When an Arbitrator Acts as a Settlement Mediator During the Arbitration

PAMI Realty, LLC v. Locations XIX, Inc., ___ N.J. Super. ___ (App. Div. 2021). This opinion, authored by Judge Gummer, laid out the facts, issues, and the panel’s ruling in the first three paragraphs of the decision:

“The issue on this appeal is whether the parties agreed to involve the arbitrator in settlement discussions and, if so, whether that agreement had to be in writing. Plaintiff Pami Realt LLC (Pami) and defendant Locations XIX Inc. d/b/a Locations Construction (Locations) participated in an arbitration of a construction-contract dispute. During the arbitration, the arbitrator discussed settlement with the parties and counsel. When those discussions were not fruitful, the arbitration resumed. After the arbitration hearings had been completed and the arbitrator had advised counsel in an email that he would be issuing an opinion in defendant’s favor, plaintiff’s counsel, having not objected previously, complained for the first time that the arbitrator had exceeded his authority by participating in settlement discussions. Defendant asserts the parties agreed that the arbitrator could participate in settlement discussions and continue his role as arbitrator.

After the arbitrator issued a decision in favor of defendant, a series of motions and cross-motions ensued in the Law Division. Without conducting an evidentiary hearing, the motion judge ultimately denied defendant’s motion to confirm the arbitration award, granted plaintiff’s motion to vacate the award, and ordered the parties to arbitrate their dispute while the funds in dispute remained held in escrow.

Because the parties’ agreement, if any, to permit the arbitrator to participate in settlement discussions did not have to be in writing and because the motion judge failed to conduct an evidentiary hearing to resolve the parties’ factual disputes regarding the existence of an agreement, we reverse the orders denying defendant’s motion to confirm the arbitration award, granting plaintiff’s motion to vacate it and denying defendant’s motion for reconsideration of those issues. We remand, directing the motion judge to conduct an evidentiary hearing. We affirm the order denying plaintiff’s cross-motion to release the escrowed funds.”

Though the context is unusual, and Judge Gummer well explained the detailed factual scenario, the holding is largely just an application of the settled principle that, on a dispositive motion, fact disputes must be resolved at a hearing or at trial, not on conflicting papers alone. A takeaway related to the particular issue raised– when and under what circumstances an arbitrator may mediate– is that a decision to have an arbitrator mediate should be handled in a way that will avoid fact disputes later.