JOHN E. RIEHL, SR. et al. v. TOLL BROTHERS, III, L.P., et al.

Annotate this Case

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2383-05T32383-05T3

JOHN E. RIEHL, SR. and MARY

RIEHL,

Plaintiffs-Respondents,

v.

TOLL BROTHERS, III, L.P., TOLL

BROTHERS, INC. and TOLL LAND CORP.

NO. 10,

Defendants-Appellants.

____________________________________________________

 

Submitted May 1, 2006 - Decided May 17, 2006

Before Judges Fall and C.S. Fisher.

On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. MON-L-3090-05.

Flaster/Greenberg, attorneys for appellants (James A. Kozachek, of counsel; Mr. Kozachek, Vincent J. Nolan and Matthew S. Burns, on the brief).

Britt, Riehl & Spudic, attorneys for respondents (Michael Riehl, on the brief).

PER CURIAM

On May 4, 2002, plaintiffs John E. Riehl, Sr. and Mary Riehl (buyers) entered into a contract to purchase from defendants Toll Brothers, III, L.P., Toll Brothers, Inc., and Toll Land Corp. No. 10 (sellers), for $304,875, a Prestwick Heritage style home to be built in a development known as Riviera at Freehold. We granted leave to appeal in order to consider whether, as sellers argued, the contract required arbitration of their disputes or whether, as the trial judge held, their contract is not so expansive as to encompass buyers' consumer fraud and misrepresentation claims.

I

On July 13, 2005, buyers filed a complaint which alleged, among other things, that sellers misrepresented or failed to disclose material information regarding the size, location and character of the property they agreed to purchase. For example, buyers alleged that the contract described the lot as consisting of 9,077 square feet when, in fact, it allegedly consists of only 7,380 square feet. Buyers also claimed that sellers led them to believe there would be a large open field in the back of their property when, as they later learned, an access road in the development was to be built immediately adjacent to the side and rear of their lot.

Soon after being served with process, sellers moved to dismiss the complaint or, in the alternative, to enforce the contract's arbitration clause, which states:

Buyer[s] . . . hereby agree that any and all disputes with Seller[s] . . . arising out of the Premises, this Agreement, the Home Warranty, any other agreements, communica-tions, or dealings involving Buyer, or the construction or condition of the Premises including, but not limited to, disputes concerning breach of contract, express and implied warranties, personal injuries and/or illness, mold-related claims, representa-tions or omissions by the Seller[s], on-site and off-site conditions and all other torts and statutory causes of action ("Claims") shall be resolved by binding arbitration in accordance with the rules of the Construction Arbitration Services, Inc. [CAS] or . . . [i]f CAS is unable to arbi-trate a particular claim, then that claim shall be resolved by binding arbitration pursuant to the Construction Rules of Arbitration of the American Arbitration Association. . . . The provisions of this paragraph shall be governed by the provisions of the Federal Arbitration Act, 9 U.S.C. 1, et seq. and shall survive settlement.

In denying sellers' application, the trial judge stated that the arbitration clause should not be interpreted to include the type of misrepresentations or omissions contained in buyers' complaint:

I tend to agree with [buyers] in that . . . this paragraph . . . really deals with something that would have happened, after you are in the home and you had a warranty problem or something [of] that nature, where you are going to a specific arbitration service that deals with the construction of the home. [T]he claim in this case [deals] with the fact that you thought you were buying one size lot, you got another, and again, just going through the facts that were in the brief and argument, a road running along the side of the house, that has nothing to do with the construction of HOW warranties that arbitrators in that instance would probably be better suited to decide than possibly the Superior Court because it's a construction issue, that's what they deal with all the time.

The judge also determined that the arbitration clause was not intended to include consumer fraud claims:

But in this case when you are talking about fraud, . . . consumer fraud, my reading of [the arbitration clause is that] [y]ou wouldn't put a paragraph like that in there saying, well you are going to arbitrate a consumer fraud matter . . . or a fraud matter because you would not indicate to the parties that was something that is going to happen. It's understandable in the construction of a house that you can have . . . defective shingles or something like that that can happen or defective workmanship where that claim should be submitted to a construction expert or to HOW, if that were the case. Under the HOW warranty, but in this case and in reading the case law and specifically . . . some of the cases that have been cited in the briefs and, I do not feel that, that's the situation that we have right now.

And, in summarizing his interpretation of the arbitration clause, the judge concluded:

I think we are in a situation where . . . arbitration really is not the approp-riate forum. If you look at [Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124 (2001) and Marchak v. Claridge Commons, Inc., 134 N.J. 275 (1993)]. In certain circumstances you would have an understanding of what you would arbitrate. Again, anything to do with the construction.

Here, it was not even in the contemplation of the drafter of the contract that this is something that a claim would be made for. You are not . . . going to draft a contract saying . . . if we commit fraud upon you, you are going to arbitration, that's not going to be in a contract like this. So based on all that, I do think that this is an exception where arbitration is not . . . really the proper forum and based on that I am going to deny the motion to transfer the case to arbitration.

The judge later denied sellers' motion for reconsideration, reiterating that issues such as the size of the lot and location of the access road were not encompassed by the arbitration clause.

We granted sellers' motion for leave to appeal the order which denied their motion to compel arbitration.

II

We initially observe there is no public policy that would preclude the arbitration of claims based upon the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -106. As we have held, "[a] consumer's claim that a contract was the product of unconscionable practices in violation of the CFA does not necessarily prohibit the enforcement of an arbitration clause contained in the contract under attack." Rockel v. Cherry Hill Dodge, 368 N.J. Super. 577, 580 (App. Div.), certif. denied, 181 N.J. 545 (2004). See also Gras v. Associates First Capital Corp., 346 N.J. Super. 42, 52 (App. Div. 2001) (holding that there is "no inherent conflict between arbitration and the underlying purposes of the CFA"), certif. denied, 171 N.J. 445 (2002). Instead, when the enforceability of an arbitration clause in such a setting is questioned, the court is required to harmonize "two significant public policies," Gras, supra, 346 N.J. Super. at 53, a process which we have described in the following way:

Plaintiffs identify the first and correctly assert that the policy behind the CFA is to "root out consumer fraud." However, that policy must be balanced by a competing and compelling public policy favoring arbitra-tion as a means of dispute resolution and requiring liberal construction of contracts in favor of arbitration.

[Id. at 53-54 (citations omitted).]

In considering these competing policies, we have concluded that the enforceability of an arbitration clause, when applied to a CFA claim, must be examined on a case-by-case basis, and turns largely on the content and clarity of the arbitration clause. Rockel, supra, 368 N.J. Super. at 580.

In rejecting sellers' attempt to enforce the arbitration clause included within the contract of sale, the trial judge focused on the clause's particular language and whether that language conveyed an intent to encompass CFA claims. Specifically, the judge appears to have determined that the language of this clause does not suggest an intent to arbitrate (a) CFA claims in general; (b) claims based upon the size and nature of the lot, as opposed to just the structure to be built upon the lot; or (c) a CFA claim centered on the allegation that the buyers were fraudulently induced into entering into the contract. We reject the judge's interpretation and reverse.

A

The scope of the arbitration agreement is broadly stated. The parties agreed that they would arbitrate "any and all disputes . . . arising out of the Premises, this Agreement, the Home Warranty, any other agreements, communications or dealings involving the Buyer[s], or the construction or condition of the Premises including, but not limited to, disputes concerning breach of contract, express and implied warranties, personal injuries and/or illness, mold-related claims, representations and/or omissions by Seller[s], on-site and off-site conditions and all other torts and statutory causes of action."

We observe that there is nothing about this language which would suggest any intended limitation on its scope. No exceptions are expressed or intimated. The clause refers to "any and all disputes" that involve the parties' contract, including claims alleging breach of contract, breach of warranties and other representations and "all other torts and statutory causes of action." The reference to "all . . . statutory causes of action" certainly encompasses claims based upon alleged CFA violations. As held in Garfinkel, in an employment context:

The Court will not assume that employees intend to waive [statutory] rights unless their agreements so provide in unambiguous terms. That said, we do not suggest that a party need refer specifically to the [Law Against Discrimination] or list every imaginable statute by name to effectuate a knowing and voluntary waiver of rights. To pass muster, however, a waiver-of-rights provision should at least provide that the employee agrees to arbitrate all statutory claims arising out of the employment relationship or its termination.

[168 N.J. at 135.]

Here, it is true that the arbitration clause does not specifically mention the CFA, but, as Garfinkel held, that is not dispositive. That the arbitration clause mentions "all . . . statutory claims" and contains other specific references which evince the intention to include CFA claims, whether they relate to the formation of the contract or to the parties' performance of the contract, is sufficient to require enforcement of the parties' agreement to arbitrate.

B

In describing the scope of the arbitration clause, the judge held that the parties meant to arbitrate only claims regarding the condition of the structure, such as: "you know, as indicated, . . . a dishwasher not working or a crack in the ceiling or . . . more cosmetic type things or even more serious, that are the construction related issues." We reject this narrow interpretation because the arbitration clause was crafted with broad language.

The parties expressly included within their arbitration agreement "any and all disputes" between buyers and sellers, "arising out of the Premises, this Agreement, the Home Warranty [and] any other agreements, communications or dealings." The phrase "any and all disputes" denotes the parties' stipulation that no dispute of any type was to be excluded. In addition, the phrase "arising out of the Premises" relates not just to the construction of the home but suggests an intention to apply to disputes relating to all aspects of the contract. This is further demonstrated by the express inclusion of claims based upon sellers' "representations and/or omissions" regarding "on-site and off-site conditions." "On-site conditions" undoubtedly refers, in this context, not only to the structure to be built, but also the lot upon which the structure was to be built. "Off-site conditions" can only logically mean the surrounding neighborhood, thus encompassing buyers' claim that sellers misrepresented the location of an access road in the development.

The inclusion of such broad statements in the arbitration clause does not render that clause ambiguous but, instead, demonstrates that the parties unambiguously intended that the arbitration clause be broadly interpreted to include all conceivable claims. Here, the judge took a narrow view of the arbitration clause, mistakenly holding that it applied only to defects in the structure, and erroneously concluding that the clause did not extend to claims regarding the size of the lot or the location of other conditions in the development.

C

The trial judge also interpreted the arbitration clause by weighing the logic of whether a contracting party would intend to arbitrate a claim that the contract, which contained the arbitration clause, was the product of fraud or misrepresentation. In this regard, the judge said that buyers' fraud in the inducement claim "was not even in the contemplation of the drafter of the contract," who would not "draft a contract saying that you know what, if we commit fraud upon you, you are going to arbitration." As a general matter, the judge's method of interpretation was sound, but the premise upon which it was based was mistaken because it is by no means unnatural for parties to agree to arbitrate such a claim. To the contrary, it is well-established under both federal and state law that the arbitration of a fraudulent inducement claim may be compelled even when it is the contract under attack which contains the arbitration agreement. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S. Ct. 1801, 1806, 18 L. Ed. 2d 1270, 1277 (1967); Van Syoc v. Walter, 259 N.J. Super. 337, 339 (App. Div. 1992), certif. denied, 133 N.J. 430 (1993). Accordingly, we find no merit in the judge's interpretation of the arbitration clause at hand because that interpretation was guided by a narrow approach to arbitration that is inconsistent with federal law, New Jersey law and, in fact, the law of most other states. See, generally, Annotation, Claim of Fraud in Inducement of Contract as Subject to Compulsory Arbitration Clause Contained in Contract, 11 A.L.R. 4th 774.

III

For these reasons, we conclude that the trial judge's narrow interpretation of the arbitration clause was erroneous and we remand for the entry of an order staying the action, N.J.S.A. 2A:24-4, pending the completion of the arbitration proceedings required by the parties' contract.

 
Reversed and remanded for further proceedings in conformity with this opinion. We do not retain jurisdiction.

It is also important to observe that the Garfinkel holding should apply with less rigidity in the present circumstances because Garfinkel, unlike the case at hand, dealt with an arbitration clause that was contained in a contract of adhesion. See Rockel, supra, 368 N.J. Super. at 585.

Others have agreed with the approach apparently adopted by the trial judge that it is illogical to assume that parties actually intend to arbitrate claims of fraud in the inducement of the contract containing the agreement to arbitrate. For example, in Prima Paint, supra, 388 U.S. at 407, 87 S. Ct. at 1808, 18 L. Ed. 2d at 1279, on behalf of himself and two other members of the Court, Justice Black questioned the logic of the majority opinion in the following way: "The Court holds, what is to me fantastic, that the legal issue of a contract's voidness because of fraud is to be decided by persons designated to arbitrate factual controversies arising out of a valid contract between the parties." However, the majority opinion in Prima Paint governs the application of the Federal Arbitration Act, 9 U.S.C.A. 1 to 16, and our decision in Van Syoc, which followed Prima Paint, governs the application of the New Jersey Arbitration Act, N.J.S.A. 2A:24-1 to -11, on this point.

It is, at times, relevant to the enforcement of an arbitration agreement to consider the size of the print and other physical attributes of the contract that might impact upon the claimant's understanding of what was arbitrable. Rockel, supra, 368 N.J. Super. at 585. In Rockel, for example, we considered the effect of two somewhat different arbitration clauses in the contract documents as raising an ambiguity about what was arbitrable. Here, buyers have not provided any evidence from which the trial judge could have concluded that buyers -- one of whom is an attorney -- did not understand they were entering into a contract that contained an arbitration clause. Indeed, both buyers initialed the arbitration clause, thus denoting they read, understood and intended to be bound by it.

(continued)

(continued)

12

A-2383-05T3

 

May 17, 2006


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