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Rinaldo v. Schaad

A-3788-08T3 (N.J. Super. App. Div. 2010) (Unpublished)

ARBITRATION — When one party in arbitration is ultimately given the opportunity to be heard, but chooses not to participate, the arbitrator is within his or her discretion to decide the matter without hearing from that party because the party who has walked out had assumed the risk of voluntarily abandoning the proceedings.

An owner entered into a home-improvement contract for the renovation and expansion of his house. The contract provided for arbitration of disputes. It called for the contractor to deliver a home warranty to the owner at the time of final payment in satisfaction of the requirements of New Jersey law. Construction was to be completed in a good and workmanlike manner. The final balance due under the contract was to be paid within ten days after the issuance of a certificate of occupancy together with any other required government approvals.

The contractor demolished a portion of the existing structure and constructed a new foundation under one-third of the home. After construction was substantially complete, the owner delivered a “punch list” covering items of concern, including cracks in the foundation and the foundation’s sinking at one end of the house. A certificate of occupancy was issued, and the contractor acted to remedy those items of concern, but not to the owner’s satisfaction. As a result, the owner refused to make final payment. The contractor demanded final payment and filed a Notice of Unpaid Balance-Right to File Lien and a demand for arbitration based on the New Jersey Construction Lien Law (CLL). The owner filed an arbitration answer, a counterclaim, and a demand for setoff. The company subsequently withdrew its petition for arbitration under the CLL without objection from the owner.

The owner then sued the contractor, alleging negligence, breach of contract, and violation of the Consumer Fraud Act (CFA). The contractor, by answer and then motion, requested that the matter be transferred to arbitration pursuant to the parties’ contract. The lower court granted the motion, finding no knowing and intentional waiver of the contractual arbitration provision by the contractor, and finding that the arbitrator could hear a claim for treble damages under the CFA. Eventually, a hearing was conducted by the arbitrator, at which the owner’s engineering expert testified as to sixty-six deficiencies in the construction, concluding that the deficiencies were the direct result of substandard construction methods and material. The contractor’s expert, through finding only nineteen workmanship defects, admitted the home sloped and the flooring was not level, but said that leveling the floor would require jacking up the house which could compromise the structural integrity of the entire building. The next scheduled hearing took place after several adjournments and without the presence of the owner, who advised the arbitrator that a family member was involved in a fatal accident. The arbitrator did not take testimony. At the next scheduled hearing, the owner appeared, but did not want to proceed, claiming the arbitrator was partial to the contractor. Ultimately, the owner left the hearing. Subsequently, the arbitrator offered to reopen the proceedings to give the owner an opportunity to present his case. The owner did not respond, and the arbitrator issued an award in favor of the contractor.

The owner sued, but the lower court denied the owner’s motion to vacate the award, and granted the contractor’s motion to confirm it. The lower court rejected claims of arbitrator bias, finding the owner was ultimately given an opportunity to be heard and chose not to participate, and that the arbitrator was within his discretion not to make a site visit to the property prior to his decision.

The owner appealed further, but the Appellate Division affirmed, finding that the arbitration provision between the parties was clear that it required arbitration of any dispute related to the contract. This would encompass a CFA claim. Further, it held that arbitration is not waived by the institution of legal proceedings short of a judgment or an arbitration proceeding short of an award. The Court was not persuaded by the owner’s argument that any waiver of CLL arbitration, assuming the company’s withdrawal early in the proceedings could represent a waiver, constituted a waiver of the contractor’s right to demand contractual arbitration. Thus, the Court affirmed the orders that required the owner to submit all disputes to arbitration, as the contractor did not waive its contractual right to arbitrate those disputes under the arbitration clause of the governing agreement.

The Court also found nothing in the lower court’s record that demonstrated an intentional effort by the arbitrator to harm the owner’s case. In fact, the owner was not deprived of his right to be heard by the arbitrator, and the arbitrator stated that if there was something specific at issue that needed to be examined, he would have committed to a site visit. Given the owner’s decision to walk out of a proceeding, he assumed a risk by voluntarily abandoning the proceedings and failed to quantify the defects testified to by his own expert.


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