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South Street Theatre Company, Inc. v. McGowan Builders, Inc.

A-6447-06T3 (N.J. Super. App. Div. 2008) (Unpublished)

ARBITRATION — Where an expressly drafted agreement makes reference to the use of either arbitration or court proceedings to resolve disputes, and a document referenced within that agreement requires all contract disputes to be referred to alternate dispute resolution before litigation, the expressly drafted agreement will prevail over the reference generic document that was neither drafted nor signed by the parties.

A general contractor and a theater owner entered into a construction contract for expansion of the theater’s building. The contract was drafted by the contractor. Substantial completion was to be achieved by seven months after the contract execution date. A contract provision required that suits against the theater be pursued in the county where the project was located. A referenced document in the contract required that any contract disputes would be referred initially to an architect and then to mediation as condition precedents to either arbitration or litigation. A contract rider also referred to either a court or arbitration to enforcing contract provisions or for recovering damages.

Disputes arose during the contract term regarding the contractor’s performance. Further, the contractor failed to meet the substantial completion deadline. The theater terminated the contract based on the contractor’s alleged default. The contractor then filed a demand for arbitration. The theater objected to the filing and filed a complaint to stay the arbitration, seeking a court ruling whether an agreement to arbitrate existed, or whether the controversy was subject to an agreement to arbitrate. The lower court found that the parties had not clearly agreed that arbitration would be the sole remedy available for resolving disputes between them, and permanently enjoined arbitration of the contractor’s claims. The contractor appealed the permanent injunction.

The Appellate Division affirmed the lower court’s ruling, based primarily on provisions of both the contract and rider, that the parties had not elected arbitration as their sole or excessive remedy for resolving their disputes. The Court held that the arbitration agreement was contained in a generic document, neither drafted nor signed by the parties, and that it conflicted with, and was undermined by, parts of the contract and its rider, which were executed by both parties.

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