Court Opinion

ID: 4428722
Source: CourtListenerOpinion
Date Created: 2019-08-20 19:11:35.49582+00
Date Added: 2024-06-11T14:50:49.440351
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
               APPROVAL OF THE APPELLATE DIVISION

                                   SUPERIOR COURT OF NEW JERSEY
                                   APPELLATE DIVISION
                                   DOCKET NO. A-5798-17T4

MEDFORD TOWNSHIP
SCHOOL DISTRICT,
                                          APPROVED FOR PUBLICATION

     Plaintiff-Respondent,                       April 26, 2019

                                             APPELLATE DIVISION
v.

SCHNEIDER ELECTRIC
BUILDINGS AMERICAS, INC.,

     Defendant-Appellant.

           Argued April 1, 2019 – Decided April 26, 2019

           Before Judges Messano, Fasciale and Rose.

           On appeal from Superior Court of New Jersey, Law
           Division, Burlington County, Docket No. L-0787-18.

           Mark A. Rosen argued the cause for appellant
           (McElroy, Deutsch, Mulvaney & Carpenter, LLP,
           attorneys; Mark A. Rosen, of counsel and on the
           briefs).

           Richard W. Hunt argued the cause for respondent
           (Parker McCay PA, attorneys; Richard W. Hunt and
           John Neckonchuk, on the brief).

     The opinion of the court was delivered by

ROSE, J.A.D.
      Defendant Schneider Electric Buildings Americas, Inc. (Schneider)

appeals from a July 3, 2018 Law Division order enjoining and dismissing

arbitration proceedings filed against plaintiff Medford Township School

District (District). 1 We affirm.

                                       I.

      The dispute arises from the implementation of an energy savings

improvement program (ESIP), N.J.S.A. 18A:18A-4.6, under which the District

contracted with Schneider to design and implement upgrades to several of the

District's schools and its transportation and operations center. Initially, the

parties executed the Performance Assurance Support Services Agreement

(PASS Agreement), requiring the District to monitor the ESIP's actual energy

savings and guaranteeing the District a certain level of monetary savings. The

PASS Agreement did not contain an arbitration provision.              Instead, its

governing law clause provided, in pertinent part (emphasis added):

                   This PASS Agreement will be governed,
             interpreted and construed by, under and in accordance
             with the laws, statutes and decisions of the state in
             which the [s]ervices are to be performed, without
             regard to its choice of law provisions. Venue shall be
             in the federal, state or municipal courts serving the
             county in which the [s]ervices are performed.

1
   See R. 2:2-3(a)(3) (deeming an order compelling or denying arbitration "a
final judgment of the court for appeal purposes").

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                                       2
      Thereafter, the District issued a request for proposals (RFP), seeking a

qualified energy services company (ESC) to perform the services of a general

contractor for its ESIP. Among other things, the RFP outlined the terms of the

ESIP Agreement, including development and implementation of an energy

savings plan. Paragraph 30 of the RFP contained a governing law clause,

which stated verbatim (emphasis added):

                   The ESIP Agreement shall be governed by the
            laws of the State of New Jersey. The successful
            [ESC] shall agree that any action or proceeding that
            arises in any manner out of performance of the RFP or
            ESIP Agreement, shall be litigated in the Superior
            Court of New Jersey, Burlington County, State of New
            Jersey, and the [ESC] shall consent and submit to the
            jurisdiction of the Superior Court.

      After Schneider was awarded the project, the parties executed the

Energy Services Construction Contract (ESCC). 2        Under the terms of the

ESCC, the parties agreed that Schneider would be paid $2,494,575 for

performing energy conservation measures, including lighting upgrades and

building automation systems throughout the District.

      Article 5 of the ESCC contained a dispute resolution provision, which

2
   The parties do not dispute that although the PASS Agreement predated the
ESCC, which was executed in June 2015, and the RFP, which was issued in
June 2014, the PASS Agreement applied to the project and Schneider's
obligations. Inexplicably, however, the PASS Agreement was signed by the
District's business administrator in January 2010 and Schneider's regional
director in February 2012.

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stated (emphasis added):

            5.1 To the extent allowed by applicable law, any
            controversy or claim arising out of or relating to this
            [c]ontract, or [c]ontract [d]ocuments, or any breach
            thereof, may be settled by binding arbitration in
            accordance with the Construction Industry Arbitration
            Rules of the American Arbitration Association
            [(AAA)], and judgment upon the award rendered by
            the arbitrator(s) may be entered in any court having
            jurisdiction thereof.

            5.2 The arbitration proceeding location shall be in
            the county in which the [p]roject is located.

      Schneider alleged it completed its scope of work under the ESCC in

January 2017 but the District withheld $462,269, claiming the work was

unsatisfactory. On March 14, 2018, Schneider filed a demand for arbitration

with the AAA pursuant to the arbitration provision set forth in Article 5.1 of

the ESCC.

      One month later, the District filed a verified complaint and an order to

show cause (OTSC) in the Law Division, seeking to enjoin and dismiss

Schneider's arbitration action.   The complaint also alleged breaches of the

ESCC and PASS Agreement and other causes of action related to Schneider's

performance of work on the project. The District claimed all of the contract

disputes should be litigated in the Law Division.

      Schneider filed its answer to the complaint and opposition to the OTSC,

countering the ESCC's arbitration provision was valid and enforceable.

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Schneider further argued the District's "allegations of defective work under the

[ESCC] are inextricably intertwined with Schneider's claim for payment and

should be resolved in the [a]rbitration proceeding . . . ."

        On the return date of the OTSC, the trial judge rendered a tentative

written decision granting the District's requested relief, but afforded the parties

an opportunity to be heard.       Thereafter, the judge issued a well-reasoned

amplified statement of reasons, 3 thoroughly addressing the parties' arguments

and applying the relevant law.

        The trial judge acknowledged the validity of the arbitration provision,

finding "no indication that [it] was included without negotiation or that it was

an inconspicuous part of the [ESCC]." However, the judge further found by

using the term, "may," the provision was permissive and not mandatory.

Comparing the plain terms of the arbitration provision to other terms in the

ESCC, the judge observed "the parties specifically used the word 'shall' when

the terms were intended as mandatory."          For example, "mandatory 'shall'

language r[an] throughout the entirety of Article 2 [pertaining to payments],

except for where '[p]ayments may [have been] withheld.'"

        The trial judge found additional support for his conclusion in the

governing law provision of the RFP, which "distinctly g[ave] the Burlington

3
    See R. 2:5-1(b).

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                                         5
Vicinage of the Superior Court . . . jurisdiction over disputes arising from the

implementation of the District's ESIP." As such, the judge reasoned the RFP,

which preceded the ESCC, "serve[d] as extrinsic evidence for the ESCC – an

agreement made to satisfy ESIP requirements – and help[ed] to uncover the

actual meaning of the arbitration clause in the ESCC."

      In sum, the trial judge concluded:

            the permissive, "may" in the ESCC arbitration clause
            ma[d]e[] arbitration optional. In order for the ESCC
            arbitration clause to require arbitration, the clause
            needed to include mandatory language that waived the
            right to adjudicate in the courts or there needed to be
            mutual consent by the parties. As neither of [those]
            scenarios exist[ed] here, . . . the District's injunction
            request to restrain arbitration [is granted].

This appeal followed.

      Schneider maintains the plain terms of the ESCC permit either party to

select binding arbitration as a means for dispute resolution, which then

compels the other party to arbitrate. In essence, Schneider claims the judge's

interpretation of the arbitration provision renders the clause "superfluous"

because a dispute resolution provision is unnecessary when both parties agree

to arbitrate. Schneider further argues the judge erred in considering parol

evidence because the ESCC contains a merger clause. We disagree.

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                                       6
                                         II.

      Well-established legal principles guide our review. Because the validity

of an arbitration agreement is a question of law, we review the order enjoining

arbitration de novo. Barr v. Bishop Rosen & Co., 442 N.J. Super. 599, 605

(App. Div. 2015) (citing Hirsch v. Amper Fin. Servs., LLC, 215 N.J. 174, 186

(2013)); see also Kernahan v. Home Warranty Admin. of Fla., Inc., 236 N.J.

301, 316 (2019) ("Whether a contractual arbitration provision is enforceable is

a question of law," accordingly we need not defer to the trial court's

"interpretative analysis" unless it is "persuasive.").

      Our jurisprudence and public policy favor alternative dispute resolution

and are consistent with our view that "[l]itigation ought to be a last resort, not

a first one." Billig v. Buckingham Towers Condo. Ass'n, 287 N.J. Super. 551,

564 (App. Div. 1996); see also Cole v. Jersey City Med. Ctr., 215 N.J. 265,

276 (2013). Consequently, an "agreement to arbitrate should be read liberally

in favor of arbitration." Angrisani v. Fin. Tech. Ventures, LP, 402 N.J. Super.

138, 148 (App. Div. 2008) (quoting Marchak v. Claridge Commons, Inc., 134

N.J. 275, 282 (1993)).

      Nonetheless, the policy favoring arbitration "is not without limits."

Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124, 132

(2001).    Recently, our Supreme Court reiterated that "[a]n arbitration

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                                         7
agreement is valid only if the parties intended to arbitrate because parties are

not required 'to arbitrate when they have not agreed to do so.'" Kernahan, 236

N.J. at 317 (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford

Junior Univ., 489 U.S. 468, 478 (1989)). The Court elaborated:

            In this state, when called on to enforce an
            arbitration agreement, a court's initial inquiry must be
            -- just as it is for any other contract -- whether the
            agreement to arbitrate all, or any portion, of a dispute
            is "the product of mutual assent, as determined under
            customary principles of contract law."

            [Id. at 319 (quoting Atalese v. U.S. Legal Servs. Grp.,
            LP, 219 N.J. 430, 442 (2014)).]

      In Atalese, the Court found, in the context of a consumer contract for

debt-adjustment services, that "because arbitration involves a waiver of the

right to pursue a case in a judicial forum, 'courts take particular care in

assuring the knowing assent of both parties to arbitrate, and a clear mutual

understanding of the ramifications of that assent.'" 219 N.J. at 442-43 (quoting

NAACP of Camden Cty. E. v. Foulke Mgmt. Corp., 421 N.J. Super. 404, 425

(App. Div. 2011)). Consequentially, when a contract contains a waiver of a

right to pursue a statutory remedy in court, that waiver "must be clearly and

unmistakably established." Garfinkel, 168 N.J. at 132. Accordingly, a "court

may not rewrite a contract to broaden the scope of arbitration." Ibid. (quoting

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                                       8
Yale Materials Handling Corp. v. White Storage & Retrieval Sys., Inc. , 240

N.J. Super. 370, 374 (App. Div. 1990)).

      As with other contractual provisions, courts look to the plain language

the parties used in the arbitration provision. Id. at 135; see also Kernahan, 236

N.J. at 321 ("A basic tenet of contract interpretation is that contract terms

should be given their plain and ordinary meaning."); Quigley v. KPMG Peat

Marwick, LLP, 330 N.J. Super. 252, 270 (App. Div. 2000) (in construing an

arbitration clause, courts must honor the intentions of the parties as set forth in

the language).

      At issue here is whether the terms of the arbitration clause permit or

mandate arbitration. In certain contexts, we have recognized that where a

provision permits the parties to select arbitration to resolve a dispute under the

contract, but does not mandate arbitration, the provision is optional. Riverside

Chiropractic Grp. v. Mercury Ins. Co., 404 N.J. Super. 228, 237-38 (App. Div.

2008).

      In Riverside, we considered an arbitration clause in an automobile

insurance contract, which permitted an injured party, the insured, and the

assignee of the insured's provider to submit a claim to dispute resolution. Id.

at 233.   However, "the applicable insurance contract d[id] not entitle the

insurer to elect arbitration over the wishes of the insured."         Id. at 238.

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Pursuant to the plain language of the arbitration clause, we determined the use

of the word "may" did not mandate arbitration. Id. at 237. Instead, it afforded

the provider-assignee of the insured "the option of filing for arbitration, but

d[id] not require it to do so." Ibid. We thus determined "had plaintiff opted to

file its claim . . . initially in the trial court, nothing in the contract language

would have forbidden the suit from going forward." Ibid.

      Significantly, in Riverside, the policy at issue did not provide "[e]ither

party may make a written demand for arbitration." Id. at 238 (alteration in

original). Had the policy contained that language, we recognized it "could

[have] be[en] construed as making arbitration mandatory, because if the

insured elect[ed] to sue, the insurer c[ould] simply make a written demand for

arbitration, which must then be honored."              Ibid. (emphasis added).

Accordingly, when an arbitration provision specifically permits either party to

select arbitration, once invoked, the other party may be bound to arbitrate the

dispute. See e.g., Local 771, I.A.T.S.E. v. RKO Gen., Inc., 546 F.2d 1107,

1115-16 (2d Cir. 1977) (recognizing a contract that provides "[t]he parties may

submit to arbitration" triggers mandatory arbitration and that "[n]either the

word 'may' nor any other language used in the [a]greement implies that the

parties had the option of invoking some remedy other than arbitration").

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                                        10
      Against that legal backdrop, we begin our analysis by reiterating the

arbitration clause at issue did not provide that either party may resolve

disputes under the ESCC by binding arbitration. Rather, the clause generally

provides "any controversy or claim arising out of or relating to [the ESCC], or

[c]ontract [d]ocuments, or any breach thereof, may be settled by binding

arbitration."   Nonetheless, Schneider urges us to interpret the provision as

mandatory where, as here, it invoked arbitration and the parties to the contract

are "two sophisticated entities."

      Notably, the District is not "an average member of the public[,]" nor is

the ESCC a consumer contract. Cf. Atalese, 219 N.J. at 442-43. Indeed, the

District is a public entity and was sophisticated enough to draft a fifty-five

page RFP to solicit bids for a multi-million dollar project. Nor is the ESCC a

contract of adhesion. As the judge aptly recognized, "[t]here is no indication

that the arbitration provision was included without negotiation or that it was an

inconspicuous part of the [ESSC]." We also agree with the trial judge that the

arbitration provision is prominently "identifiable" on the fifth page of the

nineteen-page ESCC.

      Pursuant to its plain terms, under certain circumstances the arbitration

provision, standing alone, might support Schneider's argument that it is

mandatory because the term, "may" permitted either of the two "sophisticated"

                                                                         A-5798-17T4
                                       11
parties to invoke arbitration. Schneider contends interpreting the provision as

permissive renders it superfluous because, even absent an arbitration clause,

the parties to a contract can always submit a dispute to arbitration if the other

consents. Without any related conflicting agreements executed between the

parties mandating litigation, we might agree with Schneider's position. Such is

not the case here, however.

      Rather, the terms of the arbitration clause, when read in pari materia

with the mandatory provisions of the two governing law provisions in the RFP

and PASS Agreement, both of which preceded the ESCC, mandate litigation

and do not evince a clear intent to waive the right to sue in court. Contrary to

Schneider's argument, the arbitration clause is not superfluous because the

governing law provision of the RFP specifically required the successful bidder

of the project to "agree" to "litigate[]" any disputes "aris[ing] in any manner

out of performance of the RFP or ESIP Agreement" in the Burlington

Vicinage. Likewise, interpretation and construction of the PASS Agreement

was required to be resolved in "federal, state or municipal courts serving the

county in which the [s]ervices [we]re . . . performed." Thus, the arbitration

provision in the ensuing ESCC permitted the parties to choose a forum not

previously agreed to, or permitted, under the mandatory governing law

provisions of the PASS Agreement and RFP. Because the ESCC's dispute

                                                                         A-5798-17T4
                                       12
resolution clause permitted arbitration when the parties previously did not have

that option, the clause was not superfluous.

      Put another way, had the District consented to arbitration after that

forum was invoked by Schneider, the parties would not have violated the

governing law provisions of the PASS Agreement and RFP.             Reading the

arbitration provision as a whole, however, the use of the permissive term,

"may" without a clear indication that the parties intended to waive litigation

cannot be harmonized with the PASS Agreement and RFP, both of which

clearly require resolution of disputes under the ESIP in a court of law.

      We are likewise unpersuaded by Schneider's argument that the ESCC's

merger clause prohibits the introduction of extrinsic evidence under the parol

evidence rule.   As the trial court recognized, "[t]he ESCC and the PASS

Agreement are in conflict regarding which contract's terms supersede if there

are varying terms and conditions related to the same subject matter."

      Specifically, Article 13.5, the final article of the ESCC provides, in

pertinent part: "[The ESCC] sets forth the entire understanding between the

parties and supersedes all prior oral or written understandings related to the

subject matter herein." Conversely, the second sentence on the first page of

the PASS Agreement provides, "To the extent that the terms and conditions in

this PASS Agreement conflict with the terms and conditions in the Energy

                                                                           A-5798-17T4
                                       13
Services Contract, 4 the terms and conditions of this PASS Agreement shall

control."

      Although the PASS Agreement and the ESCC apparently conflict

regarding merger, the trial judge properly considered extrinsic evidence to

support his decision that the arbitration clause was permissive. Our Supreme

Court has long recognized, "[e]vidence of the circumstances is always

admissible in aid of the interpretation of an integrated agreement. This is so

even when the contract on its face is free from ambiguity." Conway v. 287

Corp. Ctr. Assocs., 187 N.J. 259, 269 (2006) (alteration in original) (quoting

Atlantic Northern Airlines, Inc. v. Schwimmer, 12 N.J. 293, 301 (1953)); see

also Manahawkin Convalescent v. O'Neill, 217 N.J. 99, 118 (2014). Thus,

notwithstanding the ESCC's merger clause, interpretation of the arbitration

provision is not precluded by consideration of extrinsic evidence.

      Based on our de novo review of the record, when viewed in conjunction

with the parties' related agreements, we agree with the trial judge that the

ESCC's arbitration provision was permissive and not mandatory. As the judge

correctly observed, the parties specifically used the term, "shall" when they

intended certain provisions of the ESCC to be mandatory. Had the District and

4
   It is not entirely clear from the record whether the "Energy Services
Contract" is another term for the ESCC, which was not executed until June
2015.

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                                      14
Schneider intended to resolve their disputes by mandatory arbitration, the

ESCC should have explicitly so stated. Instead, use of the permissive term,

"may" underscored their intention that the arbitration provision was

permissive.   Further, Schneider drafted the agreement and, as such, to the

extent there exists any ambiguity in the arbitration provision, that ambiguity

should be construed against Schneider. See e.g., Roach v. BM Motoring, LLC,

228 N.J. 163, 174 (2017).

      In sum, a permissive interpretation of the arbitration provision in the

ESCC is consistent with the parties' prior intentions that disputes between

them would be litigated in court, as expressed in both the PASS Agreement

and RFP. Thus, we conclude under the facts presented that, absent its consent,

the District was not bound to arbitrate its alleged breaches of the ESCC, nor

Schneider's alleged breaches of the ESCC and PASS Agreement and other

causes of action related to Schneider's performance of work on the project.

      Affirmed.

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