey, applied to these arbitration agreements and mandated a stay rather than a dismissal of any judiciary proceeding. The relevant section of the UAA provides: “[i]f the court orders arbitration, the court on just terms shall stay any judicial proceeding that involves a claim subject to the arbitration.” The Court held the term “shall” generally connotes a mandate. In light of that mandate, the Court was satisfied that the lower court mistakenly exercised its discretion to deny reconsideration of its orders to dismiss. It concluded that an order staying the proceeding should have been entered to bring the status of the case into compliance with the UAA. In addition, since the home-improvement contract did not make an arbitration award legally binding, that agreement did not incorporate a waiver of the right to sue. Moreover, the Court found that the informal agreement to arbitrate disputes with the chimney sweep, which was never reduced to a writing, could not constitute a waiver of the right to sue or be an agreement that an award would be final and binding. Conversely, the architect contract’s arbitration clause clearly stated that any arbitral award was legally binding and adequately conveyed the concept of a waiver of the right to sue. Because there was no signed architects’ contract in the record on appeal, the Court requested that this issue be explored in a plenary hearing.

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