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Structural Steel Fabricators, Inc. v. Consolidated Systems, Inc.

A-0455-09T3 (N.J. Super. App. Div. 2010) (Unpublished)

ARBITRATION — An arbitrator can resolve statutory claims as well as common law claims.

A contractor submitted its bid to construct a school. In connection with its bid, the contractor negotiated with a subcontractor to provide structural steel. The subcontract called for all disputes or claims arising out of the contract, or related to the performance of work at the project, to be decided in the Superior Court of New Jersey, Passaic County. It also provided that any claims arising out of, or related to, the subcontract and the performance of the work, at the contractor’s option, could be decided by way of binding arbitration.

The subcontractor was embroiled in a dispute with a material supplier that had failed to deliver required materials needed for the subcontractor to perform under the subcontract. The subcontractor filed a complaint and for an order to show cause to compel the sub-subcontractor to deliver, alleging that failure to deliver could expose the subcontractor to penalties under its own agreement with the contractor. The subcontractor amended its complaint against the material supplier, who then filed a third-party complaint against the contractor. The subcontractor then amended its complaint to add claims against the contractor, including for fraud and conversion, as well as to make statutory claims for violating the New Jersey Trust Fund Act and the Prompt Payment Act.

The contractor moved to dismiss the complaints and to compel the subcontractor to arbitrate all claims, including the statutory claims, as it was permitted to do by the contract. The subcontractor argued that the arbitration provisions were void due to illegality, duress or the contractor’s fraud. The lower court granted the contractor’s motion to submit the matter to arbitration. It also found that when the subcontractor argued that the its material supplier’s nonperformance would expose it to penalties under its agreement with the contractor, it was judicially estopped from arguing that its own agreement with the contractor was void and unenforceable. The subcontractor appealed.

The Appellate Division affirmed in part, noting that New Jersey has a strong public policy in favor of arbitration and that agreements to arbitrate are to be read liberally in favor of arbitration. It found that the agreement between the contractor and the subcontractor provided for the arbitration of all disputes related to the agreement, including both common law claims and statutory claims based on the same set of facts. If a court could not compel arbitration for statutory claims, then parties could couch their claims in such a way as to avoid falling within the scope of the arbitration provision. Further, the Court noted that the legislature did not intend to require parties to choose between arbitration and being able to pursue statutory claims. Here, the Court found that the subcontractor’s statutory claims resulted from the same agreement and the same set of facts as its common law claims and that the agreement clearly provided for arbitration. Therefore, according to the Court, the lower court properly submitted the matter to arbitration.

On the other hand, the Court disagreed with the lower court’s finding that the subcontractor was judicially estopped from contesting the validity of its agreement with the contractor. It noted that judicial estoppel is an extraordinary remedy which should only be used when a party’s inconsistent behavior would result in a miscarriage of justice. The Court found no reason to apply the doctrine to prevent the subcontractor from challenging the validity of its agreement with the contractor. It noted that when the subcontractor sued its material supplier, it alluded to its contract with the contractor only to demonstrate its potential exposure if the material supplier did not deliver the building materials. It was not intended to be an affirmation or ratification of that agreement itself, and therefore the subcontractor should not have been precluded from arguing that the arbitration provision with the contractor was void and unenforceable.

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