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Justia › US Law › Case Law › New Jersey Case Law › Supreme Court of New Jersey Decisions › 1992 › Perini Corp. v. Greate Bay Hotel & Casino, Inc.
Perini Corp. v. Greate Bay Hotel & Casino, Inc.
129 N.J. 479 (1992)
610 A.2d 364
PERINI CORPORATION, A MASSACHUSETTS CORPORATION, PLAINTIFF-APPELLANT, v. GREATE BAY HOTEL & CASINO, INC., T/A SANDS HOTEL & CASINO, INC., A NEW JERSEY CORPORATION, DEFENDANT-RESPONDENT.
The project had several component parts: (1) expansion of the existing casino gaming area; (2) creation of a new food court; (3) renovation of the nineteenth and twentieth floors and the addition of a new twenty-first floor to house an executive plaza club and seven luxury "high-roller" suites; (4) creation of an additional entrance at the southeast corner of the building (the new park entrance); and (5) the creation of a $400,000 ornamental, non-functional glass facade located outside of the east wall, which faces the boardwalk. Sands described the latter as a "new glitzy glass facade on the east side of the building which might act as a magnet to lure a new category of customers strollers who might leave the boardwalk and walk the long block from the beach to the Sands."
Perini argues that the entire project and various portions thereof reached substantial completion, as defined in the contract, as follows: casino and food court, April 17, 1984; new park entrance and facade, August 31, 1984; suites, September 14, 1984; and the entire project, September 14, 1984. Perini contends that no one disputes that the revenue-producing portions of the work the expanded casino gaming area and the food courts were open and operational before Memorial Day and that Perini was entitled to an excusable extension of the completion date for the "high-roller" suites until August 22, 1984. Therefore, for all practical purposes, Perini argues that Sands's only delay claim related to an alleged four-month delay, *487 from May through August 31, 1984, in the substantial completion of the glass facade. After the entire project had reached substantial completion on September 14, 1984, Perini claims that in keeping with the term-of-art meaning of substantial completion, only "punch list" and warranty work remained to be completed at the site. However, Sands sought to terminate the contract by letter dated December 21, 1984, despite an asserted contractual provision that it could not terminate the contract after substantial completion.
a. Where the award was procured by corruption, fraud or undue means; b. Where there was either evident partiality or corruption in the arbitrators, or any thereof; c. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause being shown therefor, or in refusing to hear evidence, pertinent and material to the controversy, or of any other misbehaviors prejudicial to the rights of any party; d. Where the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made. [N.J.S.A. 2A:24-8.]
That scope of review is consistent with formulations found in other jurisdictions.[1] For example, under New York law an arbitration award "will not be vacated even though the court concludes that [the arbitrator's] interpretation of the agreement * * * misapplies substantive rules of law, unless it is violative of strong public policy, or is totally irrational, or exceeds a specifically enumerated limitation on [the arbitrator's] power." In re Arbitration Between Silverman and Benmor Coats, Inc., 61 N.Y.2d 299, 473 N.Y.S.2d 774, 779, 461 N.E.2d 1261, 1266 (1984). In Illinois, even "[g]ross errors of judgment in law or a gross mistake of fact are not grounds for vacating an *495 award unless the mistakes or errors are apparent upon the face of the award." Rauh v. Rockford Prods. Corp., 143 Ill. 2d 377, 158 Ill.Dec. 523, 531, 574 N.E.2d 636, 644 (1991).
In California, where an arbitrator's award is "made binding by the contract * * * and the legal issue concerns its construction, only a mistake of law egregious enough to amount to an arbitrary remaking of that contract is judicially cognizable." Pacific Gas and Elec. Co. v. Superior Court of Sutter County, 234 Cal. App. 3d 428, 277 Cal. Rptr. 694, 701, cert. granted, 281 Cal. Rptr. 765, 810 P.2d 997 (1991). See also Celtech, Inc. v. Broumand, 584 A.2d 1257, 1258 (D.C.App. 1991) ("To persuade a court to interfere with an arbitration award, a party must show corruption or `gross mistake'; an error of judgment will not do."); Jackson Trak Group, Inc. v. Mid States Port Auth., 242 Kan. 683, 751 P.2d 122, 127 (1988) (errors of law are not sufficient to vacate award fairly made in absence of "fraud, misconduct, or other valid objections"); Fischer v. Guaranteed Concrete Co., 276 Minn. 510, 151 N.W.2d 266, 270 (1967) (arbitrators award will not be set aside for mistake of law absent "fraud, mistake in applying his own theory, misconduct, or any other disregard of duty"); Bailey and Williams v. Westfall, 727 S.W.2d 86, 90 (Tex. Ct. App. 1987) ("Not every error of * * * law warrants setting aside an arbitration award, but only those errors which result in a fraud or some great and manifest wrong and injustice."); Racine Unified School Dist. v. Service Employees' International Union, Local 152, 158 Wis.2d 51, 462 N.W.2d 214, 216 (1990) (only "manifest disregard of the law" would justify setting aside an arbitrator's decision).
"Manifest disregard of the law" by arbitrators is a judicially-created ground for vacating their arbitration award, which was introduced by the Supreme Court in Wilko v. Swan, 346 U.S. 427, 436-37, 74 S. Ct. 182, 187-88, 98 L. Ed. 168 (1953). It is not to be found in the federal arbitration law. 9 U.S.C. § 10. Although the bounds of this ground have never been defined, it clearly means more than error or misunderstanding with respect to the law. Siegel v. Titan Indus. Corp., 779 F.2d 891, 892-93 (2d Cir.1985); Drayer v. Krasner, 572 F.2d *496 348, 352 (2d Cir.), cert. denied, 436 U.S. 948, 98 S. Ct. 2855, 56 L. Ed. 2d 791 (1978); I/S Stavborg v. National Metal Converters, Inc., 500 F.2d 424, 432 (2d Cir.1974). The error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. Moreover, the term "disregard" implies that the arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it. Bell Aerospace Company Division of Textron, Inc. v. Local 516, 356 F. Supp. 354, 356 (W.D.N.Y. 1973), rev'd on other grounds, 500 F.2d 921 (2d Cir. 1974). To adopt a less strict standard of judicial review would be to undermine our well established deference to arbitration as a favored method of settling disputes when agreed to by the parties. United Steelworkers v. American Manufacturing Co., 363 U.S. 564, 80 S. Ct. 1343, 4 L. Ed. 2d 1403 (1960); United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960); United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 80 S. Ct. 1358, 4 L. Ed. 2d 1424 (1960); Saxis Steamship Co. v. Multifacs International Traders, Inc., 375 F.2d 577 (2d Cir.1967). Judicial inquiry under the "manifest disregard" standard is therefore extremely limited. The governing law alleged to have been ignored by the arbitrators must be well defined, explicit, and clearly applicable. We are not at liberty to set aside an arbitration panel's award because of an arguable difference regarding the meaning or applicability of laws urged upon it. [Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933-34 (2d Cir. 1986).]
"Compensatory damages are designed `to put the injured party in as good a position as he would have had if performance had been rendered as promised.' 5 Corbin, Contracts § 992, p. 5 (1951)." What that position is depends upon what the parties reasonably expected. It follows that the defendant is not chargeable for loss that he did not have reason to foresee as a probable result of the breach when the contract was made. Hadley v. Baxendale, 9 Ex. 341, 156 Eng.Rep. 145 (1854); accord Crater v. Binninger, 33 N.J.L. 513 (E. & A. 1869). The oft-quoted language in Hadley for this proposition is: Where two parties have made a contract, which one of them has broken, the damages which the other party ought to receive, in respect of such breach, should be such as may fairly be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it. [9 Ex. at 354, 156 Eng.Rep. at 151] [Donovan v. Bachstadt, 91 N.J. 434, 444-45, 453 A.2d 160 (1982) (footnote omitted) (citations omitted).]
2. Was it a mistake to award damages for lost profits after the date when the project was substantially completed? A.
Also, in Utica Mutual Insurance Co. v. DiDonato, 187 N.J. Super. 30, 453 A.2d 559 (App.Div. 1982), a case involving a contract for electrical work for the completion of a construction project at Stockton State College, the plaintiff argued that the trial judge had erred in assessing the date of substantial completion. Id. at 39, 453 A.2d 559. The plaintiff asserted that substantial completion had occurred months before the actual completion date of May 14, 1976, and therefore it should not be liable for liquidated damages after the substantial completion date. The Appellate Division remanded the issue to the trial court, finding that the Director of the Division of Building and Construction had testified that substantial completion of the entire project had occurred "around June of 1975." Id. at 41, 453 A.2d 559. The court stated that it was not aware if the entire project had been occupied or used for its intended purpose during the September 1975 semester. Ibid. Thus, it was necessary to determine the substantial completion date prior to assessing the liquidated damages award. See also Public *505 Health Trust of Dade County v. Romart Constr., 577 So. 2d 636 (Fla. Dist. Ct. App. 1991) (liquidated damages awarded for sixty-eight day delay in failing to substantially complete the project); Stone v. City of Arcola, supra, 536 N.E.2d 1329 (liquidated damages can only be awarded until substantial completion date); American Druggists Ins. Co. v. Henry Contracting, Inc., 505 So. 2d 734 (La. Ct. App.) (same), cert. denied, 511 So. 2d 1156 (La. 1987); Page v. Travis-Williamson County Water Control and Improvement Dist. No. 1, 367 S.W.2d 307, 310 (Tex. 1963) (holding substantial completion had occurred because water district "took possession of all the lines, filled them with water and began using them to serve the customers of the water district").
Case law also suggests that, like liquidated damages, lost profits can be assessed up to the date of substantial completion. For example, in D.A. Davis Construction v. Palmetto Properties, Inc., 281 S.C. 415, 315 S.E.2d 370 (1984), the court awarded three months' lost rental income to the owner for the builder's failure to substantially complete the project on the date specified in the contract. Id. at 372. The owner presented evidence that the property was to have been rented to a beer distributor upon substantial completion. See also Hemenway Co. v. Bartex, Inc., 373 So. 2d 1356 (La. Ct. App.) (holding that the owner of retail store should receive the interest it had paid on interim financing and the rent paid on the old building for the period of delay until substantial completion), cert. denied, 376 So. 2d 1272 (La. 1979); Herbert & Brooner Constr. Co. v. Golden, 499 S.W.2d 541 (Mo. Ct. App. 1973) (awarding delay damages for lost rental on theater and the costs of extending a construction loan until date of substantial completion). Cf. Brooks Towers Corp. v. Hunkin-Conkey Constr. Co., 454 F.2d 1203 (10th Cir.1972) (holding no lost rentals can be awarded where delay in substantial completion was excusable).
Sands contracted with Perini in large measure for the construction of an ornamental facade, which was intended to draw people to the casino. To apply the doctrine against Sands might be inequitable because Sands never received what it bargained for an ornamental glass facade that would attract clientele to its casino. Such an appearance was not entirely achieved by September 15. The arbitrators could have found that the uncompleted work was not a "mere technical or unimportant omission[] or defect[]." Because the doctrine rests on fairness, the arbitrators may have considered it fair to award damages even though the entrance could be used in its uncompleted state. See Birch Cooley v. First Nat'l Bank of Minneapolis, *508 86 Minn. 385, 90 N.W. 789, 790 (1902) (Rule of substantial performance does not apply "where deviations from the contract are such that an allowance out of the contract price would not give the other party essentially what [it] contracted for.").
Perini's argument also fails to take into account the possibility that the public's perception of the Sands building during the critical summer months could have had a significant impact on Sands's operations in the fall. There was evidence in the record concerning the importance of introducing the renovated facility to the public during the peak summer season. A Sands executive testified that the image created by an Atlantic City casino in the summer carries over into the following months. Thus, the situation is not directly analogous to that of a theater owner whose profits resume when the project is substantially completed, Herbert & Brooner, supra, 499 S.W.2d 541, or the retail store owner who is able to transfer operations from one store to another, Hemenway, supra, 373 So. 2d 1356. Here, the arbitrators could have concluded that the delay in completion was an event of non-performance that carried over into the fall resulting in significant consequential damages after substantial completion. In other words, to give the worst case scenario, if, during a renovation, a contractor had left residual materials in a ventilator system that had caused a wide-spread epidemic in a hotel (as in the famous Legionnaire's disease case in Philadelphia, see Tom Mathews et al., The Mystery Fever, Newsweek, Aug. 16, 1976 at 16), would anyone doubt that after the project had been substantially completed, i.e., fully renovated, the consequential damages incurred by the proprietor would linger long thereafter? An event of non-performance caused a loss of income even after completion. We do not suggest that that is an identical or apt analogy; however, the evidence submitted to the arbitrators suggested that the casino was presented to the public in a poor light due to Perini's delay in completion. That delay and the resulting appearance could have caused profits to lag over the fall. Thus, the arbitrators' decision does not *509 appear to depart from any clear holding that consequential damages cannot be awarded if the residual effects of non-performance of the contract are carried over into a period when the building is operational.
Dixon involved liability for the cleanup of property under the Environmental Cleanup Responsibility Act (ECRA), N.J.S.A. 13:1K-6 to -13. Generally, under ECRA the seller "will be subject to absolute liability without regard to fault." Id. at 232, 584 A.2d 797 (citing N.J.S.A. 13:1K-13a). Because the seller was not aware of ECRA's requirements when it entered *511 into the contract, the Court was concerned that the seller might be required to shoulder the entire cost of the cleanup, stating that an "unqualified adoption of either the trial court resolution or the Appellate Division resolution" might produce an "unjust result." Id. at 231, 584 A.2d 797. We agreed with the Appellate Division that a private right of action could stand under ECRA; however, we found that the problem with that option was that the understanding of the parties had not been taken into account at the time they entered into the contract. Id. at 232, 584 A.2d 797. Because neither party made an economic choice to assume the market risk both parties being unaware of the law an unqualified enforcement of a private right of action would be unfair. Ibid. Under those circumstances, we believed that to mold a remedy "in accordance with the economic realities of the situation" was appropriate. Ibid. In fashioning a remedy, we instructed the trial court to take into account the "assumptions of each party at the time of closing and whether the anticipated costs of ECRA compliance would be so disproportionate to the sale price that it would have altered the economic choices that the seller would have made." Id. at 233.
It is not always in the interest of justice to require the party in breach to pay damages for all of the foreseeable loss that he has caused. There are unusual instances in which it appears from the circumstances either that the parties assumed that one of them would not bear the risk of a particular loss or that, although there was no such assumption, it would be unjust to put the risk on that party. One such circumstance is an extreme disproportion between the loss and the price charged by the party whose liability for that loss is in question. The fact that the price is relatively small suggests that it was not intended to cover the risk of such liability. * * * * * * * * [Restatement (Second) of Contracts § 351 cmt.f (1979) (hereinafter comment f).]
Perini contends that the disproportionality doctrine has been discussed "implicitly or explicitly" by the New Jersey courts.[6] In Seaman, supra, 166 N.J. Super. 467, 400 A.2d 90, the court refused to allow a damage award that was 207 times greater than the defendant's charge for steel plating. The court reasoned that the loss of profits resulting from the breach had not been foreseeable, explaining that had the defendant anticipated this loss, it would have sought "some assurance that they would not be responsible beyond a stipulated sum." Id. at 472, 400 A.2d 90. Perini argues that this language suggests that the court was "articulat[ing] a fundamental principle of disproportionality allocation of risk." Sands argues that there was no implicit disproportionality argument; that in Seaman the court simply made the usual foreseeability analysis and determined that an award of lost profits was too speculative because the purchaser had conveyed no information to the seller about its use of the steel plate for "any particular contract or work." See id. at 472, 400 A.2d 90.
5. Was it a mistake for the arbitrators to fail to decide an important issue the question of Sands's wrongful termination of Perini that was submitted to them by the parties?
Accord Horne v. Building Comm'n, 222 Miss. 520, 76 So. 2d 356 (1954).
New Jersey's judiciary was recently given national recognition for its work in the field of complementary dispute resolution the name used in this state for court-designed alternatives to litigation. The award was given by the Center for Public Resources for our statewide plan for a comprehensive justice center in every county, designed to make alternatives to litigation available for the resolution of disputes. See Center for Public Resources, Press Release (January 23, 1992) at 1. New Jersey's judiciary deserves no praise, however, for its treatment of the most effective and most extensively used alternative to litigation commercial arbitration. Unfortunately, as the record in this case demonstrates, our judiciary's modern history of anti-arbitration bias continues.
The Court's opinion today follows our clear precedents, indeed it attempts to improve them. The problem is that those precedents are wrong. They should be overruled. Their effect is to convert arbitration into litigation by subjecting it to judicial review to see if the arbitrators made legal errors just as if the arbitrators were judges and the arbitration a lawsuit. We need a new rule, one that is true to our arbitration statute. Arbitration awards should be what they were always intended to be: final, not subject to judicial review absent fraud, corruption, or similar wrongdoing on the part of the arbitrators. Parties who choose arbitration should not be put through a litigation wringer. Whether the arbitrators commit errors of law or errors of fact should be totally irrelevant. The only questions are: were the arbitrators honest, and did they stay within the bounds of the arbitration agreement?
I "Undue Means"
Our state's modern tradition of overly-intrusive review of arbitration awards apparently has its origin in Held v. Comfort Bus, Inc., 136 N.J.L. 640, 57 A.2d 20 (Sup.Ct. 1948). There Justice Heher explained that "undue means" one of the statutory bases for vacating an award is found when the arbitrator intends to decide according to the law but "clearly" mistakes the legal rule, and when "the mistake appears on the face of the award or by the statement of the arbitrator * * *." Id. at 641-42, 57 A.2d 20. Both prongs must be met, because mistakes of law, as Justice Heher explained, should ordinarily not affect the outcome "unless there is a resulting failure of intent or the error is so gross as to suggest fraud or misconduct." Id.; see also Bell v. Price, 22 N.J.L. 578 (E. & A. 1849) (finding that "[i]f arbitrators mean to decide according to the law, but mistake the rule in some palpable and material point, * * * the award will be set aside as not conformable to their real judgment and intention"); Collingswood Hosiery Mills v. American *521 Fed'n of Hosiery Workers, 31 N.J. Super. 466, 107 A.2d 43 (App.Div. 1954) (noting mistakes of law reversible only when the "result does not conform to the real judgment of the arbitrators").
II Other Jurisdictions
In Pacific Gas & Electric Co. v. Superior Court, 234 Cal. App. 3d 428, 277 Cal. Rptr. 694, 712 (Ct.App.), review granted, 281 Cal. Rptr. 765, 810 P.2d 997 (1991), the court set forth the general rule that errors of law, even those appearing on the face of an arbitration award, do not justify overturning that award. Instead, only "utterly irrational" legal conclusions will be cognizable; "[i]n these circumstances the appropriate standard of review is whether the construction of the contract presents such an egregious mistake that it amounts to an arbitrary remaking of the contract between the parties." 277 Cal. Rptr. at 714.
The plurality's result also conflicts with federal cases analyzing the Federal Arbitration Act. To the extent that federal precedent permits the upsetting of an award because of a "mistake of law," it is an extremely narrow exception to the otherwise strong federal policy against reviewing arbitration awards. United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960).
Apparently, the federal "manifest disregard of the law" exception, cited by the plurality, ante at 495-497, 610 A.2d at 371-373, has its roots in Wilko v. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168 (1953), in which the Court, in dicta, hinted that "it may be true" that the arbitrator's failure to decide according to applicable statutory law would constitute grounds for vacating the award under the Federal Arbitration Act. Id. at 436, 74 S. Ct. at 187, 98 L. Ed. at 176. Nonetheless, the Court stressed that "[i]n unrestricted submissions * * * the interpretation of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation." Id. at 436-37, 74 S. Ct. at 187, 98 L. Ed. at 176. In other words, when the parties submit the "law" to the arbitrators as the basis for resolving their dispute, "manifest disregard" of that law will justify judicial reversal of the award; however, when the submission is unrestricted, the longstanding federal policy that "[i]f the award is within the submission * * * a court of equity will not set it aside for error either in law or fact" will apply. Burchell v. Marsh, 58 U.S. (17 How.) 344, 15 L. Ed. 96, 99 (1855); see Wilko, supra, 346 U.S. at 437 n. 24, 74 S. Ct. at 188 n. 24, 98 L. Ed. at 176 n. 24.
III The Plurality's Rule: Unworkable and Unjustifiable
The incorrectness of the analysis on this point by the plurality, and by our prior cases, goes deeper; indeed, it goes to the heart of the problem. The issue is not what the arbitrators intended and whether or not their decision reflected that intent, but rather what the parties intended to commit to arbitration and what they intended to subject to judicial review. See Kearney Pba Local No. 21, supra, 81 N.J. at 217, 405 A.2d 393 (stating that source of arbitrator's power is the agreement and that arbitrator must comply with the authority the parties have given him or her in the agreement). If the parties intended the arbitrators' decision to be final and not subject to judicial review so long as it was honest it matters not whether the arbitrators intended or did not intend to decide in accordance with New Jersey law or that, if they did, whether they erred. Ibid. (stating that "parties may authorize the arbitrator to determine legal issues as he deems fit irrespective of whether those determinations are in accordance with the law"). All of those questions of "arbitrators' mistakes" and "failure of intent" are subsumed in the critical question: what judicial review, if any, did the parties intend, or expressed differently, did the parties want the arbitrators' award to be vacated because of such alleged "failure of intent?" It would indeed be strange if they did, strange if their affinity for New Jersey law was so strong that, despite their selection of arbitrators in place of the judiciary, they would declare the arbitration a nullity for gross errors in such law, yet be content with the most prejudicial errors of law just so long as they were debatable.
A further reason given to justify the "gross error of law" rule is that it significantly diminishes what would otherwise be excessive judicial intrusion into the arbitration process. Ante at 494, 610 A.2d at 371. In other words, it is justified by comparing it with a straw man comparing it with a system that would allow judicial review and vacation of the award if any legal error was committed. Obviously, that reasoning is correct, if that is the only comparison that can be made certainly the present rule, no matter how bad, is better than one that would vacate arbitration awards for any error of law. The "gross error" rule, however, is fundamentally unworkable. Try as it may, the plurality finds it exceedingly difficult to define what is meant by a "gross error of law." See ante at 515-516, 610 A.2d at 382-383. Its praiseworthy attempt to do so simply underlines the difficulty of the task, and its result is an unfortunate plethora of inconsistent formulations that because of the nature of the matter provide less than helpful guidance. The rule purports to distinguish legally erroneous arbitration decisions which will be sustained, from grossly, or clearly, or indubitably, erroneous arbitration decisions which will not. Judges are not adept at making such distinctions. Indeed in this case itself, three judges conclude that there is no gross error and sustain the award, while two others, convinced of the enormity of the arbitrators' legal mistake, would not simply vacate the award but would replace it with their own, a substitute that reduces the original by over four-and-a-half million dollars. See ante at 524-525, 610 A.2d at 387.
Obviously, the rule, when diminished judicial review is given as the justification, represents a balance between one's sense of justice assuming one believes that only New Jersey law brings justice and one's sense of the need for finality in arbitration. The irony in relegating those whose rights have been defeated by legal error to no remedy, while vindicating others when the error was gross, is that the former may have been much more grievously damaged by the error. None of the cases suggests that "gross error" relates to anything other than the extent the error departs from the correct rule; put differently, none of the cases suggests that the "grossness" is measured by the ultimate impact on the parties.
Even the admitted benefit of the "gross error" rule, beneficial only when measured against the even worse rule of unrestricted review and not a benefit at all when measured against what I contend is the correct rule, is minimal, indeed uncertain. If that benefit is thought of as the greater certainty or likelihood of finality, the greater confidence of the parties in the award's finality, or the shorter period of time that must elapse before the fact of finality is determined, that benefit is seriously diluted. It will be the rare event when any party's lawyer will predict with confidence the outcome of a case in which one party has appealed to the judiciary from an arbitrator's award *533 on the ground of "gross legal error." And it will take just as long to dispose of those cases on appeal as it would if all errors led to vacation of the arbitrator's award. For every case in which the appellate court quickly finds the error was "undebatable," there will be many others that require not only the usual effort to determine if there was error at all but also to determine if that error was gross. Inevitably that supposedly pure legal determination gross error or simple error will be influenced by a factor not explicitly credited the overall sense of justice or injustice in the outcome.
The practical difficulty of determining legal error in arbitration awards is formidable. See Advest, Inc. v. McCarthy, 914 F.2d 6, 10 (1st Cir.1990) (noting that arbitration does not require a record and that without a record parties have little chance of meeting the standard required to vacate an arbitration award). The highly refined distinction between legal error and gross legal error requires the existence of all of the trappings that appellate judges are used to: a stenographic record, a transcript, objections and rulings, applications and requests by counsel prior to, during, and after trial, numerous rulings by the court, often accompanied by opinions, briefs containing factual and legal contentions and detailed argument in support of both, and finally the judgment of the court supported by written findings of fact and conclusions of law. Absent any of these, the identification of legal error becomes even more difficult. Arbitration does not require a record; neither the statute nor, in this case, the applicable rules selected by the parties (Construction Industry Arbitration Rules) requires even a stenographer. Cf. American Arbitration Association Rule 50 (stating that "the cost of the stenographic *534 record, if any is made, and all transcripts thereof, shall be prorated equally between the parties ordering copies") (emphasis added). To apply the plurality's rule without such a record would require, at a basic minimum, the re-creation of the proceedings, the evidence, everything in this case the re-creation of sixty-four days of hearings.
The plurality's opinion is instructive on the consequences of the search for legal error where no findings of fact or conclusions *536 of law exist. Those consequences flow inexorably from the logic of the situation they are not some unusual result of the plurality's reasoning. The reviewing court is forced to deal with practically every conceivable contention of error claimed by the losing party, forced to try to figure out if there was some way the arbitrators could have reached the conclusion they did when confronted with such a claim of error. It is not enough to do what is ordinarily done on appellate review, namely, to identify the basis for the court's decision and then rule on it, for we do not know the basis for the arbitrator's decision. We ask the question, as if it will admit of an answer, whether there was "some evidence" to support the conclusion, whether there was "sufficient evidence" to sustain the award. The question is almost meaningless since we will not know the basis for the arbitrator's decision. The conclusion that there is "some evidence" or "sufficient evidence" is not one made in the abstract; it relates to the quantum and quality of evidence to support a certain legal theory, to support certain legal conclusions, it relates to the sufficiency of the evidence to make those findings of fact that will support those legal conclusions. If one does not know what the conclusions of law were, and one does not know what the conclusions of fact were, it is, in most cases, impossible to address the question of whether the evidence was sufficient.
IV The Effect of the Rule
The potential effect of the plurality's rule is apparent from this case. If the stakes are sufficient, it invites the losing party to attack the arbitration award in court, thereby delaying its finality for unpredictable periods of time, here around three-and-a-half years. Accompanying that consequence is the added cost to the parties, undoubtedly most substantial in this case. I am unaware of the existence of any statistics in New Jersey concerning the percentage of arbitration cases now appealed. *537 My impression is that appeals from arbitrators' determinations are not numerous. They do occur, however, and when they result in an opinion of the kind rendered today by the plurality, there must be concern about the substantial impact on the arbitration process. Whatever doubt on the score may have existed before, it is now crystal clear that a party to an arbitration can obtain vacation of an award if able to persuade a court that gross legal error existed. When motivations for delay exist, appeals to the judiciary are encouraged, and, since hope springs eternal in the advocate's breast, one can expect the number of such appeals to grow. How the Court will rule on the question of recreating a record, or on compelling arbitrators, post-arbitration award, to make findings of fact and conclusions of law I have no idea. But that there will be a further dilution of the effectiveness of arbitration as a remedy I have no doubt. If the bottom line purpose of arbitration is to keep the courts out of one's disputes, the attractiveness of the remedy is seriously diminished by the plurality opinion. Even if the impact turns out to be minimal which I doubt the opinion will have its greatest effect on the cases of the most importance: cases with significant financial or other consequences. Even if a relatively small number, those cases at least will lose the benefits the parties initially sought through arbitration: finality, speed, and certainty. One can imagine a party wondering whether arbitration should even be attempted since arguably the case would have been concluded sooner if it had originally been started with the judiciary.
Finally, the effect of the rule, to a greater or lesser extent, is not only to deprive arbitration awards of their finality, but potentially to deprive the parties of the awards of the arbitrators. For certainly in some instances an arbitration award will be vacated for reasons never intended by the parties. The dissent, however, argues that judicial superintendence is needed; that without it arbitrators' decisions may be "off the wall." Post at 556, 610 A.2d at 403. Obviously the potential cost of that point of view, in every arbitration case, is the cost in this *538 case: after three-and-a-half years, three justices conclude that the arbitration award was not off the wall and two disagree. All five, however, continue the bias reflected in our precedents: we have to protect the business community from the arbitrators they have selected, the arbitrators they trust. We must review their decisions to make sure that they have not made a bad mistake; we must protect the business community from the risks of the speed, finality and economy that they sought from arbitration, even if it costs three-and-a-half years of delay and no one knows how much in legal fees. Bluntly, though the businessmen who selected these arbitrators may not know it, we are superior. And in the long run, according to the dissent, the business community will select arbitrators more readily with this rule, they will select arbitrators more readily when they are assured that, if needed, the courts will decide the matter. That's really why they chose arbitrators to get the ultimate protection of judges.
V The Rule's Conformance, or Non-Conformance, to Public Policy, Statute, and the Parties' Intent
Perhaps the best demonstration of the failure of the rule adopted by the plurality and by our prior precedents to conform to the statute is the statute itself. N.J.S.A. 2A:24-8 and -9 provide as follows:
The court shall vacate the award in any of the following cases: *540 a. Where the award was procured by corruption, fraud or undue means; b. Where there was either evident partiality or corruption in the arbitrators, or any thereof; c. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause being shown therefor, or in refusing to hear evidence, pertinent and material to the controversy, or of any other misbehaviors prejudicial to the rights of any party; d. Where the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made. When an award is vacated and the time within which the agreement required the award to be made has not expired, the court may, in its discretion, direct a rehearing by the arbitrators. [N.J.S.A. 2A:24-8.] The court shall modify or correct the award in any of the following cases: a. Where there was an evident miscalculation of figures or an evident mistake in the description of a person, thing or property referred to therein; b. Where the arbitrators awarded upon a matter not submitted to them unless it affects the merit of the decision upon the matter submitted; and c. Where the award is imperfect in a matter of form not affecting the merits of the controversy. The court shall modify and correct the award, to effect the intent thereof and promote justice between the parties. [N.J.S.A. 2A:24-9.]
The first two subsections deal with partiality, corruption, fraud, or similar wrongdoing; their significance is self-evident. N.J.S.A. 2A:24-8a to -8b. The third subsection deals with the deprivation of a fair hearing, so grievous as to be characterized not as a mistake but as "misconduct" refusing to postpone a hearing, refusing to hear evidence, or any other "misbehaviors" prejudicial to the rights of any party. N.J.S.A. 2A:24-8c. The *541 fourth subsection deals with an arbitration award that is so unresponsive to what was submitted by the parties that it could not even be considered "mutual, final, and definite." N.J.S.A. 2A:24-8d.
It is simply impossible by any fair reading to square these clauses and their unique consequence vacation of the award with the notion that the same consequence should follow because someone made a mistake of law, or an error of fact. The statute does not provide for a remand back to the original arbitrators to correct the error; indeed, there is not even a referral back to start all over again. The matter is over, complete, any further proceedings totally dependent on the will of the parties. It may even be that the agreement to arbitrate is of no further force and effect once the initial arbitration award has been vacated.
That conclusion and more is underlined and emphasized by section 9, which authorizes the court to "modify or correct the award" not vacate it, in certain limited cases. N.J.S.A. 2A:24-9. The most obvious consequence of sections 8 and 9 is their implicit limitation on the power of courts when "undue means" is asserted: the court is powerless to "modify or correct the award," given the clear distinction between the vacation of the award authorized by section 8 and the modification or correction authorized by section 9. More than that, some idea of the extreme limitation intended by the statute on judicial review is suggested by section 9. You can "modify or correct" not for errors of fact, or gross errors of fact, but only "where there was an evident miscalculation of figures, or an evident mistake in the description of a person, thing, or property referred to therein." N.J.S.A. 2A:24-9a (emphasis added). The difference between that extremely limited scope of mistake allowing only for modification, and the notion that an award can be vacated for gross errors of any fact is obvious.
VI The Plurality Opinion's Improvement of the Existing Rule
As far as I am concerned, the formulations of the plurality are not helpful and leave us substantially where we were judges searching a record to determine not whether there were "gross errors of law" or "manifest disregard of the law," but rather whether there were any errors of law at all. Presumably, once you find them, you try to figure out, using what standard I do not know even now, whether they were "gross" or "instantly recognizable." You certainly do not try to psychoanalyze the arbitrator to see if he clearly knew what the law was but intentionally disregarded it. Nor do you worry about what appears on the face of the record, you read the entire transcript. It is crystal clear from the methodology used by the trial court, the Appellate Division, and especially the plurality that the search starts for errors of law, and in this case ends with it, without worrying about how serious the error might be. Judge Gibson's trial court opinion reflects a thorough review of the entire record and is based mostly on an assumption of what the law probably is, accompanied by a perceptive analysis of the facts. The Appellate Division's opinion reflects more concern for propositions of law that the arbitrator presumably followed. But above all, the plurality's opinion tells us what this rule really amounts to; for in the end what we do is functionally, *547 analytically, and in reality not one bit different from what we would have done if instead of arbitrators, this case had initially been decided by the trial court.
The plurality deals with several questions, and for each one it conducts a factual and legal analysis and marshals all of the applicable authorities in exactly the same way as learned jurists would do when reviewing lower court decisions. It cites recognized and authoritative text on the legal issues involved; it examines the thrust and intent of various portions of the Restatement of Laws; it carefully relates the significance of different factual contentions to the propositions of law involved; it notes the unperceived uncertainties in the various rules concerning the award of lost profits; it not only has every modern authority that is relevant, it grinds back to Hadley v. Baxendale, 9 Ex. 341, 156 Eng.Rep. 145 (1854), ante at 497, 610 A.2d at 373; if the general common law is not sufficient, it notes Siegfried, ante at 502, 610 A.2d at 375; it cites authorities most judges have never heard of (Sweet, ante at 500, 610 A.2d at 375 and Stein ante at 501, 610 A.2d at 375); it stands poised to reverse if substantial completion had occurred by a certain date, but finds the arbitrators might have found that it occurred later as if this would not have been a "reasonably debatable" mistake of law, ante at 500-501, 610 A.2d at 374-375; it deals with the complexities of awarding lost profits to a business that has not been in business before and cites the Uniform Commercial Code on that issue; ante at 509, 610 A.2d at 379; it analyzes Dixon, including inquiring into what the parties in that case may have contemplated, ante at 510, 610 A.2d at 380; and, finally, it notes that no New Jersey court, and only a federal court in the Southern District of New York, has interpreted the Restatement (Second) of Contracts § 351(3) (1979), ante at 512, 610 A.2d at 381.
VII The Correct Rule
The majority opinion presents a thorough and well-reasoned explanation of the law of substantial completion. As the majority notes, "substantial completion has definite meaning in the construction industry." Ante at 500, 610 A.2d at 375. Generally, as in this case, parties and courts define substantial completion as the date on which construction is sufficiently complete to enable the owner to occupy or use the project for its intended purpose. Because liquidated or delay damages are designed to approximate an owner's loss before occupancy, awarding those damages for a period after substantial completion serves to penalize the breaching party and would thus be contrary to the fundamental principles of contract law. See Stein, supra, at ¶ 6.07[3] at 8-18. Thus, courts have consistently recognized that delay or liquidated damages may not be awarded after substantial completion. See Monsen Eng'g Co. v. Tami-Githens, Inc., 219 N.J. Super. 241, 244, 250-51, 530 A.2d 313 (App. Div. 1987); Utica Mut. Ins. Co. v. DiDonato, 187 N.J. Super. 30, 453 A.2d 559 (App.Div. 1982); Public Health Trust v. Romart Constr., Inc., 577 So. 2d 636, 637 (Fla. Dist. Ct. App. 1991); Stone v. City of Arcola, 181 Ill. App.3d 513, 130 Ill.Dec. 118, 128, 536 N.E.2d 1329, 1338 (Ill. App.Ct. 1989); American Druggists Ins. Co. v. Henry Contracting, Inc., 505 So. 2d 734, 738-39 (La.Ct. *553 App.), cert. denied, 511 So. 2d 1156 (1987); Hemenway Co. v. Bartex, Inc., 373 So. 2d 1356, 1358 (La. Ct. App.), cert. denied, 376 So. 2d 1272 (1979); Page v. Travis-Williamson County Water Control, 367 S.W.2d 307, 311 (Tex. 1963); Brower Co. v. Garrison, 2 Wash. App. 424, 468 P.2d 469, 476-77 (1970). Accordingly, as the majority acknowledges, "Perini's argument that delay damages cannot be awarded after substantial completion of the contract is amply supported by the case law and construction-industry practice." Ante at 505, 610 A.2d at 377. As the majority concedes, the accepted measure of damages after substantial completion is merely the amount necessary to bring the project to full completion. Ante at 502, 610 A.2d at 376; Van Dusen Aircraft Supplies, Inc. v. Terminal Constr. Corp., 3 N.J. 321, 329, 70 A.2d 65 (1949); Feeney v. Bardsley, 66 N.J.L. 239, 240, 49 A. 443 (E. & A. 1901); 6 Williston on Contracts § 842 (3d ed. 1962).
For affirmance Chief Justice WILENTZ, and Justices CLIFFORD and O'HERN and Judges A.M. STEIN and KEEFE 5.
Justices HANDLER and STEIN, concur in part and dissent in part 2.