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Madison House Group v. Pinnacle Entertainment, Inc.

A-3171-08T2 (N.J. Super. App. Div. 2010) (Unpublished)

ARBITRATION — Where a contract provides for arbitration but does not make arbitration the mandatory, unilateral procedure for determining arbitrability or for settling disputes, but merely makes breaches “subject” to arbitration, either party may file suit instead of proceeding with arbitration.

A commercial lease recited: “Any and all legal proceedings concerning the infringement, breach, or contemplated breach of this Lease, shall be subject to arbitration in the State of New Jersey, Atlantic County only, and the parties hereto consent to such jurisdiction and venue. ... Notwithstanding the above, at the option of either Landlord or Tenant, Landlord or Tenant shall have the right to resolve any dispute, whether initiated by Landlord or Tenant, in a state or federal court of competent jurisdiction ... and each party irrevocably submits to the jurisdiction and venue of such court for such purposes.” The landlord and its tenant had an ongoing lease dispute and the landlord sent a notice of default. In response, the tenant commenced an arbitration proceeding, seeking a declaration that it was not in breach of its obligations. It claimed its right to arbitrate pursuant to a lease provision saying that all legal proceedings concerning breaches were subject to arbitration. The landlord did not want to arbitrate and filed suit. It also sought an injunction to require the tenant to withdraw its arbitration proceeding and to submit its dispute to the court. The tenant then sued in federal court to compel arbitration.

The lower court agreed with the landlord’s interpretation of the lease. It conceded that the lease provision relating to dispute resolution provided that disputes were subject to arbitration, but agreed with the landlord’s argument that the same provision also stated that notwithstanding the right to arbitrate, either party had the option to submit a dispute to arbitration unless the other party desired to have the matter resolved in court. The lower court rejected the tenant’s argument that, in the lease, the parties recognized that arbitration was mandatory and that, after a binding decision was issued by the arbitrator, either party had the option of seeking redress under the New Jersey Arbitration Act in state or federal court to either enforce or appeal the arbitration award.

On appeal, the Appellate Division affirmed, finding that the dispute resolution provision did not make arbitration “mandatory, unilateral procedure” for determining arbitrability or settling all disputes under the lease. Rather, it stated that proceedings concerning the breach of the lease “shall be subject to arbitration,” and, if the parties elected to proceed with arbitration then there were certain guidelines and procedures to follow as spelled out in the lease. However, the lease also provided that “notwithstanding the above,” either party had the “right” to resolve any dispute in state or federal court. Therefore, it was clear from the lease’s language that the parties had not agreed to use arbitration as the sole method of resolving disputes. Rather, the parties had agreed that allegations of a breach were subject to arbitration by the parties. If the parties agreed to arbitrate their dispute, then certain procedures needed to be followed. However, the parties were not obligated to arbitrate their disputes and either party had the right, in lieu of arbitration, to file suit in state or federal court.

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