Courts Will Likely Not Consolidate Separate Arbitrations Under N.J.S.A. § 2A:23B-10 Where The Consolidated Arbitration Would Be Inconsistent With The Terms Of An Agreement To Arbitrate And Where There Is Substantial Delay In Seeking Consolidation
Construction Group Newsletter
January 29, 2010
In 2003, the New Jersey Legislature adopted a modified version of the Uniform Arbitration Act of 2000. N.J.S.A. § 2A:23B-1 to -32. One section of this new law, N.J.S.A. § 2A:23B-10, provided the first statutory authority in New Jersey for consolidation of arbitration proceedings. Specifically, N.J.S.A. § 2A:23B-10(a) provides the court with discretion to consolidate separate arbitration proceedings as to some or all claims if the following conditions are met:
(1) there are separate agreements to arbitrate or separate arbitration proceedings between the same persons or one of them is a party to a separate agreement to arbitrate or a separate arbitration proceeding with a third person;
(2) the claims subject to the agreements to arbitrate arise in substantial part from the same transaction or series of related transactions;
(3) the existence of a common issue of law or fact creates the possibility of conflicting decisions in the separate arbitration proceedings; and
(4) prejudice resulting from a failure to consolidate is not outweighed by the risk of undue delay or prejudice to the rights or hardship to parties opposing consolidation.
The statute also provides that a court may not consolidate the claims of a party to an agreement to arbitrate that prohibits consolidation. N.J.S.A. § 2A:23B-10(c). Because construction contracts often include agreements to arbitrate and construction disputes typically involve multiple parties and multiple construction contracts, the circumstances in which courts will consolidate arbitrations are of particular importance to the construction industry.
The Biber Partnership, P.C. v. Diamond Hill Joint Venture, LLC, 404 N.J. Super. 96 (App. Div. 2008) is the first reported appellate decision addressing the interpretation of N.J.S.A. § 2A:23B-10. In this case, the plaintiff architect, The Biber Partnership (“Biber”), entered into a contract with defendant Diamond Hill Joint Venture (“Diamond Hill”) to provide professional design services on a project Diamond Hill owned in Berkeley Heights, New Jersey. Biber subsequently retained defendant McManus Group (“McManus”) as the structural engineer on the Diamond Hill project. The contract between Biber and Diamond Hill required all disputes be arbitrated before a panel of three arbitrators, whereas Biber’s contract with McManus did not contain an arbitration provision.
Diamond Hill terminated Biber and these parties submitted their dispute to arbitration before a three arbitrator panel, as required under their contract. Payment disputes then arose between Biber and McManus which caused McManus to file construction lien claims. Biber and McManus later entered into a settlement agreement under which the parties agreed to submit their dispute to arbitration and selected retired Judge John M. Boyle as the arbitrator. The two arbitrations proceeded separately for twenty months when Biber filed an action seeking to consolidate the McManus/Diamond Hill arbitration the same day the hearing on the Biber/Diamond Hill arbitration was set to begin. Biber proposed that the consolidated arbitration be held before the three arbitrator panel selected under its contract with Diamond Hill. Both Diamond Hill and McManus objected. The trial court denied Biber’s motion to consolidate, finding that McManus would be prejudiced by having to arbitrate its disputes before a three-judge panel when it had only consented to arbitration (1) of its dispute with Biber and (2) before a specific, single arbitrator. On appeal, the Appellate Division affirmed.
Because the parties agreed that Biber’s motion to consolidate satisfied the first three-prongs of N.J.S.A. § 2A:23B-10, the Court focused on the fourth prong, which addresses the interests and prejudice to each party. The Court held that the trial court did not abuse its discretion in denying the motion to consolidate in light of the prejudice that would result if McManus were forced to arbitrate before a three panel arbitrator it played no part in selecting. In reaching this conclusion, the Court honed in on the official comments to the Uniform Arbitration Act, which expressly recognize that a party’s right to select a particular form of arbitration or arbitrator is one of the “rights” a court must consider in the “weigh[ing]” of the parties’ interests required by N.J.S.A. 2A:23B-10(a)(4). Biber’s delay in seeking consolidation also weighed against ordering consolidation. However, the court found that even had Biber promptly applied for consolidation, it would have still ruled against consolidation because consolidating the arbitrations would substantially alter the terms of the settlement agreement between McManus and Biber, which provided for arbitration before a single arbitrator.
There are some very important lessons to be learned from the Biber Partnership v. Diamond Hill Joint Venture decision. First, if you are entering into multiple contracts which contain arbitration clauses, be sure that the clauses are consistent, especially with respect to the number of arbitrators and location of the arbitration. Second, seek to consolidate as promptly as possible. Finally, although not addressed in the Biber case, parties should address consolidation of arbitrations in their contracts to avoid any issues that may arise if separate arbitrations are filed. Depending on the parties’ preference and the given project, the clause may preclude consolidation, require the other parties’ consent to consolidate related arbitrations, or provide for automatic consolidation upon the request of either party.