Court Opinion

ID: 4531693
Source: CourtListenerOpinion
Date Created: 2020-05-05 14:08:13.806964+00
Date Added: 2024-06-11T09:27:08.285939
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                                APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is lim ited. R. 1:36-3.

                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-0620-19T1

PAUL SCHMIDT,

          Plaintiff-Appellant,

v.

ROBERT LAUB, as trustee for
THE CAROL L. GLATSTIAN
LIVING TRUST, derivatively
on behalf of MAYWOOD
SHERWOOD VILLAGE, LLC,

          Defendant-Respondent.

                   Argued telephonically March 24, 2020 –
                   Decided May 5, 2020

                   Before Judges Fisher, Gilson and Rose.

                   On appeal from the Superior Court of New Jersey,
                   Chancery Division, Bergen County, Docket No. C-
                   000334-18.

                   Anthony S. Bocchi argued the cause for appellant
                   (Cullen & Dykman LLP, attorneys; Anthony S. Bocchi,
                   of counsel and on the briefs; Steven N. Siegel, on the
                   briefs).
            Matthew K. Blaine argued the cause for respondent
            (Davidson Eastman Munoz Paone, PA, attorneys;
            Matthew K. Blaine, of counsel and on the brief).

PER CURIAM

      Plaintiff Paul Schmidt appeals a Chancery Division order, denying his

show cause application for a preliminary injunction to enjoin arbitration, and

granting defendant's motion to dismiss plaintiff's accompanying verified

complaint. Because we conclude the parties agreed to arbitrate their disputes

and delegate issues of arbitrability to the arbitrator, we affirm.

                                         I.

      Plaintiff and defendant Robert Laub, in his capacity as Trustee of the

Carol L. Glatstian Living Trust, and derivatively on behalf of Maywood

Sherwood Village, LLC, are members of that company, which owns a multi-

family rental property in Maywood. Plaintiff is the manager and holds a sixty

percent interest in the company; the remaining forty percent interest is split

evenly between defendant and William Compagnone, who is not a party to this

appeal.

      In 1999, the members signed a twelve-page operating agreement

(Agreement) that embodies their rights and obligations regarding the company.

At issue on this appeal are two successive paragraphs of the Agreement: one

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expresses the parties' broad agreement to arbitrate 1 and the other provides an

exception that allows a party to sue in court for relief against a "Defaulting

Member."2

            1
                11.9 Arbitration. Except to the extent that the
            disputants agree in writing to any other method of
            resolution of a given dispute . . ., any dispute arising
            among the Members, or any of them, or their
            successors-in-interest, . . . concerning the meaning of
            [sic] interpretation of any provision of this Agreement,
            or the rights, duties, or obligation of any of the
            Members, including their successors-in-interest . . .,
            shall, with reasonable promptness be submitted to and
            be determined by arbitration in the State of New Jersey,
            by the American Arbitration Association [(AAA)] in
            accordance with its rules then in force and effect . . . .
            2
               11.10 Default. If a Member fails to perform any of
            its obligations under this Agreement or violates any of
            the terms of this Agreement . . . the other Members,
            shall have the right (in addition to all of their rights and
            remedies under this Agreement, at law or in equity) to
            give the Member written notice of such default at any
            time prior to the curing of such default . . . . If a
            Member is a Defaulting Member . . . the other Members
            may do one or more of the following, at the same or
            different times, in addition to all of its or their other
            rights and remedies . . . .

Among those other options were the rights to: "(a) bring any proceeding in the
nature of specific performance, injunction or equitable remedy . . . [and] (b)
bring any action at law or on behalf of the Member of the Company . . . to
recover damages . . . ."
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      One year later, Glatstian filed a complaint in the Chancery Division,

claiming plaintiff and Compagnone breached their fiduciary duties in various

ways and, as such, they were "Defaulting Members" as defined in paragraph

11.10 of the Agreement.      Glatstian sought specific performance of certain

provisions of the Agreement and compensatory and punitive damages.

Ultimately, the parties settled their dispute and executed a settlement agreement

in 2001.

      Relevant here, paragraph 7 of the settlement agreement mandates binding

arbitration for "dispute[s] among the members concerning paragraph 4" of that

agreement. Paragraph 4 of the settlement agreement states, in full:

                   4. Prior to incurring any single expense or single
            capital expenditure in excess of $20,000, the manager
            shall obtain the consent of all members in the subject
            LLC, including Carol Glatstian, whose consent shall
            not be unreasonably withheld, delayed or conditioned.
            Absent extraordinary circumstances, Carol Glatstian
            shall respond to such requests within ten days and to
            emergent matters as the emergency dictates.

      Years later, in August 2018, defendant filed a seven-count demand for

arbitration before the AAA that underlies the present matter.           Defendant's

demand sought, among other remedies, removal of plaintiff as the company's

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manager and monetary damages resulting from plaintiff's mismanagement. 3

Defendant claimed plaintiff was a "Defaulting Member" under section 11.10 of

the Agreement, and that he had violated certain provisions of the settlement

agreement, including paragraph four.

      Plaintiff filed an answering statement with the AAA, objecting to its

jurisdiction and the arbitrability of defendant's claims. The parties participated

in a preliminary hearing before an arbitrator, who thereafter issued a scheduling

order that included dates for the filing of any "threshold or dispositive" motions.

Instead, plaintiff filed the present action in the Chancery Division. Defendant

thereafter removed the action to federal court, which declined jurisdiction

without deciding defendant's application to refer the matter to arbitration, and

remanded the matter to the Superior Court.

      Following argument, the General Equity judge rendered an oral decision

denying plaintiff's application for a temporary restraining order and issued a

briefing schedule for defendant's motion to dismiss plaintiff's complaint. On the

return date, the judge issued a final decision after hearing argument, effectively

ordering the matter to proceed to arbitration. Relying in large part on his earlier

3
  Defendant also named the company as a nominal respondent and the real party
in interest.
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determination, the judge determined the parties had agreed to arbitrate their

disputes under the Agreement, including the question of arbitrability. Although

the judge found the Agreement's default provision "seemed to provide an option

one way or the other to the parties" for resolving their disputes against defaulting

members, the judge concluded that plaintiff's participation in the arbitration

proceeding effectively waived his right to object to the arbitrator's jurisdiction.

      The judge also denied plaintiff's request for a stay of his order. Thereafter,

the arbitrator issued an interim arbitration award. This appeal followed as of

right, and we stayed the arbitration.4

      On appeal, plaintiff raises several overlapping arguments, essentially

claiming: the Agreement's default provision renders its arbitration provision

ambiguous and therefore invalid; the Agreement's arbitration provision was

supplanted by the 2001 settlement agreement's arbitration clause; and defendant

waived arbitration because Glatstian's 2000 litigation sought similar remedies

against defaulting members of the company. For the first time on appeal,

plaintiff claims defendant is estopped from demanding arbitration in the

4
  Any order compelling or denying arbitration is deemed a final judgment for
appeal purposes and is appealable as of right. R. 2:2-3(a); GMAC v. Pittella,
205 N.J. 572, 583-86 (2011); see also R. 2:9-5(c) (requiring a court to stay
arbitration pending appeal absent exceptional circumstances).
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underlying action. Finally, plaintiff argues his minimal participation in the

arbitration proceeding did not constitute a waiver of his right to object to the

arbitrator's jurisdiction.   Because we conclude the Agreement's arbitration

clause was valid and arbitrability issues under the Agreement were specifically

delegated to the arbitrator, we need not reach plaintiff's waiver argument.

                                       II.

      We review orders permitting or denying arbitration de novo because "[t]he

enforceability of arbitration provisions is a question of law." Goffe v. Foulke

Mgmt. Corp., 238 N.J. 191, 207 (2019). Accordingly, we need not defer to the

trial judge's "interpretative analysis" unless it is "persuasive." Kernahan v.

Home Warranty Admin. of Fla., Inc., 236 N.J. 301, 316 (2019).

      We begin our review by noting the Agreement is silent as to whether the

Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 to -16, or the New Jersey

Arbitration Act (NJAA), N.J.S.A. 2A:23B-1 to -32, governs.5 But, we need not

decide which Act applies here because the policies animating each statute share

5
   Defendant contends the FAA governs because the Agreement implicates
interstate commerce. To support his position, defendant argues he is a resident
of Florida and administers the trust from that state, while plaintiff and the
company are residents of New Jersey. In his reply brief, plaintiff makes a
passing reference, in a footnote, to the FAA's requirements in another context,
but during oral argument before us, plaintiff contended the NJAA applies. The
parties did not raise this issue before the trial judge.
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the same aims. As our Supreme Court has observed, "The [FAA] and the nearly

identical [NJAA] enunciate federal and state policies favoring arbitrati on" as a

"mechanism of resolving disputes" that otherwise would be litigated. Atalese v.

U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 440 (2014) (citations omitted).

      It is well settled that "arbitration is a matter of contract." NAACP of

Camden Cty. E. v. Foulke Mgmt. Corp., 421 N.J. Super. 404, 424 (App. Div.

2011) (internal quotation marks omitted). In determining whether a matter

should be submitted to arbitration, a court must first evaluate whether a valid

agreement to arbitrate exists and, if so, then decide whether the dispute falls

within the scope of the agreement. Martindale v. Sandvik, Inc., 173 N.J. 76, 85,

92 (2002).

      An agreement to arbitrate "must be the product of mutual assent, as

determined under customary principles of contract law." Atalese, 219 N.J. at

442 (internal quotation marks omitted). "As with other contractual provisions,

courts look to the plain language the parties used in the arbitration provision ,"

Medford Twp. Sch. Dist. v. Schneider Elec. Bldgs. Americas, Inc., 459 N.J.

Super. 1, 8 (App. Div. 2019), thereby honoring the intentions of the parties,

Quigley v. KPMG Peat Marwick, LLP, 330 N.J. Super. 252, 270 (App. Div.

2000). The terms of an arbitration provision should be read liberally and in

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favor of arbitration. Garfinkel v. Morristown Obstetrics & Gynecology Assocs.,

P.A., 168 N.J. 124, 132 (2006). Moreover, incorporation of the AAA rules

weighs in favor of arbitration. See Preston v. Ferrer, 552 U.S. 346, 362-63

(2008).

                                       A.

      With those principles in mind, we first examine the validity of the

Agreement's arbitration provision, noting it is contained in a separate

enumerated paragraph, and its terms clearly and unambiguously mandate

arbitration for "any dispute arising among the [m]embers." Those disputes

"concern[] the meaning of [sic] interpretation of any provision of this

Agreement, or the rights, duties, or obligation of any of the Members, including

their successors-in-interest." The provision expressly designates the AAA as

the arbitral forum, with venue laid "in the State of New Jersey."

      Accordingly, the arbitration provision is "succinctly stated, unambiguous,

easily noticeable, and specific with regard to the actual terms and manner of

arbitration." Curstis v. Cellco P'ship, 413 N.J. Super. 26, 37 (App. Div. 2010)

(examining the language of an arbitration agreement to determine whether a

party waived his right to judicial adjudication of his statutory rights and common

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law claims for fraud, and breach of contract). We therefore reject any suggestion

that the arbitration provision is ambiguous.

      Nor are we persuaded by plaintiff's argument that the Agreement's

arbitration provision is undercut by the default provision that immediately

follows. While the arbitration provision establishes the forum in which to

resolve the members' disputes, the default provision provides alternate remedies

that "may" be sought by the non-defaulting member. Those remedies include

"any proceeding in the nature of specific performance, injunction or equitable

remedy" or "any action at law . . . to recover damages." Those alternatives are

options provided to the aggrieved member "at the same time or different times,

in addition to all . . . other rights and remedies." Nothing in the language of the

default provision prohibits an aggrieved party from demanding arbitration

before the AAA.

      Rather, the default provision is narrowly crafted and apparently designed

to provide alternate avenues of redress for aggrieved members of the company.

Those options might afford a more expeditious resolution than arbitration before

the AAA. For example, the aggrieved party may seek restraints under paragraph

11.10(a) by way of an order to show cause in Superior Court. Not surprisingly,

the defaulting party is not afforded a choice of venue. We therefore conclude

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the Agreement's default provision neither overrides nor renders ambiguous the

arbitration provision.

      We further note plaintiff as the alleged defaulting party in defendant's

arbitration demand, is not "an average member of the public[, who] may not

know – without some explanatory comment – that arbitration is a substitute for

the right to have one's claim adjudicated in a court of law." Atalese, 219 N.J. at

442. The Agreement – including its arbitration and default paragraphs – was

negotiated among three sophisticated businesspeople, including plaintiff, the

company's manager and majority owner.

      We also reject plaintiff's argument that the 2001 settlement agreement

supplanted the Agreement's arbitration clause.       The settlement agreement

provides a discreet remedy for disputes concerning expenditures over $20,000:

arbitration before a specific retired judge; not the AAA. But, the settlement

agreement neither revokes nor otherwise references the Agreement's arbitration

provision. As the trial judge correctly recognized, "It does not appear on this

record that the parties intended to waive any provision of the arbitration clause

of the [Agreement]."

      Little need be said regarding plaintiff's contention that Glatstian's

litigation – filed nearly two decades before defendant's arbitration demand –

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permanently waived defendant's right to seek relief in that forum. To support

his contention, plaintiff attempts to advance a "course of performance"

argument. Plaintiff's argument is misplaced.

      Courts may consider the parties' course of performance when interpreting

ambiguous contractual terms. See Twp. of White v. Castle Ridge Dev. Corp.,

419 N.J. Super. 68, 77-78 (App. Div. 2011) (noting courts may consider the

parties' "course of performance" when interpreting "vague or ambiguous

provisions of a contract"). As we stated above, however, no such ambiguity

exists in the Agreement's provisions at issue here.

                                       B.

      We next address whether defendant's dispute falls within the scope of the

Agreement, recognizing its arbitration provision expressly provides arbitration

before the AAA. The applicable AAA rules set forth the broad jurisdiction of

the arbitrator.   See AAA Commercial Arbitration Rules and Mediation

Procedures Rule 7 (Oct. 1, 2013). Subsection (a) of the rule provides:

                   The arbitrator shall have the power to rule on his
            or her own jurisdiction, including any objections with
            respect to the existence, scope, or validity of the
            arbitration agreement or to the arbitrability of any claim
            or counterclaim.

And, according to subsection (b):

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                   The arbitrator shall have the power to determine
            the existence or validity of a contract of which an
            arbitration clause forms a part. Such an arbitration
            clause shall be treated as an agreement independent of
            the other terms of the contract. A decision by the
            arbitrator that the contract is null and void shall not for
            that reason alone render invalid the arbitration clause.

       Our courts have not specifically addressed the issue, but "[v]irtually

every [federal] circuit [court of appeals] . . . has determined that incorporation

of the [AAA] arbitration rules [in an arbitration agreement] constitutes clear and

unmistakable evidence that the parties agreed to arbitrate arbitrability." Oracle

Am., Inc. v. Myriad Group A.G., 724 F.3d 1069, 1074 (9th Cir. 2013);

Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 763-64

(3d Cir. 2016).

      We find the reasoning in Chesapeake Appalachia to be persuasive. We

conclude that the incorporation of the AAA rules into the arbitration provision

clearly and unambiguously expressed the parties' intent to empower the

arbitrator to determine arbitrability. As our Supreme Court has recognized

"when the parties' contract delegates the question of the arbitrability of a

particular dispute to an arbitrator, a court may not override the contract, even if

the court thinks that the argument that the arbitration agreement applies to a

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dispute is 'wholly groundless.'" Goffe, 238 N.J. at 211 (quoting Henry Schein,

Inc. v. Archer & White Sales, Inc., 568 U.S. ___, 139 S. Ct. 524, 528-29 (2019)).

      Plaintiff's belated estoppel arguments, and any other contentions that we

have not specifically addressed, lack sufficient merit to warrant discussion in

our written opinion. R. 2:11-3(e)(1)(E).

      Affirmed.

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