RALPH MITSCHELE, JR. VS. WILF/MITSCHELE JOINT VENTURE (C-000212-14 AND C-000217-14, ESSEX COUNTY AND STATEWIDE) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Alt hough it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0777-18T2
RALPH MITSCHELE, JR., and
NORMAN MITSCHELE, JR.,
Plaintiffs-Respondents,
v.
WILF/MITSCHELE JOINT
VENTURE, and WILF LAW FIRM,
LLP,
Defendants,
and
NORTHFIELD-LIVINGSTON
DEVELOPERS, LLC, HILLSIDE
HEIGHTS, LLC, W&M JOINT
VENTURE LLC, ZYGMUNT WILF,
LEONARD WILF, MARK WILF, and ELI
PECHTHOLD,
Defendants-Appellants.
___________________________________
MARK WILF, ZYGMUNT WILF,
LEONARD WILF, and ELI PECHTHOLD
individually and derivatively on behalf of
W&M JOINT VENTURE, LLC,
HILLSIDE HEIGHTS, LLC, EDGEMERE
ESTATES, INC. and NORTHFIELD-
LIVINGSTON DEVELOPERS, LLC,
directly and derivatively on behalf of
W&M JOINT VENTURE, LLC,
Plaintiffs-Appellants,
v.
RALPH MITSCHELE, JR., and NORMAN
MITSCHELE, JR.,
Defendants-Respondents,
and
DEERCO, INC., and EXEX, INC.,
Defendants.
___________________________________
Argued February 5, 2020 – Decided May 5, 2020
Before Judges Koblitz, Gooden Brown and Mawla.
On appeal from the Superior Court of New Jersey,
Chancery Division, Essex County, Docket Nos. C-
000212-14 and C-000217-14.
Sheppard A. Guryan argued the cause for appellants
(Lasser Hochman, LLC, attorneys for appellants; John
R. Wenzke and Sheppard A. Guryan, of counsel and
on the briefs; Bruce H. Snyder, on the brief).
Alan M. Lebensfeld argued the cause for respondents
(Lebensfeld Sharon & Schwartz PC, attorneys for
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respondents; Alan M. Lebensfeld, of counsel and on
the brief).
PER CURIAM
This appeal concerns the January 23, 2015 court confirmation of an
arbitration that arose out of a dispute between the parties to a joint venture.
On January 4, 2000, Northfield Livingston Developers, LLC, which was
owned by Mark Wilf, Zygmunt Wilf, Leonard Wilf, and Eli Pechthold (the
Wilfs), and Deerco, Inc. and ExEx, Inc., which were owned by Norman
Mitschele, Jr. and Ralph Mitschele, Jr. (the Mitscheles), entered into a joint
venture agreement (JVA) for the purpose of developing a forty-lot, single-
family home subdivision in Livingston, referred to as the Hillside Heights
project. To that end, the joint venture formed three entities, Hillside Heights,
LLC, Edgemere Estates, Inc., and W&M Joint Venture, LLC, which were all
owned fifty percent by the Wilfs, and fifty percent by the Mitscheles.
Numerous disputes between the Mitscheles and Wilfs arose regarding
the management and operation of the joint venture, and in February 2011, t he
Mitscheles commenced an arbitration proceeding. After nine days of hearings,
on August 25, 2014, the arbitrator entered a final award in favor of the
Mitscheles, which included a $2 million liquidated damages award.
On September 7, 2018, after appeal to the Chancery Division, a final
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judgment essentially affirmed the $2 million monetary award to the
Mitscheles, and required the Wilfs to pay $123,350.33 in legal fees related to
the confirmation of the arbitration award. The Wilfs, individually and
derivatively on behalf of W&M Joint Venture, LLC, Hillside Heights, LLC,
Edgemere Estates, Inc. and Northfield Livingston Developers, LLC
(collectively, appellants), appeal various orders that modified and affirmed the
final award in arbitration, as well as the award of legal fees. We affirm
substantially for the cogent reasons expressed by Judge Thomas M. Moore.
I.
Deerco and ExEx owned the property upon which the Hillside Heights
project was to be built. Pursuant to the JVA, Deerco and ExEx transferred
their property to the joint venture, and the Mitscheles were credited with a $4
million capital contribution. The Wilfs were required to contribute $4 million
as their capital contribution; $2 million was paid to Deerco and ExEx upon the
transfer of the property to Edgemere and Hillside, and the additional $2
million was to be paid as needed for joint venture expenses.
Numerous disputes between the Mitscheles and Wilfs arose regarding
the management and operation of the joint venture. Those disputes increased
in 2010, and the Mitscheles called for the replacement of Neidich & Co.,
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which had also served as the Wilfs' accountant, as the joint venture's
accountant, and the escrowing of the joint venture's proceeds until their
disputes could be addressed. In February 2011, the Wilfs unilaterally shut
down the Hillside Heights project. That same month, the Mitscheles
commenced an arbitration proceeding pursuant to the JVA.
In December 2011, the parties retained a retired federal judge to serve as
arbitrator. The arbitrator's engagement letter provided:
The proceeding shall be conducted as a self-
administered arbitration but will be governed by the
Commercial Arbitration Rules of the American
Arbitration Association and by the terms of Article
XV(c) of the parties' [JVA] dated January 4, 2000. . . .
Any [a]ward shall be binding upon the parties;
judgment may be entered upon said [a]ward in a court
of competent jurisdiction; and such judgment may be
enforced according to law.
....
The [a]rbitrator's authority to conduct the
arbitration proceeding shall be exclusive and
complete. The [a]rbitrator shall have the power to
grant such legal and equitable remedies on a
provisional or final basis as a trial court of competent
jurisdiction could grant in similar cases.
In their statement of claims, respondents alleged that "[t]he action
involve[d] contractual, business tort and statutory claims arising from a real
estate development joint venture," which appellants have "repudiated."
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Alleged default events included:
• Causing payment of alleged "expenses" that are
not legitimate joint venture expenses to
affiliated persons and entities, notably Leonard
Wilf and Concord Developers, another entity
controlled by Wilf;
• Improperly stating joint venture expenses and
thereby unjustly enriching themselves or
affiliated persons or entities;
• Making unauthorized payments from joint
venture funds;
• Upon information and belief, commingling joint
venture assets with assets of other entities or
persons;
• Unreasonably withholding or improperly stating
distributions owed to the joint venture partner,
Mitschele;
• Causing joint venture tax returns to be filed
without notice to or timely review by Mitschele,
with personal liability borne by Ralph and
Norman Mitschele;
• Refusing to disclose financial records and
supporting documents and to make reasonable
responses to requests for financial records;
• Failing to maintain accurate financial records;
• Refusing Mitschele's right to participate equally
in the operation and management of the joint
venture;
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• Refusing to continue with reasonable efforts to
develop the remaining lots; and
• Refusing to remove Neidich & Company (the
accountants for other Wilf entities and the
Wilfs, personally) as the accountants for the
joint venture, despite written notice by the
Mitscheles of Neidich's conflict of interest and
demand for the appointment of a neutral
accounting firm.
Appellants do not dispute respondents sought more than $2 million,
requesting the following relief:
• An accounting of all revenues, expenses,
disbursements and profits of the joint venture;
• Distribution of sums owned to Mitschele after
an accounting, disgorgement and reimbursement
of all monies improperly paid or applied;
• An award of compensatory, consequential,
punitive and treble damages, as applicable;
• Just and equitable apportionment of all
remaining joint venture assets, to include
adjustment of the parties' respective capital
accounts when and if necessary;
• An award of pre-judgement and post-judgment
interest;
• An award of attorneys' fees as allowed by
contract or by statute, and as otherwise allowed
in arbitration;
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• An award of costs, to include the arbitrator's
fees and fees incurred for accounting
professionals;
• A final determination of all other remaining
rights of the parties to the joint venture;
• Dissolution of the joint venture; and
• Such other and further relief as the arbitrator
deems just.
In their response to the statement of claims and counterclaim, appellants
alleged that the action involved "contractual and common-law claims arising
from a real estate development joint venture," and by way of counterclaim
asserted various breaches by respondents and sought an award in their favor.
II.
After a nine-day testimonial arbitration, on August 25, 2014, the
arbitrator entered a final award, determining that the Wilfs had materially
breached the JVA and, pursuant to the election of remedies provision set forth
in that agreement, the Mitscheles were entitled to termination of the joint
venture and recovery of "its prior contributions to the [j]oint [v]enture," in the
amount of $2 million. The arbitrator explained:
Th[e] disputes [between the Wilfs and
Mitscheles] multiplied in 2010, and the Mitscheles
reasonably called for the replacement of Neidich &
Co. as the [j]oint [v]enture's accountants and the
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escrowing of proceeds from the sale of [one of the
lots] (consistent with prior practice throughout the
years) until present disputes regarding such things as
proper charges to the funds of the [j]oint [v]enture
could once again be addressed. If for no other reason,
the Mitscheles were justified in criticizing the decision
of Neidich & Co. to book the reversal of Hillside
Heights expenses (with resulting substantial additional
phantom income which imposed heightened tax
liability upon the Mitscheles) for the calendar year
2009. . . . No satisfactory explanation for the
backdating of these reversals to the year 2009 was
presented on the record of this arbitration. Whether
out of anger, a calculated desire to generate leverage
or otherwise, the Wilfs then unilaterally shut down the
project, a breach of their primary obligation to co-
manage the [j]oint [v]enture in its basic, underlying
business: the sale of lots and construction of
homes. . . .
....
Unlike the [Wilfs], the [Mitscheles] committed no
breaches or acts of default under the JVA.
This [a]rbitrator finds and determines that the
Wilfs' refusal to continue or resume the Hillside
Heights development, thereby bringing the work of the
[j]oint [v]enture to a standstill and completely
frustrating its business purpose was a material breach
of the JVA and was an uncured "default under the
[JVA]" . . . which throws this matter clearly into the
provisions of Article XV(b) . . . . That default permits
the [Mitscheles] . . . to pursue such remedies as are
available to them under that Article.
As to the remedies available to the Mitscheles under Article XV(b), the
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arbitrator stated:
[O]ption (i) under Article XV(b) is neither applicable
to the present controversy nor sought by the
Mitscheles herein.
Option (ii), however, which permits a party "to
terminate this [a]greement and recover its prior
contributions to the [j]oint [v]enture" is applicable and
available to the Mitscheles . . . . Pursuant to Article
XI of the [JVA] which is specifically directed to
[t]ermination, "the [j]oint [v]enture shall be dissolved
and wound up in accordance with . . . those provisions
of New Jersey Statutes that speak to such issues,
except insofar as such provisions may be at variance
with the terms of this [a]greement." The "prior
contributions to the [j]oint [v]enture" made by the
Mitscheles are a net of $2,000,000, the return of which
will be discussed hereafter.[4] Thus, the Mitscheles
have established entitlement to that sum. Any
argument that some or all of the $2,000,000 balance in
their capital contribution has been satisfied by
distribution of proceeds of sale from the developed
lots is unpersuasive. No matter how those payments
might have been carried on the books and records,
these were distributions of profits on the sales of
houses, not returns of "prior contributions" of capital.
As noted in the quotation above, immediately
after the expression of the optional remedies available
to a non-defaulting party, the following language
appears:
The return of such contributions shall
constitute and be liquidated and agreed
damages and upon payment thereof, the
parties thereto shall be relieved of any
further liability to each other, it being
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expressly understood that such remedy, if
elected, shall then be the sole and
exclusive right and remedy of the non-
defaulting party, and constitutes a fair and
reasonable remedy for the damage
sustained as a result of the breach. Under
no circumstances shall either [j]oint
[v]enturer be liable to the other for any
damages other than specified above
whether such damages are direct or
consequential.
That limitation of remedies is as comprehensive,
complete and unambiguous as it could possibly be.
Any deviation or qualification placed upon those
terms would violate both the parol evidence rule and
the clauses governing integration and modification in
the [JVA]. . . .
....
Due to the limitation of damages clause,
including a specific provision that "the parties thereto
shall be relieved of any further liability to each other,"
[the Mitscheles'] recovery in this matter is strictly
limited to the $2,000,000 discussed above, and no
sums are recoverable by [the Wilfs].
________
4
At the outset of the [j]oint [v]enture the Mitscheles
contributed [forty] lots valued at a total of $4,000,000
and, within a matter of months thereafter received
$2,000,000 in partial redemption of that capital
contribution.
As to the termination, dissolution, and winding up of the joint venture,
the arbitrator explained:
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Pursuant to the powers conferred upon this
[a]rbitrator in the retention letter previously described
herein, and upon the joint application of the [p]arties,
the undersigned will enter a declaratory judgment that
the JVA is terminated and the [j]oint [v]enture is
dissolved. . . .
However, the next step after the dissolution of a
partnership (or a [j]oint [v]enture) is the winding up of
its business. That undertaking, or legal proceeding if
necessary, is not within the jurisdiction of this
[a]rbitrator. . . .
....
Furthermore, numerous items and issues will
have to be addressed in the winding up of the business
of this [j]oint [v]enture which are well outside the
record generated in this arbitration. . . . Furthermore,
this winding up will necessarily involve several
persons and entities who are not parties either to the
JVA or this arbitration. Those parties include Hillside
Heights, Edgemere, and each of the Wilfs
individually, as well as any third-party debtors or
creditors of the [j]oint [v]enture, the Township of
Livingston,[] and any potential purchasers of the
remaining lots. In addition, as part of the winding up
process, the [j]oint [v]enture will have to file
necessary federal and state tax returns and discharge
any liabilities which it may have to any taxing
authority.
....
Accordingly, this [a]rbitrator will include in this
[f]inal [a]ward a directive that the parties proceed
forthwith with the winding up of the business of the
[j]oint [v]enture. However, that undertaking must
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take place outside the confines of this arbitration.
The final arbitration award provided:
1. Ralph Mitschele, Jr. and Norman Mitschele, Jr.
are hereby [a]warded jointly, the sum of $2,000,000
against the [r]espondent W&M Joint Venture, LLC.
2. The nominal [r]espondents Edgemere Estates,
Inc. and Hillside Heights, LLC are dismissed from this
arbitration.
3. The parties to this arbitration are hereby
awarded a declaratory judgment that the [JVA] is
hereby terminated and W&M Joint Venture, LLC (the
[j]oint [v]enture entity) is hereby dissolved.
4. The parties are directed to proceed with the
winding up of the business of the [j]oint [v]enture and
W&M Joint Venture, LLC either through agreement
or, if necessary, by seeking the aid and supervision of
a court of competent jurisdiction, acting pursuant to
applicable provisions of the [JVA] and the laws of the
State of New Jersey.
5. All other claims asserted by any party herein,
including claims for awards of costs and/or attorneys'
fees are denied and dismissed. [The Mitscheles] and
[the Wilfs] will each bear their own costs and
attorneys' fees as incurred.
6. The fees and expenses payable to this
[a]rbitrator . . . will be billed and then satisfied from
the [p]arties' deposits . . . . Throughout this matter,
each side has been responsible for [fifty percent] of
the [a]rbitrator's fees and that will remain the case.
No portion of this obligation will be shifted from one
party to another. These fees will remain as incurred.
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III.
The Mitscheles asked the court, pursuant to N.J.S.A. 2A:23B-23(a), to
modify the final arbitration award based "upon the ground that the [a]rbitrator
refused to consider evidence which would have been material to the
controversy," that Hillside and Edgemere were joint venture entities and
"proper and necessary parties to the [a]rbitration" over whom the arbitrator had
jurisdiction, and that the remaining lots held by Hillside and Edgemere "would
be subject to satisfaction of the [a]rbitrator's [f]inal [a]ward." Alternatively,
the Mitscheles sought confirmation pursuant to N.J.S.A. 2A:23B-24(b) and
N.J.S.A. 2A:23B-2.
Pursuant to N.J.S.A. 2A:23B-24(a), the Wilfs sought to summarily
modify and then confirm the modified award based upon the ground that "the
arbitrator made an award on a claim not submitted to the arbitrator."
Alternatively, the Wilfs sought to vacate the final arbitration award on the
grounds that it was "procured by undue means," its issuance "constituted
[a]rbitrator misconduct," and the arbitrator exceeded his authority.
On January 23, 2015, Judge Moore granted the Mitscheles' motion
pursuant to N.J.S.A. 2A:23B-24(a)(3), modifying the final arbitration award
and determining that it was enforceable against all three joint venture entit ies.
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Judge Moore also confirmed the modified award. In doing so, he stated:
The evidence . . . unequivocally shows that the
parties intended the joint venture entities to be a part
of the arbitration and in fact seems to indicate that it
was so obvious to the parties that Edgemere, Hillside,
and W & M all constituted the embodiment of the
joint venture that the parties did not even feel it
necessary to have to explain that to the arbitrator.
As such, I do find on this record that the parties
did intend Edgemere and Hillside, as well as W & M,
to be part of the arbitration.
The judge modified the form of the award "to include Edgemere and Hillside
as part of the arbitration and allow recovery against the three joint venture
entities: Edgemere, Hillside, and W & M."
In rejecting the Wilfs' arguments, he explained:
I think [Block v. Plosia, 390 N.J. Super. 543
(App. Div. 2007) is] distinguishable from what we
have here, very distinguishable. In Block, the
arbitrator was governed by the arbitration agreement
which specifically limited the scope of the arbitration
as follows: [t]he parties do agree to submit all matters
in difference before them to the award and final
determination of an arbitrator selected by them.
In this matter, [the arbitrator's] jurisdiction was
governed by his retention letter to the parties and the
[JVA]. No such provision agreeing to limit the
matters exist in either of those governing documents.
....
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And, in this matter, we have the following: [t]here is a
limitation, [the JVA] . . . limit[s] its remedy to either a
specific performance or return of capital contribution
....
. . . [I]n finding the Wilfs to be the breaching
party, finding the Mitscheles to be entitled to a
remedy, [the arbitrator] meticulously framed his award
to fit within parameters provided by the parties and
the governing instrument.
Judge Moore also appointed a receiver for all three entities, "to liquidate
the corporation or the partnership assets, to satisfy the responsibilities, and
distribute whatever is left."
Appellants' counsel argued, in a dispute over the form of the order, that
the receiver should be required to perform an accounting of the joint venture as
part of the winding up, which the judge denied, viewing it as a collateral attack
on the damages awarded by the arbitrator.
Judge Moore denied the Wilfs' motion for reconsideration, explaining:
Put simply, the Wilfs assert that because there was not
an affirmative claim for capital contributions put forth
by the Mitscheles, the arbitrator did not have the
authority to award capital contributions. The Wilfs
assert this argument is supported by the holding of
Block.
. . . Unlike Block, the parties here sought,
among other relief, an accounting, damages and
remedies in accordance with the [JVA]. Moreover,
pursuant to the retention letter, both parties agreed
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that the arbitrator's authority to conduct the arbitration
proceeding shall be exclusive and complete. The
arbitrator shall have the power to grant such legal and
equitable remedies on a provisional or final basis as a
trial court of competent jurisdiction could grant in
similar cases.
....
. . . [T]he [c]ourt finds and reaffirms that there
is no question that the arbitrator had the jurisdiction
under the relief requested to award the damages as
outlined above to the Mitscheles. But really, in my
view, the focus of the Wilfs' argument is not whether
the parties left the door open for a return of capital
contributions as relief, instead they argue that the
Mitscheles had not put in the return of capital
contribution into the issue in their asserted claims.
[The Wilfs' counsel] referred to that as no opportunity
to be heard, lack of due process.
I don't buy that at all. I don't find that to be
accurate and even a cursory reading of the Mitschele
statement of claims shows as much. Multiple claims
allege misuse of joint venture funds and assets which
would necessarily incorporate capital contributions as
part of the joint venture's funds and assets. Moreover,
the claims include failure to maintain accurate
financial records, which would implicitly and
necessarily include records for the use and return of
capital contributions. . . .
Thus, the [c]ourt finds that not only were there
capital contributions at issue before the arbitrator as a
necessary component of the claims put forth by the
Mitscheles, but, again, that [the arbitrator] had the
authority to award those damages and capital
contributions under the retention agreement, the
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[JVA], and the statement of claims provided by the
parties. Those are really the three documents that I'm
considering: retention agreement, [JVA], and
statement of claims.
Moreover, the [c]ourt finds it unpersuasive that
as only specific performance and capital contributions
can be awarded under the [JVA] that the Wilfs had no
notice of the possibility of an award as given by [the
arbitrator]. . . .
Regarding the Wilfs' argument that they were entitled to an order
directing the receiver to conduct a post-award accounting, the judge stated:
We're not going to order the receiver to conduct an
accounting of each party's interest from the beginning
of the [JVA].
. . . [I]t's the opinion of the [c]ourt that the issues
related to the parties' conduct with each other and the
joint venture should have been and in fact was, part of
the arbitration. The outcome of that arbitration has
been confirmed by this [c]ourt, . . . to go back now
and order that an accounting be made from inception
would to a significant extent undo the outcome of that
arbitration. It's neither sensible nor appropriate. The
receiver . . . has accounted for any funds he received
or expended in undertaking his duties. But that is the
extent of any further accounting which should occur.
....
The Wilfs' position is inconsistent with the
purpose and terms of the [JVA], specifically [XV(b)]
as well as commonsense. . . .
. . . [I]t seems highly unlikely that the arbitrator
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could have intended to completely undermin[e] his
final award by so rigidly requiring the application of
[N.J.S.A.] 42:1A-41 and 45 that it would undo his
decision. Further, article 11 of the [JVA] entitled
termination provides that where the joint venture is
terminated pursuant to the terms of the agreement, it
"shall be dissolved and wound up in accordance with
those provisions of the New Jersey statutes that speak
to such issues except in so far as such provisions may
be at variance with the terms of this agreement."
This provision makes clear to me that the [JVA]
was designed to avoid the type of logically
inconsistent results suggested here. Applying
[N.J.S.A.] 42:1A-41 in the manner presented by the
Wilfs would . . . effectively render futile the remedy
provision [XV(b)], upon which the arbitrator's final
award was grounded and would transform these
proceedings into an empty, very lengthy and
expensive exercise.
In April 2016, the court issued an order denying the Wilfs' application.
The Wilfs then moved for a redetermination of the disposition of funds
held in escrow by the receiver based upon the filing of the joint venturers'
2010-2015 tax returns and Section 704 of the Internal Revenue Code.
In March 2017, Judge Moore denied the Wilfs' motion, explaining:
[The first issue] before the [c]ourt is a narrow one,
whether the so-called accounting performed by [the
receiver]'s accountant for the JVA wind up in
preparation of the filing of those tax returns changes
the analysis under the JVA or the New Jersey Statute.
I don't think it does.
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....
I'm just not persuaded that this particular
activity which triggered this new motion gives the
[c]ourt reason to reconsider its previous
determination. There's no indication that the
arbitrator's final award was premised on the notion
that at the end of the wind up of the joint venture, each
party would still zero out. . . .
. . . A capital account analysis prepared for five
years of tax return[s] showing that the capital accounts
do not equal zero is simply not enough for the [c]ourt,
particularly in light of the explanations that the
Mitscheles give for that as to how it's treated. It's
simply not enough for the [c]ourt to reopen its
analysis of the arbitrator's decision, especially when
the arbitrator found fault on the . . . party alleging it's
owed money. It would turn the whole situation on its
head.
....
. . . The tax code, in my view, provides no basis
for the [c]ourt to reconsider its previous findings or to
disturb the distribution of money as envisioned by [the
arbitrator] in the arbitration award. That's really
central to this and the other . . . findings. To do
anything else . . . would render it meaningless, which I
don't think [the arbitrator] intended.
. . . [T]he potential tax consequences that will
follow the distribution of the money held by the
receiver is no reason to disturb the findings of the
arbitrator or the previous rulings of the [c]ourt, rather
the taxes paid will have to be adjusted to accurately
reflect gains and losses . . . . To vacate a previous
decision based on tax consequences of carrying it out
A-0777-18T2
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would be backwards and just not appropriate.
In September 2018, the court entered a final order and judgment
awarding the Mitscheles the net sum of $1 million and required that such funds
remain in escrow with the receiver, pending determination of this appeal. On
October 17, 2018, an amended final order and judgment was entered to fix the
amount of the Wilfs' supersedeas bond.
IV.
After de novo review, Goffe v. Foulke Mgmt. Corp., 238 N.J. 191, 207
(2019), we affirm Judge Moore's decisions substantially for the thoughtful and
thorough reasons he placed on the record. We add the following discussion.
While the arbitrator may have accorded relief not specifically sought by
either party, it was well within his discretion and the provisions of both the
arbitration agreement and JVA to do so. Because the return of prior capital
contribution was agreed-upon liquidated damages, set forth in Article XV of
the JVA, the arbitrator was authorized to award respondents $2 million in
liquidated damages, an amount equal to their prior capital contribution. A
"liquidated damages provision[] in a commercial contract between
sophisticated parties [is] presumptively reasonable [and enforceable] and the
party challenging the clause bears the burden of proving its unreasonablenes s."
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Metlife Capital Fin. Corp. v. Wash. Ave. Assocs. LP, 159 N.J. 484, 496
(1999).
Arbitration is "a favored means of dispute resolution." Hojnowski v.
Vans Skate Park, 187 N.J. 323, 342 (2006). "The object of arbitration is the
final disposition, in a speedy, inexpensive, expeditious, and perhaps less
formal manner, of the controversial differences between the parties." Id. at
343 (quoting Carpenter v. Bloomer, 54 N.J. Super. 157, 162 (App. Div. 1959)).
"[T]he scope of review of an arbitration award is narrow. Otherwise, the
purpose of the arbitration contract, which is to provide an effective, expedient,
and fair resolution of disputes, would be severely undermined." Fawzy v.
Fawzy, 199 N.J. 456, 470 (2009). Thus, "courts grant arbitration awards
considerable deference." Borough of E. Rutherford v. E. Rutherford PBA
Local 275, 213 N.J. 190, 201 (2013).
"[W]hen binding arbitration is contracted for by litigants, the judiciary's
role to determine the substantive matters subject to arbitration ends."
Minkowitz v. Israeli, 433 N.J. Super. 111, 134 (App. Div. 2013). The party
seeking to vacate the award bears the burden of establishing a basis to vacate.
Id. at 136. We review the trial court's decision to vacate or enforce an
arbitration award de novo. Manger v. Manger, 417 N.J. Super. 370, 376 (App.
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Div. 2010).
Block does not add support to appellants' argument. There, the question
presented was:
whether an arbitrator retained pursuant to the parties'
written agreement to "submit all matters in difference
between them" to arbitration had the authority under
the Arbitration Act to award statutory treble damages
and counsel fees, in circumstances in which the
advance statement of issues submitted by the parties to
the arbitrator made no reference to statutory claims
nor contained any demands for treble damages or
statutory fees.
[Block, 390 N.J. Super. at 545.]
We held that "in the absence of indicia that all parties to the arbitration have
reasonable advance notice that the scope of the arbitration includes potential
liability for treble damages and counsel fees, an arbitrator may not impose
such extraordinary relief in the award." Ibid.
Here, unlike in Block, all the parties had advance notice that the scope of
the arbitration included the potential liability for the return of the prior capital
contributions to the non-defaulting party because such a remedy was agreed to
by the parties and stated in the JVA.
V.
Appellants contend that the trial court erred in granting the Mitscheles
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23
legal fees pursuant to N.J.S.A. 2A:23B-25(c). They argue that "[t]he statute
only permits such an award if the underlying arbitration award found
entitlement to such fees," and since the arbitrator "already ruled that the
Mitscheles were not entitled to legal fees for the remedies they pursued under
the JVA," the Mitscheles were not entitled to an award of legal fees.
In denying the Mitscheles' request for pre-award legal fees and
arbitration fees, the arbitrator explained:
Although the [Mitscheles] did succeed in securing the
return of the balance of their capital contributions to
the [j]oint [v]enture, they were unsuccessful in
pursuing their several claims for damages. All claims
of the [Wilfs] were also denied. Under these
circumstances, it cannot be said that there was truly a
prevailing party in this matter. Accordingly, although
this [a]rbitrator has the discretion to do so (see AAA
Rule 47(d)(ii)), [1] there is no basis for a recovery by
any party against another of all or part of its attorneys'
fees. Furthermore, in contrast to the remedy of
specific performance set forth in Article XV(b)(i) of
the JVA, the recovery of capital contributions under
subsection (ii) does not require an award of attorneys'
fees. Each side in this matter is required to bear the
fees of its own counsel, and they will remain as
incurred.
1
American Arbitration Association (AAA), Commercial Arbitration &
Mediation Procedures, Rule 47(d)(ii) (2013) states: "The award of the
arbitrator(s) may include: . . . an award of attorneys' fees if all parties have
requested such an award or it is authorized by law or their arbitration
agreement."
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24
The court awarded respondents $123,350.33 in legal fees and costs
pursuant to N.J.S.A. 2A:23B-25(c) (emphasis added) (footnote omitted), which
provides:
On application of a prevailing party to a contested
judicial proceeding pursuant to section 22, 23, or 24 of
this act, the court may add reasonable attorney's fees
and other reasonable expenses of litigation incurred in
a judicial proceeding after the award is made to a
judgment confirming, vacating without directing a
rehearing, or substantially modifying or correcting an
award.
As a general matter, New Jersey "disfavors the shifting of attorneys'
fees." Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 385 (2009). "[A]
prevailing party can recover those fees if they are expressly provided for b y
statute, court rule, or contract." Ibid. (quoting Packard-Bamberger & Co., Inc.
v. Collier, 167 N.J. 427, 440 (2001)); see also R. 4:42-9(a).
Where attorney's fees are authorized, however, "the decision to award or
deny attorney's fees rests within the sound discretion of the trial court." Desai
v. Bd. of Adj. of Phillipsburg, 360 N.J. Super. 586, 598 (App. Div. 2003).
Trial courts have broad discretion in determining "when, where, and under
what circumstances counsel fees may be proper." Enright v. Lubow, 215 N.J.
Super. 306, 313 (App. Div. 1987). We will only disturb a trial court's award of
fees in "the rarest of occasions, and then only because of a clear abuse of
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discretion." Litton Indus., 200 N.J. at 386 (quoting Packard-Bamberger, 167
N.J. at 444).
Here, there was a statutory basis for the legal fees award. The clear and
unambiguous language of N.J.S.A. 2A:23B-25(c) specifically authorized the
court to grant such post-award legal fees and costs. Indeed, respondents were
the "prevailing party" to a "contested judicial proceeding" to confirm their
arbitration award. See N.J.S.A. 2A:23B-25(c).
Appellants' argument that pursuant to the holding in Rock Work, Inc. v.
Pulaski Constr. Co., 396 N.J. Super. 344 (App. Div. 2007), respondents were
not entitled to the award of legal fees and costs under N.J.S.A. 2A:23B-25(c)
was rejected by the trial court and is rejected by us.
In Rock Work, 396 N.J. Super. at 353, we held that the Arbitration Act
did not apply to the arbitration at issue, thereby resolving the issue before the
appellate court. Nevertheless, we proceeded to analyze the issues, assuming
that the Arbitration Act had applied. Although we couched the issue as
whether, under N.J.S.A. 2A:23B-25(c), the successful party, the defendant,
was entitled to post-award legal fees for obtaining confirmation of the
arbitration award, we actually analyzed the issue as whether the defendant was
entitled to pre-award legal fees from the arbitrator. We said:
A-0777-18T2
26
Last, we consider [the defendant's] argument
that it was entitled to an award of fees incurred in
obtaining confirmation of the arbitration award. The
only authority cited for that proposition is the
Arbitration Act, and in particular N.J.S.A. 2A:23B-
25(c) . . . .
We assume that the argument for fees was based
on the possibility that we might have decided that the
Arbitration Act applied to this case. Since we have
accepted [the defendant's] contrary contention, there is
no basis for awarding fees. . . .
Were we to assume that the Arbitration Act
provisions on attorney's fees applied here, we would
still not grant the relief requested by [the defendant]
because there was a substantial question about
whether the act applied and because we are satisfied
for the following reasons that under the act [the
defendant] was not entitled to receive an attorney's fee
award from the arbitrators.
The Arbitration Act adopts the American Rule
except when fee-shifting occurs "by the agreement of
the parties to the arbitration proceeding." N.J.S.A.
2A:23B–21(b). The question, as we perceive it, is
whether an express agreement is required or whether
an implied agreement will do. In this case, [the
defendant] concedes that there was no express
agreement for fee-shifting but argues that an
agreement may be implied because the arbitration
agreement called for "all claims, disputes and other
matters in question arising out of or relating to" the
contract to be resolved in the arbitration, [the
unsuccessful party] submitted to AAA arbitration, and
the applicable AAA rule, CIAR 46(d), stated that fees
may be awarded if both sides ask for them.
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27
[Rock Work, 396 N.J. Super. at 355-56.]
We held that unless the parties had agreed to grant the arbitrator the
authority to grant pre-award legal fees, the arbitrator could not do so. Id. at
357. Although we analyzed the issue only under section (b) of N.J.S.A.
2A:23B-21, as it pertains to pre-award legal fees and costs from the arbitrators,
we applied that same analysis to conclude that the defendant was not entitled
to post-award legal fees and costs from the court for confirming the arbitration
award section (c) of the statute.
As Judge Moore pointed out, the Rock Work court's ruling on N.J.S.A.
2A:23B-25(c) was clearly dicta, as it had already determined that the
Arbitration Act did not apply. Judge Moore's conclusion that N.J.S.A.
2A:23B-25(c) authorizes the grant of post-award legal fees in a confirmation
proceeds, and that the Rock Work holding does not preclude such an award, is
supported by the facts and law.
Respondents were also entitled to post-award legal fees and costs
because the JVA does, in fact, contain an express agreement on attorneys' fees.
Article XVI (c) provides:
Attorneys' Fees. In the event any action or proceeding
is commenced to obtain a declaration of rights
hereunder, to enforce any provision hereof, or to seek
rescission of this Agreement for default contemplated
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herein, whether legal or equitable, the prevailing party
in such action shall be entitled to recover its
reasonable attorneys' fees in addition to all other relief
to which it may be entitled.
The trial court did not err by awarding respondents post-award legal fees
and costs under N.J.S.A. 2A:23B-25(c).
Affirmed.
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