Opinion ID: 1910081
Heading Depth: 1
Heading Rank: 10

Heading: Undue Means

Text: 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 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). Held stands in stark contrast with decisions in our earlier history. The earliest arbitration decisions, which were among the first reported decisions of our state's courts, firmly established the rule that arbitration awards would, with few exceptions, be upheld by the courts. See James B. Boskey, A History of Commercial Arbitration in New Jersey, Part I, 8 Rut.-Cam.L.J. 1, 7 (1976) [hereinafter Arbitration in New Jersey, Part I ]. As Chief Justice Kinsey wrote in Moore v. Ewing & Bowen, 1 N.J.L. 167, 169 (Sup.Ct. 1792): I own that I am a great friend to arbitrations; I believe them to be frequently productive of real advantage, and they are not to be hastily or inconsiderably set aside. I approve, in the highest manner, of the liberality with which courts of justice have reviewed their proceedings, particularly in modern times   . Historically, prejudice and misconduct on the part of the arbitrators were the only bases on which courts would void arbitration awards. See Arbitration in New Jersey, Part I, supra, at 7. Generally, although modern arbitration legislation does allow limited grounds for vacating an arbitration award, it is well established that an award will not be set aside or vacated for mistakes of law. American Arbitration Ass'n General Counsel's Annual Report, Arbitration and the Law 1987-88 32 (1988). In fact, early New Jersey cases explicitly held that mistakes of law would not serve to invalidate arbitration awards. E.g., Leslie v. Leslie, 50 N.J. Eq. 103, 107-08 (Ch. 1892); Ruckman v. Ransom, 23 N.J. Eq. 118, 120 (Ch. 1872); Smith v. Minor, 1 N.J.L. 19 (Sup.Ct. 1790). Those cases recognized that arbitrators are the chosen judges of the parties, they are judges of the law as well as of the facts, and are not bound to award on mere dry principles of law, but may do so according to the principles of equity and good conscience. Nor will courts    disturb their decisions when made, except upon very cogent reasons. [ Ruckman, supra, 23 N.J. Eq. at 120.] The arbitrator's overriding duty is not strict allegiance to points of law, but the goal of producing a fair and just decision. So long as he acts uprightly and impartially, and keeps within the limits of his authority, and deprives neither party of a full and fair hearing, [the arbitrator's] judgments are unimpeachable and irreversible. He may do what no other judge has a right to do; he may intentionally decide contrary to law and still have his judgment stand. [ Leslie, supra, 50 N.J. Eq. at 107.] The approach permitting judicial reversals for mistakes of law grew out of what was meant to be a minor exception to these otherwise firm rules against judicial intervention in the arbitration process. [I]f arbitrators mean to decide according to law but mistake the law, in a material respect, and their mistake appears on the face of the award, or they admit it, the award will be set aside because it does not express their real judgment; but in cases where they do not intend to let the law govern their judgment, but to decide according to their own notions of what is just and right, the courts will not interfere, but allow their award to stand. [ Id. at 108.] Unfortunately, following Held, courts have broadened this otherwise narrow mistake of law exception, leading to a steady deterioration of the deference which should be paid to arbitration decisions. This erosion apparently began with Brooks v. Pennsylvania Manufacturers' Ass'n Insurance Co., 121 N.J. Super. 51, 296 A. 2d 72 (App.Div. 1972), modified on other grounds, 62 N.J. 583, 303 A. 2d 884 (1973). In Brooks, the court upheld a trial court's modification of an arbitration award because it was convinced that the arbitrator had intended to decide [the] case in accordance with applicable law and then had made a mistake of law. 121 N.J. Super. at 55, 296 A. 2d 72. There was no showing that the mistake of law was so gross as to infect the award and make it unrepresentative of the arbitrator's real judgment; nor was the mistake even shown to be obvious or apparent on the face of the award. In fact, the Brooks court ignored the second prong of Held altogether, and held that mere mistakes of law, without more, are a valid basis for reversing arbitration awards. Ibid. Subsequent cases, relying on Brooks, have compounded the error, and have opened the floodgates for judicial review of arbitration awards. E.g., Selected Risks Ins. Co. v. Allstate Ins. Co., 179 N.J. Super. 444, 451, 432 A. 2d 544 (App.Div.) (holding that arbitrators' award will be vacated if    mistaken as to applicable law), certif. denied, 88 N.J. 489, 443 A. 2d 705 (1981); Ukrainian Nat'l Urban Renewal Corp. v. Joseph L. Muscarelle, Inc., 151 N.J. Super. 386, 400-01, 376 A. 2d 1299 (App.Div.) (finding that Brooks creates presumption that arbitrator will follow the rule of law and that award may be reversed on a mere showing, without anything more, of a mistake of law), certif. denied, 75 N.J. 529, 384 A. 2d 509 (1977); Harris v. Security Ins. Group, 140 N.J. Super. 10, 14-15, 354 A. 2d 704 (App.Div. 1976) (ruling that where arbitrator intends to follow law and makes mistake, court may reverse); Harsen v. Board of Educ., 132 N.J. Super. 365, 372, 333 A. 2d 580 (Law Div. 1975) (noting that Brooks changed settled law, and holding that where no affirmative indication exists that the arbitrator was not utilizing the applicable law, or attempting to, and the legal question is res nova in this State, the court reviewing the award is to entertain and decide the merits of the legal question involved and evaluate the award's legitimacy against the resolution thereof). Until today, our Court had not directly addressed this issue. While it is true that in Brooks this Court modified the Appellate Division judgment, it did not address the propriety of the lower court's mistake-of-law exception. The same is true for our reversal in In re Arbitration Between Grover and Universal Underwriters Insurance Co., 80 N.J. 221, 403 A. 2d 448 (1979). The only decision of this Court that could be interpreted as equating a mistake of law with undue means is Perez v. American Bankers Insurance Co., 81 N.J. 415, 420, 409 A. 2d 269 (1979), in which the Court hinted that a mistake of law might have been made, but instead found that the arbitrator had made contradictory findings rendering the award invalid as having been procured by undue means. The propriety of the exception was not addressed. Nonetheless, to the extent that Perez embraces the mistake-of-law exception found in Brooks and subsequent cases, it should be overruled. Cf. Faherty v. Faherty, 97 N.J. 99, 112-13, 477 A. 2d 1257 (1984) (vacating award because arbitrator exceeded his power when, despite parties' agreement to follow New Jersey law, arbitrator granted wife alimony after remarriage). Although other policy reasons may compel a different result for public sector arbitration, the matter before us falls within the private sector, and we therefore do not address the desirability of a mistake-of-law exception for public sector arbitration. See Communication Workers of Am. v. Monmouth County Bd. of Social Servs., 96 N.J. 442, 450-51, 476 A. 2d 777 (1984); Kearney PBA Local #21 v. Town of Kearney, 81 N.J. 208, 217, 405 A. 2d 393 (1979). Nor do we deal with special policy reasons which may have led this Court to note that heightened judicial scrutiny may be required in reviewing arbitration awards affecting child support and custody. Faherty, supra, 97 N.J. at 110, 477 A. 2d 1257.