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High Voltage Engineering Corporation v. Pride Solvents & Chemical Co. of New Jersey, Inc.

326 N.J. Super. 356, 741 A.2d 170 (App. Div. 1999)

ARBITRATION; DAMAGES; ATTORNEYS’ FEES—Arbitrators can award attorneys’ fees to a party even where a contract does not provide for attorneys’ fees.

A property owner conducted manufacturing operations that caused contamination of the soil and groundwater at its site. It then sold the site. After the buyer discovered the contamination, it instituted suit against its seller. The buyer then entered into negotiations to sell the site to a third party, subject to ECRA compliance by the original manufacturer-owner. To effectuate the sale, all three parties executed a Settlement Agreement pursuant to which the original manufacturer-owner entered into an Administrative Consent Order (ACO) with the New Jersey Department of Environmental Protection (NJDEP) under which it assumed responsibility for remediation of the site. The Settlement Agreement provided for arbitration of “[a]ny controversy or claim arising out of or relating to this Agreement, or the breach thereof… .” The arbitrators were directed to interpret the provisions of the Agreement, but did not have the authority or power to modify or alter any condition or provision of the Agreement or to render any award by which its terms had the effect of altering or modifying any express condition or provision of the Agreement. The second buyer instituted a court action demanding injunctive relief and compelling the original manufacturer-owner to comply with the terms of the ACO as required by the Settlement Agreement. The manufacturer-owner counterclaimed, alleging that it was entitled to counsel fees because the second buyer breached the Settlement Agreement by initiating a law suit instead of submitting the remediation issues to arbitration. Ultimately, NJDEP concluded that the manufacturer-owner was not in compliance with the ACO and ordered it to take remedial action. The second buyer thereupon voluntarily dismissed its complaint without prejudice and the counterclaim for counsel fees was dismissed with prejudice. On appeal, the Appellate Division, in an earlier controversy, concluded that the manufacturer-owner was entitled to submit the issue of the second buyer’s breach of the Settlement Agreement to arbitration. The arbitrator then determined that the second buyer had breached the Agreement by instituting the action and awarded counsel fees. The arbitrator directed that the fees be paid into an escrow account, subject to the manufacturer-owner’s compliance with NJDEP’s cleanup conditions. The manufacturer-owner then filed an action in the Chancery Division seeking to confirm the arbitration award and for a remand to the arbitration panel to determine the amount of counsel fees. The second buyer filed a separate action in the Law Division seeking to vacate or modify the same award. The matters were consolidated and a Special Master quantified the amount of attorney’s fees, whereupon the lower court entered a final judgment confirming the Master’s findings. Although “[a]n arbitrator’s authority to resolve a dispute is based upon the contract between the parties. ... [and] any action taken beyond that authority is impeachable,” an award should not be vacated even though it may be based on a mistake in law. Nonetheless, the second buyer argued “that the award must be vacated because the arbitration panel ignored the provision of the Settlement Agreement that the arbitrators would be governed by New Jersey law in resolving any dispute.” It pointed out that there was no provision in the Settlement Agreement for the award of attorney’s fees and argued that the award was contrary to the traditional “American Rule” that fees are not to be awarded to the prevailing party unless provided by statute or contractually authorized. The Court, however, felt that the second buyer misconstrued the contract language. “It does not provide that the arbitrators ‘shall render their decision only in conformance with New Jersey law. [r]ather, the Settlement Agreement provides only that the arbitrators, in resolving any controversy,’ shall interpret the provisions of this Agreement in accordance with New Jersey law[.]” The Court noted that in a prior case, it stated that arbitrators may conclude that the only way to provide complete relief for a breach of contract” is to “actually put the injured party in as good a position as it would have been if the contract had not been breached” and that can be done by awarding “any counsel fees which had to be incurred to prove the breach… .” In its view, the “only way to provide complete relief” to the manufacturer-owner was the recoupment of the fees incurred by it as a result of the second buyer’s breach.


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