Opinion
Civil No. 98-cv-1725 (SSB).
June 29, 1998
HARWOOD LLOYD, LLP, Hackensack, New Jersey, By: Victor C. Harwood, III, Esquire, Attorney for Plaintiff Highlands Insurance Group.
OBERMAYER, REBMAN, MAXWELL HIPPEL, LLP, Haddonfield, New Jersey, By: Stephen D. Schrier, Esquire, Lori A. Andreosky, Esquire, Attorneys for Defendant Claridge.
PECKAR ABRAMSON, River Edge, New Jersey, By: Bruce Meller, Esquire, Attorney for Defendants Perini Corp., J.J. Nugent Corp., Perini/Nugent Joint Venture, John Nugent, and James Simpkins.
WOLF, BLOCK, SCHORR AND SOLIS-COHEN, LLP, Philadelphia, Pennsylvania, By: William G. Frey, Esquire, Attorney for Defendants Perini Corp., J.J. Nugent Corp., Perini/Nugent Joint Venture, John Nugent, and James Simpkins.
ZELLE LARSON, L.L.P., Dallas, Texas, By: Thomas Cook, Esquire, Attorney for Defendants Claridge and Thomas Weller.
OPINION ON APPEAL OF ORDER DENYING STAY OF ARBITRATION
The question presented by this appeal is whether the order of a United States Magistrate Judge denying a stay of ongoing arbitration should be affirmed where an insurer files a declaratory judgment action concerning coverage of one of the arbitrating parties. The answer to this question requires the Court to delve into a complex and multifaceted action and the underlying federal and state policies which have long favored arbitration as an alternative to dispute resolution.
I. Facts and Procedural Background
The present action arises out of a most unfortunate accident in Atlantic City, New Jersey. On July 10, 1996, Erna and Gertrude Martin died when the automobile driven and owned by Erna Martin fell from the fourth floor of Claridge Hotel Casino's (hereinafter "Claridge") mostly completed parking garage. The general contractor on the project was the joint venture known as Perini/Nugent Joint Venture (hereinafter "the Joint Venture") formed by J.J. Nugent Company and the Perini Corporation. The Joint Venture, as well as the two companies, have been named as defendants in the actions by the Martins currently pending before this Court. Claridge, another defendant in the above proceedings, filed an action with the American Arbitration Association against the Joint Venture which was consolidated with an arbitration action between the Joint Venture and Central Metals, Inc./Roma Steel (hereinafter "Central Metals"), the subcontractors responsible for installing the barriers through which the decedents broke through in falling from the parking garage.
The Joint Venture's principal places of business are both Massachusetts and New Jersey. Perini Corporation is incorporated and has its principal place of business in Massachusetts.
The principals of Perini Corporation and J. J. Nugent Company, James Simpkins and John Nugent, also have been named as defendants. The underlying action is captioned Martin v. Claridge, et al . , 97-cv-6077 (SSB).
The arbitrations are styled as Claridge at Park Place, Inc. v. Perini/Nugent Joint Venture , AAA No. 18-Y-110-00398-97 and Perini-Nugent Joint Venture v. Central Metals, Inc . , AAA No. 18-110-00557-97.
The Joint Venture's contract with Claridge contains an arbitration clause and a provision stating that the contract shall be governed by the law of the place where the project is located. In this case, the location is New Jersey. Central Metals agreed to be bound by the terms of this contract. Claridge seeks damages from the Joint Venture for losses, including the lost profits stemming from the incident and the consequential closure of the garage. It also seeks indemnification from the Joint Venture in case it is found liable to the Martins.
Unsuccessful attempts already have been made to stay or alter the arbitrations pending the outcome of the Martins' case. Central Metals filed a motion before Magistrate Judge Joel B. Rosen to consolidate the arbitration with the Martins' lawsuits. The Joint Venture also submitted a cross-motion to stay arbitration until the resolution of the litigation. Claridge filed a cross-motion to stay the litigation pending the outcome of arbitration. On March 23, 1998, the Magistrate Judge denied all motions. Arbitration hearings commenced on April 7, 1998, and the parties are scheduled to continue arbitrating in July and August.
Highlands Insurance Group (hereinafter "Highlands"), a company incorporated and with its principal place of business in Texas, is the successor-in-interest to LMI Insurance Company (hereinafter "LMI"). It thereby has assumed responsibility for LMI's policies. LMI issued both general liability and excess liability policies to J.J. Nugent Company with the Joint Venture included as an additional insured. Highlands filed the within action seeking a declaratory judgment that it is not required to provide liability insurance coverage in the Martins' civil action and arbitrations.
Highlands' case against coverage depends on a large number of exclusionary clauses and other provisions not relevant to the resolution of its pending motion. The declaratory judgment action also contained claims against other insurers. According to Highlands' Complaint, jurisdiction is based upon (1) diversity of citizenship; (2) supplemental jurisdiction because of the Complaint's relationship with the existing litigation; and (3) the fact that the declaratory relief sought herein involves an actual controversy under 28 U.S.C. § 2201 .
Highlands filed an Order to Show Cause on April 14, 1998 to stay the underlying arbitrations and sought a preliminary injunction restraining the parties from further arbitration until after the declaratory judgment action is resolved. Claridge, the Joint Venture, and Central Metals challenged this motion during a telephone hearing on April 20, 1998. Magistrate Judge Rosen denied the application for a preliminary injunction on April 24, 1998 and allowed the arbitrations to continue. He stated that his decision was dictated by federal and New Jersey policies in favor of arbitration, the existence of a contractual agreement between the parties in the arbitration, the potential length of delays if these kinds of stays were granted, the fact that the arbitrations are ongoing, and the balance of prejudice to the arbitrating parties if the arbitrations were stopped. See Tr. of Hr'g, April 20, 1998, at 12. On May 5, 1998, Highlands filed an appeal with this Court of the Magistrate Judge's order.
In support of its appeal to overturn the stay, counsel for Highlands submitted its original brief in support of a stay and an additional letter brief dated May 4, 1998. Claridge, through its counsel in the Martin litigation, submitted its original brief as well as an opposition letter brief dated May 19, 1998 explaining why the lower court's decision ought to be affirmed. Highlands responded with a reply letter brief dated May 28, 1998. On June 4, 1998, the Court received from Claridge's arbitration counsel a letter brief in opposition to Highlands' appeal, and on June 8, 1998 a letter from counsel for Highlands objecting to this additional brief and urging the Court not to consider it. The Court notes, however, that counsel for Highlands is on the same footing as Claridge's arbitration counsel as to the filing of additional briefing. By letter of May 29, 1998 Highlands provided the slip opinion of Allstate Ins. Co. v. Idabells Lopez , No. MRS-L-1736-97 (N.J.Super.Ct. Law. Div. February 6, 1998, approved for publication May 12, 1998) and a short exposition of the opinion. In the interests of fairness and completeness, the Court has considered all materials received from counsel to date.
II. The Parties' Positions
(A) HighlandsHighlands makes two arguments in favor of reversing the Magistrate Judge's order denying a stay. Highlands first contends under New Jersey law that all other actions, including arbitrations, must be stayed until an insurance coverage action is resolved. It relies primarily on the New Jersey Supreme Court's decision in Sussex Mutual Ins. Co. v. Hala Cleaners, Inc., 75 N.J. 117 (1977). In addition, it cites a New Jersey trial court decision where arbitration was stayed in favor of a declaratory judgment action in the context of allegations of a massive insurance fraud conspiracy. Allstate Ins. Co. v. Idabells Lopez, No. MRS-L-1736-97 (N.J.Super.Ct. Law. Div. February 6, 1998, approved for publication May 12, 1998) .
Second, Highlands advances policy arguments based on federal precedent for the proposition that allowing the arbitration to continue would be inefficient, inequitable, or otherwise inadvisable. It admits that the Magistrate Judge rejected many of these arguments in the earlier proceeding, but it still believes they are persuasive here. Highlands also cites a number of non-Third Circuit decisions granting a stay of arbitration. It further argues that permitting the arbitration to continue would harm it, the insurer, because an arbitration award cannot typically be overturned, and arbitrators are given a great deal of discretion. Further, given the uncertainty of coverage, the insured would be less likely to settle the disputes, and this would result in greater administrative costs. By granting the stay, Highlands asserts, the dispute resolution system could handle these proceedings in a more efficient manner by avoiding duplicative efforts and inconsistent results. In addition, there may be difficulties in using the arbitration result because arbitrators are not required to make specific factual findings. Finally, Highlands voices its concern that the resulting factual findings from the arbitration could be made binding on the declaratory judgment action.
Lessona Corp. v. Cotwool Mfg. Corp., Judson Mills Div . , 315 F.2d 538, 541 (4th Cir. 1963); Bell Can. v. ITT Telecomm. Corp . , 563 F. Supp. 636, 641-42 (S.D.N.Y. 1983); Petroleum Helicopters, Inc. v. Boeing Vertol Co . , 478 F. Supp. 84, 86-87 (E.D.La. 1979), aff'd per curiam , 606 F.2d 114 (5th Cir. 1979).
Tretina Printing, Inc. v. Fitzpatrick Assocs . , 135 N.J. 349, 358 (1994) (per curiam).
(2) Claridge
According to Claridge's litigation counsel, the Magistrate Judge's denial of a stay should be affirmed because the decision is neither clearly erroneous nor contrary to law. L. Civ.R. 72.1(c)(1)(A). The casino sees Highlands' present action as an attempt to re-litigate issues presented earlier to the Magistrate Judge by Central Metals and the Joint Venture. It argues that both federal and New Jersey law supports the denial of the stay. Next, Claridge distinguishes the Sussex line of cases by pointing out that these cases did not involve arbitration. Finally, it argues that Highlands would not suffer irreparable harm from the continuing of the arbitration, but that Claridge would be harmed by a stay because it would deprive it of the swift arbitration for which it bargained.
Federal Arbitration Act, 9 U.S.C.A. §§ 1 et . seq . (West, WESTLAW through P.L. 105-106); City of Meridian v. Algernon Blair, Inc . , 721 F.2d 525 (5th Cir. 1983); Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213 (1985); Moses H. Cone Mem'l. Hosp. v. Mercury Constr. Corp . 460 U.S. 1 (1983); Prima Paint Corp. v. Flood Conklin Mfg. Co . , 388 U.S. 395 (1967). New Jersey case law supports this policy. See also Perini Corp. v. Greate Bay Hotel Casino, Inc . , 129 N.J. 479 (1992) (plurality), overruled on other grounds by per curiam , Tretina Printing, Inc. v. Fitzpatrick Assocs . , 135 N.J. 349 (1994); Traveler's Indemnity Co. v. Mongiovi , 135 N.J. Super. 452 (App.Div. 1975); New Jersey Mfrs. Ins. Co. v. Haran , 128 N.J. Super. 265 (App.Div. 1974). In Haran and Traveler's , the courts affirmed refusals by trial courts to stay arbitration in the face of other proceedings. Haran ; 128 N.J. Super. at 269; Traveler's , 135 N.J. Super. at 459 . See also N.J.S.A . §§ 2A:24-1 et. seq . (West, WESTLAW through 1997 Sess.).
(3) Claridge's Arbitration Counsel
In its letter brief, Claridge's arbitration counsel argues (1) thatSussex does not require a stay of the arbitration; (2) that the resolution of the declaratory judgment action requires factual determinations that properly belong in the underlying action; and (3) that a stay would seriously hinder the ongoing arbitration proceedings. It points out that Sussex itself recognized that an insurance coverage action may be brought after the connected trial. 75 N.J. at 124 (quotingBurd v. Sussex Mutual Ins. Co., 56 N.J. 383, 392 (1970)). In addition, the declaratory judgment action should not be resolved until the crucial facts that form its basis are ascertained in the underlying arbitration and litigation. Ohio Cas. Ins. Co. v. Flanagin, 44 N.J. 504, 511-13 (1965). As such, Highlands' action should wait until the arbitration or the tort suits are resolved because they involve issues vital to the action, such as whether the defendants were negligent, whether their conduct was intended, and whether non-covered damages, such as punitive damages, ought to be assessed. Claridge's arbitration counsel finally contends that scheduling has been provided under an agreed Scheduling Order; thus, a stay would interfere with the arbitrations previously held and those to come and deny Claridge the benefit of its contractual bargain.
III. Discussion
An order denying a stay constitutes a determination of a non-dispositive matter. L. Civ. R. 72.1(a)(1). A district court, in reviewing such an order, accords the magistrate judge's decision a large measure of deference; it may only set aside the parts of a magistrate judge's non-dispositive order found to be clearly erroneous or contrary to law. F. R. Civ. P. 72(a); L. Civ.R. 72.1(c)(1)(A). For the following reasons, the Court concludes that the Magistrate Judge did not err in refusing to grant a preliminary injunction.
The Court notes that throughout the briefing in this case, the parties have used the terms "stay" and "preliminary injunction" interchangeably. In denying Highlands' motion, the Magistrate Judge treated and denied the motion as a preliminary injunction. See Order of April 24, 1998, at 2. This Court will do the same. Some explanation of the factors that guide the granting of a preliminary injunction are: (1) the probability of irreparable injury to the moving party in the absence of relief; (2) the possibility of harm to the nonmoving party if relief were granted; (3) the likelihood of success on the merits; and (4) the public interest. Alessi v. Com. of Pa. Dept. of Public Welfare , 893 F.2d 1444, 1447 (3d Cir. 1990). Because the Court finds herein that Highlands fails to meet the first element, it need not address the preliminary injunction inquiry in its entirety.
Because the contracts between Claridge and its contractors involve interstate commerce, the Federal Arbitration Act (hereinafter "FAA") applies. 9 U.S.C. § 1 et. seq. Section 2 of the FAA states:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
The United States Supreme Court has interpreted the FAA as extending to the limits of Congress' constitutional power to regulate commerce.Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 268 (1995). The provisions of the FAA apply even when, as in this case, diversity of citizenship provides a basis for subject-matter jurisdiction. Prima Paint Corp. v. Flood Conklin Mfg. Co. 388 U.S. 395, 404-05 (1967). Given the reach of the statute, the commerce requirement is satisfied when the contract has only the smallest nexus with interstate commerce or when contractual activity affects this commerce, even if merely tangentially.Crawford v. West Jersey Sys., 847 F. Supp. 1232, 1240 (D.N.J. 1994). Admittedly, no parties explicitly asserted an interstate nexus. See Merritt-Chapman Scott Corp. v. Pennsylvania. Turnpike Comm'n, 387 F.2d 768, 771-72 (3d Cir. 1967) (refusing to apply the FAA on appellate review in the absence of any assertions that the transaction involved interstate commerce or any factual determinations on that issue by the district court). However, an interstate commerce connection may not have been asserted perhaps because the parties considered it to be obvious. A building contract involving a number of contractors, including one partner, Perini Corporation, which is incorporated and has its principal place of business in Massachusetts, has a connection with interstate commerce. More fundamentally, the subject matter of the contract, the building of a new casino parking garage, has as its purpose the attraction and better accommodation of out-of-state tourists who come to Atlantic City. Clearly, the contracts at issue in this case are those affecting interstate commerce. Indeed Highlands, notwithstanding its argument that New Jersey law applies, continually refers to federal case law dealing with the FAA. Regardless, the Court concludes that the result of the instant motion is the same under both federal and New Jersey law.
State arbitration laws may apply if they do not conflict with the goals behind the federal statute. Volt Info. Sciences, Inc. v. Bd. of Trustees of the Leland Stanford Univ., 489 U.S. 468, 477-78 (1989). Congress enacted the FAA to end judicial hostility towards arbitration agreements, to ensure that the bargains of the parties are honored, and to promote arbitrable proceedings consistent with the wishes of the parties and contractual principles. Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218-221 (1985).
In Volt the Supreme Court ruled that a California statutory provision, allowing a court to stay arbitration pending the resolution of proceedings between arbitrating and third parties where there is a possibility of conflicting results, may be applied by a state court even though the dispute falls under the FAA. The California provision applied because the parties incorporated a contractual provision that the contract would be governed by the law of the state in which the construction project was located. In Volt, the project was located in California. Id. at 470-71. An identical provision exists in this case, and therefore New Jersey law, as the law of the jurisdiction where the garage is located, applies. However, unlike California, New Jersey's arbitration statute lacks a statutory provision specifically authorizing stays of arbitration pending the resolution of related litigation.
Highlands' insurance coverage argument embraces the theory that coverage actions are to be accorded special treatment. This argument depends on a line of New Jersey cases commencing with Sussex Mutual Ins. Co. v. Hala Cleaners , 75 N.J. 117 (1977).
Sussex itself presented the question of whether an insurer, by filing an answer on behalf of its insured and obtaining a stay until the coverage dispute between the insurer and the insured was settled, had waived any rights it possessed and was estopped from denying coverage in that suit.Id. at 722. The New Jersey Supreme Court concluded that there had been no waiver or estoppel because the insurer merely preserved the status quo, did not seek to control the insured's defense, and an adversarial coverage dispute, known to the insured, existed from the time the suit against the insured was filed. Id. at 125-127.
Sussex does not mandate a reversal of the lower court's order. The New Jersey court stated that whenever the positions of the insurer and the insured so diverge that the carrier cannot faithfully defend the insured, there must be a proceeding at which the carrier and the insured fight over the differences. Id. at 124 (quoting Burd v. Sussex Mut. Ins. Co., 383, 391 (1970)). This may come in the form of a declaratory judgment proceeding in advance of the trial between the injured party and the insured. Id. Highlands concludes from this statement that a court must stay any liability claims until the coverage issue is resolved. In fact, the court found that an action to settle coverage "may" follow the trial of the third party's claim against the insured. Id.
Highlands' reliance on the line of cases after Sussex also fails to show that the Magistrate Judge's order is clearly erroneous or contrary to law. In so doing, Highlands cites a number of cases that somehow albeit briefly mention Sussex. See White v. Austin, 172 N.J. Super. 451 (Cape May County Ct. 1980) (denying motion of insurer to remove execution of a default judgment against it when it had been served process on behalf of a driver who was actually not insured by the company but failed to notify plaintiff, who relied on its inaction to his detriment);Zuckerman v. Piper Pools, Inc., 232 N.J. Super. 74 (App.Div. 1989) (reversing judge's removal of a guardian ad litem on the grounds that he would not accept settlement offers); Popow v. Wink Associates, 269 N.J. Super. 518 (App.Div. 1993) (holding that a defendant cannot appeal a judgment in his or her favor in order for the person's insurer to escape liability); Deblon v. Beaton, 103 N.J. Super. 345 (Law Div. 1968) (ruling that a carrier has a duty to act in good faith where its interests conflict with those of the insured in connection with settlement negotiations and cannot complain about a partial settlement after its disclaimer and refusal to negotiate).
A further exploration of Highlands' cited case law does not reveal that other proceedings must be stayed pending the resolution of the coverage issue. The Austin court, for instance, stated that the insurer could have met its obligations by informing the injured driver of its intent to disclaim liability because it had no policy covering the defendant. 172 N.J. Super. at 456. The Zuckerman court merely expressed some reservations about whether the liability action should have proceeded when the declaratory judgment action had not been resolved. 232 N.J. Super. at 80 n. 3. Admittedly, the court in Popow stated that conflicts between insurance carriers should be solved prior to the liability trial through negotiation, arbitration, or declaratory judgment. 269 N.J. Super. at 530. However, the court never said that the liability trial had to be stayed in favor of these other proceedings. Further, its statement was framed in terms of a dispute between insurers and not between the insurer and the insured. Id. Finally, Deblon also did not hold that litigation must be stayed in the face of a coverage dispute. 103 N.J. Super. at 351-52.
These cases are more plainly distinguishable because they did not involve arbitrations. Arbitration proceedings are accorded more deferential treatment because they represent the negotiated contractual desires of the parties. To halt arbitrations, especially those already in progress, would hinder these policies.
Both New Jersey and federal law favor the honoring of these contractual agreements and the resolution of cases by arbitration. Byrd , 470 U.S. at 219-21 (stating the policies behind the FAA); Marchak v. Claridge Commons, Inc ., 134 N.J. 275, 281 (1993) (honoring an agreement to submit to arbitration is consistent with the premise that parties may bargain freely); Perini Corp. v. Greate Bay Hotel Casino, Inc 129 N.J. 479, 489 (1992) (plurality) (stating that New Jersey policy favors arbitration), overruled on other grounds by per curiam , Tretina Printing, Inc. v. Fitzpatrick Assocs . , 135 N.J. 349 (1994) (adopting a different standard of review for arbitration awards).
The very recent decision of Allstate Ins. Co. v. Idabells Lopez, provided by Highlands, presents an instance in which arbitrations and lawsuits were stayed pending an insurer's declaratory judgment action. Having reviewed this late-breaking decision, however, the Court is satisfied that it should not be treated as a general rule to be applied in all cases involving arbitration and insurance coverage. The insurer inAllstate alleged the existence of a massive insurance fraud ring involving over four hundred persons accused of feigning injuries and staging automobile accidents who had both liability lawsuits and arbitration proceedings pending. Id. at 1-2. The court in that case stayed arbitration proceedings until it resolved the declaratory judgment action against the alleged perpetrators. Id. at 23. Among the reasons given, the court cited judicial efficiency, a concern for uniformity of results, the entire controversy doctrine, and the legislative policy against preventing fraud. Id. at 11.
Allstate's unprecedented factual situation makes it clearly distinguishable from the case at bar. The enormous burden and harm the insurer would suffer if forced to proceed with hundreds of actions and arbitration proceedings is evident. Id. at 12. Moreover, the allegedly fraudulent conduct of the Allstate defendants would constitute an abuse of the arbitration process in order to obtain money from an insurance company. The natural response would be to stop any fraud immediately and not allow it to continue. However, in this action the Court is dealing with an insurance company not confronted with an alleged massive conspiracy of clients defrauding it, and the balance of the equities do not so convincingly redound to Highlands' favor. There is no question of fraud in this case. As such, the legislative policy against it does not come into play to overcome the strong federal and state policies in favor of arbitration and the honoring of contracts.
An appellate court did hold that, in a case involving a noninsured driver, questions of coverage must be determined in a court before the arbitration commences. Government Employees Ins. Co. v. Bovit , 142 N.J. Super. 268, 273 (App.Div. 197 6). However, that case primarily involved the question of whether or not the coverage issue was arbitrable and not the respective timing of the proceedings. Id . at 269. In addition, the New Jersey Supreme Court overruled this decision. Ohio Cas. Ins. Co. v. Benson , 87 N.J. 191, 198-99 (1981).
In some circumstances, a court must defer to a declaratory judgment action when the basis of the insurer's liability will be determined by proofs adduced in the underlying action and it cannot be determined which grounds will actually be adjudicated against the insured. Ohio Cas.Ins. Co. v. Flanagin, 44 N.J. 504, 512-13 (1965). Highlands' case against coverage, however, depends on a number of issues that are properly for the arbitrators or the trial court to decide. These include the types of damages to be imposed and whether the wrongdoing was intentional. It may be premature and inefficient for a court to consider them before they are decided in the proper forums. For example, it makes little sense to find Highlands not responsible for certain damages when the arbitrators or the court have not as yet assessed them. As the Magistrate Judge observed, Highlands appears to be arguing that the tail should wag the dog. See Tr. of Hr'g at 12.
The Magistrate Judge's decision is in step with both federal and New Jersey courts that have stressed the importance of enforcing arbitration contracts. In Dean Witter Reynolds, Inc. v. Byrd, for example, Justice Marshall stated that the primary purpose behind the FAA is to ensure that courts no longer interfere with the rights of parties to form legally effective agreements to arbitrate. 470 U.S. 213, 219 (1985). The essential goal, therefore, is not the efficient resolution of disputes though this is important but the protection of the sanctity of contracts. Id. at 221. The Third Circuit, relying on Byrd, likewise refused to view the FAA's primary goal as the promotion of the expeditious resolution of claims, rejecting an argument that arbitration should not be ordered because of its expense and inefficiency. Pritzker v. Merrill Lynch, Pierce, Fenner, Smith, Inc., 7 F.3d 1110, 1112 n. 1 (1993). Congress' intention of ensuring that arbitration agreements are enforced must be honored even if the result is piecemeal litigation, except perhaps if another federal statute reveals a countervailing policy. Byrd., 470 U.S. at 221.
Given the policy of protecting contractual rights, the lower court did not abuse its discretion by denying the stay. Claridge and its contractors are corporations which bargained for and agreed on arbitration as a method of dispute resolution. The arbitration of this dispute has been ongoing for several months and is scheduled to continue through the summer. Expense and inconvenience are not the types of injury that justify a stay given the harm to the contract and the expectation that it would be honored by the courts in a swift manner. Further, given the ongoing nature of the arbitration and the number of parties involved, a stay so that one insurance company can settle the issue of coverage before the completion of the arbitration does not appear justified as a matter of efficiency.
As Claridge points out, New Jersey law similarly supports the Magistrate Judge's decision. Perini Corp. v. Greate Bay Hotel Casino, Inc., 129 N.J. 479, 489 (1992) (plurality) (citing a strong judicial commitment to arbitration), overruled on other grounds by per curiam,Tretina Printing, Inc. v. Fitzpatrick Assocs., 135 N.J. 349 (1994) (adopting a different standard of review for arbitration awards). Like the federal policy, New Jersey seeks to protect the contract rights of the parties agreeing to arbitration. Marchak v. Claridge Commons, Inc., 134 N.J. 275, 281 (1993) (honoring an agreement to submit to arbitration is consistent with premise that parties may bargain freely). The New Jersey arbitration statute is very similar to the federal statute. FAA, 9 U.S.C.A. § 2. N.J.S.A. §§ 2A:24-1 provides:
Admittedly, this policy is not stated with as much emphasis as in the federal courts.
A provision in a written contract to settle by arbitration a controversy that may arise therefrom or a refusal to perform the whole or a part thereof or a written agreement to submit, pursuant to section 2A:24-2 of this title, any existing controversy to arbitration, whether the controversy arise out of contract or otherwise, shall be valid, enforceable and irrevocable, except upon such grounds as exist at law or in equity for the revocation of a contract.
§ 2A:24-1.
Unlike the California statute in Volt, 489 U.S. at 469, New Jersey's arbitration statute lacks a specific statutory provision authorizing a court to stay arbitration pending other proceedings. The Appellate Division of the New Jersey Superior Court explicitly dealt with the question of staying arbitration when faced with other proceedings in New Jersey Mfrs. Ins. Co, v, Haran. In Haran, the insurer attempted to stay arbitration until after the conclusion of the lawsuit. 128 N.J. Super. 265, 266 (App.Div. 197 4). The court stated that arbitration, as a judicially favored remedy, should be allowed to proceed even if there is another proceeding pending and therefore the possibility of inconsistent results.Id. at 269. Since conflicting results are possible whenever multiple suits arise out of the same transaction, courts would constantly frustrate arbitration provisions if they enjoined whenever a potential conflict exists. Id. The elimination of the risk of inconsistent results would hinder the policy goal of prompt, nonjudicial dispute resolution.Id. The Haran court was unwilling to do this. Id. A court in a case involving both an ongoing arbitration and a declaratory judgment action to resolve insurance coverage must adopt the same position.
Claridge cites Traveler's Indemnity Co. v. Mongiovi , 135 N.J. Super. 452 (App.Div. 1975), to support the contention that the arbitration should not be stayed. However, this case is more concerned with the question of the scope of an uninsured motorist provision than with the timing of proceedings. Id . at 452.
In terms of Highlands' efficiency and other policy arguments for a stay, the lower court properly could have concluded that the public policies encouraging arbitration and the honoring of contracts outweigh any problems, either real or potential, raised by Highlands. It is not contrary to law or clearly erroneous for the Magistrate Judge to have concluded that a stay would be more prejudicial or harmful to the arbitrating parties than what Highlands would suffer if it were not granted.
IV. Conclusion
For all of the foregoing reasons, the Court affirms the order of the Magistrate Judge denying a stay of arbitration. The arbitration proceedings are to continue as scheduled.
The Court will enter an appropriate order.
ORDER AFFIRMING DENIAL OF STAY OF ARBITRATION
THIS MATTER, having come before the Court on plaintiff Highlands Insurance Group's ("Highlands") appeal from the denial of a stay of ongoing arbitrations captioned Claridge at Park Place, Inc. v. Perini/Nugent Joint Venture, AAA No. 18-Y-110-00398-97 and Perini-Nugent Joint Venture v. Central Metals, Inc., AAA No. 18-110-00557-97 entered by United States Magistrate Judge Joel B. Rosen on April 24, 1998, pending the Court's determination of the within declaratory judgment action brought by Highlands pursuant to FED. R. CIV. P. 72(a) and L. Civ.R. 72.1(c)(1)(A);
The Magistrate Judge, having conducted a telephone hearing on Highlands' Order to Show Cause filed April 14, 1998 to stay or to enter a preliminary injunction as to the above arbitration proceedings pending the outcome of the within declaratory judgment action; and having denied said application; and
This Court, having reviewed the transcript of the April 20, 1998 hearing, and all submissions from the parties received in chambers; and
Having concluded that the Magistrate Judge's decision was not clearly erroneous or contrary to law;
IT IS, on this 29th day of June, 1998 hereby ORDERED that the Magistrate Judge's April 24, 1998 order denying a stay of the above-captioned arbitration proceedings is AFFIRMED.
No Costs.