To Resolve an Arbitrability Dispute, Cut the Complaint in Two, the Appellate Division Says

Greenbriar Oceanaire Community Ass’n, Inc. v. U.S. Home Corp., 452 N.J. Super. 340 (App. Div. 2017).  [Disclosure:  I represent U.S. Home, though not in this case].  In today’s decision in this appeal, which involved a dispute over which claims asserted by a homeowners association against the developer of the properties, Judge Fisher, writing for the panel, remanded the case with a direction to the parties and the Law Division that was literally Solomonic.  “[W]e remand for the filing of an amended complaint that separates claims the association asserted on its own behalf and those it asserted on behalf of the homeowners [who comprised the Association].”

The reason for that was the question of arbitrability of the claims asserted in the complaint.  As filed, the homeowners association’s complaint included both claims that the association had and claims that its members, the homeowners, had.  The purchase agreements that homeowners signed contained arbitration clauses, but the homeowners association never agreed to arbitration.  When defendant moved to compel arbitration, the Law Division granted that motion and entered an order mandating that all issues raised in the complaint be arbitrated.

The association appealed and won a reversal.  Judge Fisher turned aside several arguments that the association offered, ruling that one such contention was barred because it had not been raised below, another failed because the arbitration provisions in homeowners’ purchase contracts “more than adequately memorialize[d]” an agreement to arbitrate, and a third because it was unworthy of discussion in a written opinion, citing Rule 2:11-3(e)(1)(E).  Instead, he focused on “the pivotal question: are the association’s pleaded claims subject to the homeowners’ agreements to arbitrate?”

That question was difficult because the complaint “conflate[d] the claims asserted by the association on its own behalf and those asserted by the association on behalf of the homeowners.”  The pleading frequently referred to “the [a]ssociation and its members” in the same allegation.

Though arbitration is a “favored form of relief,” it is also true that “arbitration should not be compelled when it cannot be shown the plaintiff consented to arbitrate its claims.”  Instead of deciding the arbitration issue on the basis of the filed complaint, the panel remanded the case to the Law Division “so the motion judge can compel the association to file a pleading which separates the claims it has asserted on its own behalf from those it has asserted for the homeowners.”  That judge is then to determine which claims are arbitrable and which, if any, are not, and whether (if some are arbitrable and some are not) whether arbitration should proceed before or after judicial proceedings, or simultaneously.

Solomon would be proud.

One Response to “To Resolve an Arbitrability Dispute, Cut the Complaint in Two, the Appellate Division Says”

  1. Hi
    Pl advise if you represent homeowners in arbitration cases against architects / contractors

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