New Jersey Appellate Division Finds Parties’ Agreement for Arbitrator to Participate in Settlement Discussions and Continue as Arbitrator Need Not Be in Writing

In Pami Realty, LLC v. Locations XIX Inc., the New Jersey Appellate Division, in a to-be-published opinion, reversed a trial court’s determination that an agreement between litigants that an arbitrator could participate in settlement discussions and then continue as arbitrator must be in writing.

After commencing litigation over a construction contract dispute, the parties agreed to participate in arbitration proceedings to resolve their dispute. On the second day of arbitration, the parties discussed settlement. When the settlement negotiations were unsuccessful, the arbitration resumed for a final day of testimony. Six weeks after the submission of post-hearing briefs, the arbitrator reported that he had finished his opinion and would be finding in favor of the defendant. Plaintiff’s counsel responded that the arbitrator “had no authority to act as a mediator in this matter and then re-assume the role of arbitrator,” and his “decision to act as mediator created a conflict of interest that neither party waived through the arbitration agreement.”

After the arbitrator issued an award in favor of the defendant, the defendant moved to confirm the award. The plaintiff filed a cross motion to vacate the award, again arguing that the arbitrator had “exceeded his powers when he resumed the role of arbitrator after acting as a mediator mid-arbitration.” In a one-page statement of reasons, the motion judge denied the defendant’s motion to confirm the award and ordered the award to be vacated. Relying on Minkowitz v. Israeli, the motion judge agreed with the plaintiff that the “arbitrator had exceeded his authority by acting as both the mediator and arbitrator.”

The defendant appealed, arguing that the motion judge erred in his interpretation of Minkowitz, failed to “consider and apply principles of waiver and estoppel to preclude [plaintiff] from complaining after the fact about [the arbitrator’s] handling of the proceedings,” and failed in not holding an evidentiary hearing.

The Appellate Division held that Minkowitz does in fact apply. But while Minkowitz held that an “arbitrator who acted as a mediator could not then assume the role of arbitrator ‘absent the parties’ contract to the contrary,’” it did not say “absent the parties’ written agreement or contract.” While it would be the “better course to put the agreement in writing,” it was not required. As such, the motion judge’s order denying the defendant’s motion to confirm the arbitration award and granting the plaintiff’s cross-motion to vacate was reversed.

However, the question still remained as to whether the parties actually agreed to have the arbitrator participate in settlement proceedings and then resume as arbitrator. The Appellate Court therefore remanded for an evidentiary hearing “for the motion judge to resolve the parties’ conflicting factual contentions and determine whether the parties agreed the arbitrator could participate in settlement discussions and resume his role as arbitrator.”

While the Appellate Division made clear that a written agreement is not required, the opinion suggests that having one is better practice. As such, to avoid disputes over arbitration and mediation procedures, parties should ensure that any agreements made are in writing.

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