STEVEN COZZOLINO v. MICHAEL COZZOLINO

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4770-10T1

STEVEN COZZOLINO,

Plaintiff-Respondent,

v.

MICHAEL COZZOLINO,

Defendant-Appellant.

_____________________________________

December 10, 2012

 

Argued April 24, 2012 - Decided

 

Before Judges Baxter, Nugent and Carchman.

 

On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-10417-10.

 

Philip Rosenbach argued the cause for appellant (Berman Rosenbach, P.C., attorneys; William J. Berman and Mr. Rosenbach, on the briefs).

 

Allen L. Harris argued the cause for respondent (Budd Larner, P.C., attorneys; Donald P. Jacobs and Mr. Harris, on the briefs).

PER CURIAM

Defendant Michael Cozzolino appeals from the Law Division order that granted relief to his brother, plaintiff Steven Cozzolino, entered judgment on a third supplemental arbitration award, and denied Michael's1 application to vacate that award. Michael contends the arbitrator exceeded his authority when he determined that a lease involving the parties' businesses was not "triple net," despite having made that determination in his initial award; and by ordering that the new lease include renewal options and a purchase option. The trial court rejected Michael's arguments and confirmed the award. Having considered Michael's arguments in view of the record, we conclude that the arbitrator acted within his powers. We further conclude that Michael waived his right to seek appellate review of the arbitrator's decision. Accordingly, we dismiss his appeal.

I.

Steven and Michael co-owned three businesses: Cozzolino Furniture Design, Inc. (Cozzolino Furniture), COR Products, Inc. (COR), and 20 Standish, LLC (Standish). In June 2005, COR and Cozzolino Furniture entered into separate leases with Standish for commercial space to conduct their businesses. Approximately one and one-half years later, in November 2006, Cozzolino Furniture filed a Chapter 11 bankruptcy petition. The bankruptcy proceedings had not concluded by May 2008, at which time Cozzolino Furniture remained a debtor-in-possession under its lease with Standish. During that month, Steven and Michael agreed to arbitrate disputes that had arisen between them concerning their businesses. They also agreed to give the arbitrator full authority to decide all their disputes. Because Michael now challenges the scope of the arbitrator's authority, we recount the parties' discussions and written agreements concerning the scope of the arbitrator's powers.

After Steven and Michael decided to arbitrate their disputes, their attorneys made the following representations to the bankruptcy court before that court approved Cozzolino Furniture's reorganization plan.

THE COURT: . . . [I]s it fair to say, and I would ask this both of [Steven's counsel] Mr. Sirota and [Michael's counsel] Mr. Lodge, I think we have some agreement that there's an intent to arbitrate. I think what our disagreement is[,] is what that means?

 

MR. SIROTA: I think that if I read the opposition correctly, we don't even have a disagreement as to what that means. I would suggest, Judge, that the parties appear, once and for all have agreed to arbitrate, give [the arbitrator] carte blanche. . . . [W]e're prepared to give [the arbitrator] carte blanche so that he can determine, in fact, whether there was a settlement, as well, since he's deciding everything else.

 

. . . .

 

MR. LODGE: . . . We agree. We don't have any objection to an adjournment of the confirmation hearing. I spoke with [the arbitrator's] office this morning and June 16th and the 23rd are reserved for us, and so we're prepared to go forward. Now, I understand that we, both parties, Steven and Michael, are agreeing on the record here that we're giving [the arbitrator] carte blanche authority as to all issues. And --

 

THE COURT: Okay. And I think that's the effect of your revised order, isn't it?

 

MR. LODGE: It is.

 

THE COURT: Yes.

 

MR. LODGE: It is. And so, I wouldn't say we necessarily need an order, but we don't have an objection to the entry of the order that we proposed, or we're happy to stand on the representations of the parties before this Court that both parties are giving [the arbitrator] carte blanche authority.

 

[(emphasis added).]

 

Commenting on the need for an order, the judge stated, "to the extent that the order embodies also this Court's belief that the arbitration is an important prerequisite to this Court's ability to confirm a [reorganization] plan, then I think it's a good idea . . . ."

Four days later, Michael's attorney submitted a proposed order to the judge in an email stating, "[a]ttached is a proposed Order . . . . Counsel for Steven Cozzolino has agreed to the form of this order." The order provided in pertinent part:

2. [The arbitrator] is vested with full and complete discretion to render a decision that he, in his sole discretion, finds to be fair and equitable. The parties further agree that [the arbitrator] may render a decision that: (i) adopts one of the parties' positions, (ii) that is a variation on one of the parties' positions, (iii) that is a combination of both parties' positions, or (iv) that [the arbitrator] comes up with on his own.

 

3. [The arbitrator] is vested with full and complete discretion to decide all scheduling and discovery issues relating to the Arbitration.

 

4. The parties waive any and all rights of appeal or to in any way challenge [the arbitrator's] decision, which shall be conclusive and final in all respects; provided nothing herein shall not [sic] preclude [the arbitrator] from retaining jurisdiction for any purpose in his discretion.

 

5. The parties further agree to waive any and all rights to challenge [the arbitrator's] jurisdiction or authority as arbitrator or to challenge the scope of the issues to be decided by him.

 

6. Subsequent to [the arbitrator's] decision in the Arbitration, the Court shall continue the hearing on confirmation of the Debtor s Chapter 11 Plan . . . .

 

[(emphasis added).]2

 

Three days later, the parties entered into a written "Agreement for Binding Private Arbitration," which provided in relevant part:

1. The undersigned parties and their representatives have agreed to submit to arbitration, administered by under [sic] its applicable rules and according to the New Jersey Alternative Procedure for Dispute Resolution Act [(APDRA)], N.J.S.A. 2A:23A-1 et seq., or as mutually agreed to by Counsel, the later described controversy or issues in Michael Cozzolino v. Steven Cozzolino.

 

They further agree that they will faithfully observe this agreement and the attached Rules, and that they will abide by and perform any award rendered by the Arbitrator and that a judgment of the court having jurisdiction may be entered upon the award. If the N.J.S.A. 2A:23A-1 et seq. option has been chosen the word "arbitrator" as used herein shall be read as meaning the "umpire," and contrary provisions herein shall be deemed [superseded] by that Act.

 

. . . .

 

8. The Arbitrator will make the award only on the basis of the facts and exhibits presented at the hearing. In addition to the evidence presented at the arbitration hearing, the Arbitrator shall be bound by any mutual agreements made between the parties, copies of which shall be attached hereto.

 

 

9. The decision of the Arbitrator shall be final and binding, except as otherwise provided in N.J.S.A. 2A:23A-1, et seq., if the parties have selected this option. . . .

 

[(emphasis added.]

 

That same day, the parties and the arbitrator signed a "Pre-Hearing Arbitration Order", which provided:

The parties waive any and all rights of appeal or to in any way challenge the Arbitrator's decision, which shall be conclusive and final in all respects; provided that nothing herein shall not [sic] preclude the Arbitrator from jurisdiction for any purpose in his discretion.

 

Steven and Michael proceeded to arbitrate their disputes and the arbitrator entered the first arbitration award on June 25, 2008. Among many other terms, the award required Steven to purchase Michael's interest in Cozzolino Furniture; and split COR into two entities, with Steven retaining the "wall panel" aspect of the business, and Michael retaining the "floor" aspect of the business. Cozzolino Furniture and the wall panel business retained by Steven were to remain as tenants in the building owned by Standish. Based on an agreement reached by the parties, the award "ordered that the existing rent per square foot presently being paid will continue unabated for another five years on a triple net basis. Steven will be the active partner and have day-to-day management control [of Standish] in order to avoid disagreements." Michael was permitted reasonable access to the books and records of Standish. As to the term of the lease, the award provided that upon expiration of the "new five year lease, the parties may have the lease renewed on the basis of their own negotiations or the property may be sold to a third party." If Steven and Michael decided to sell the property, Steven would have a right of first refusal based upon an appropriate appraisal.

The arbitration award stated that it was intended "to be consistent with the Plan for [Cozzolino Furniture] presently before the Bankruptcy Court . . . ." The award also concluded that it was intended "to have fulfilled the agreement made between the brothers and represented to the Bankruptcy Court that the brothers approved the Plan and any issues involving COR and Standish would be resolved by arbitration." The arbitrator explicitly stated in the award his understanding that the award was consistent with the bankruptcy reorganization plan.

Although the award resolved Steven and Michael's existing disputes, they agreed the arbitrator would retain jurisdiction:

Although all of the substantive issues have been decided, there may be some details or refinements that are necessary to be resolved particularly as to Standish since the parties intend to prepare a new Lease and Operating Agreement between Steven and Michael as to that property. There may be issues that we are not aware of at this point and jurisdiction shall also be retained for that purpose.

 

Following the entry of the first arbitration award, the parties became involved in additional disputes. The arbitrator conducted further hearings and entered a supplemental arbitration award in July 2009 and a second supplemental arbitration award in December 2009. Thereafter, the arbitrator revised the second supplemental arbitration award.

In 2010, further disputes developed between Steven and Michael. They returned to arbitration. After they provided the arbitrator with position statements concerning the issues to be arbitrated, the arbitrator conducted a hearing on August 3, 2010. On November 16, 2010, he entered the "Third Supplemental Arbitration Award," which is the subject of this appeal.

Of the fourteen issues addressed in the Third Supplemental Arbitration award, Michael challenges the arbitrator's decision concerning the Cozzolino Furniture-Standish lease. In his decision, the arbitrator emphasized the importance of the history of the lease and bankruptcy proceedings. He reiterated that "[n]ew leases are necessary since the 2005 Leases were never officially renewed in 2007. This was ordered by the Award effective June 25, 2008." The arbitrator then commented on the arguments by the parties about the "triple net" aspect of the lease.

Reference has been made and emphasis given to the fact that prior Awards repeatedly referred to the Lease as triple net and a casual reading of the Lease would seem to indicate that it was. However, when it became an issue again, the Arbitrator made a more careful reading and analysis of the Leases which are mirrored images of each other with respect to [Cozzolino Furniture] and COR. A triple net lease is a lease in which a commercial tenant is responsible for maintaining the premises and paying usual utility, taxes and other charges relative to the property. However, when one reviews the Leases closely, it appears that the Leases are not triple net in the usual sense of the term. The Lease speaks for itself.

 

The arbitrator then noted that under the lease, Standish, as landlord, was required to make structural repairs to the building. The arbitrator determined that damage to the building's floor caused by heavy equipment was structural and the responsibility of Standish, as the landlord; and rejected Michael's contention that Cozzolino Furniture, as tenant, was responsible for the floor repairs.

The arbitrator next determined that Cozzolino Furniture, as tenant, was responsible to reimburse Standish for a portion of the real estate taxes Standish had paid since 2004. Based on his construction of the 2005 Cozzolino Furniture-Standish lease, the arbitrator limited the reimbursement to amounts in excess of the 2004 base year referenced in the 2005 lease.

Significantly, the arbitrator concluded that the 2005 lease provisions requiring Standish, as landlord, to pay for structural repairs and a share of property taxes took the lease "out of a triple net definition."

The arbitrator next noted that despite the original arbitration award, "no new Lease was ever drawn." The term of the new lease was to be five years effective from the date of the original arbitration award. Consequently, the arbitrator ordered that a new lease be promptly drawn. The arbitrator also ordered that the new lease "would terminate in June 2013" and "provide for three renewals, each for five year terms." If the parties could not "negotiate reasonable terms on the renewals[,] . . . the terms shall be arbitrated by a single arbitration." Rent would remain the same, and Steven would have the option to purchase the building from Standish during the life of the new lease.

Steven subsequently filed a verified complaint seeking to confirm the arbitration award and reduce it to a judgment. In his complaint, Steven alleged, among other things, that he and Michael had decided not to proceed to arbitration under the APDRA, but instead in a manner mutually agreed to by counsel. For that reason, Steven asserted that New Jersey's version of the Uniform Arbitration Act (UAA), N.J.S.A. 2A:23B-1 to -32, governed both the arbitration and confirmation proceedings. Michael filed an answer and counterclaim, alleging, among other things, that the arbitrator had exceeded his powers when he entered the third arbitration award. Michael asked the court to vacate the third award.

The court confirmed the award and dismissed Michael's counterclaim. In a written opinion, the court determined that though the "pre-Bankruptcy lease between Standish and [Cozzolino Furniture] was a pure triple-net lease," Standish, the landlord, had actually paid the base amount of municipal taxes on the property. Therefore, the arbitrator's determination that the "term triple net was a misnomer," was proper, and the arbitrator's award was "consistent with the desires of the Bankruptcy Court, he did not commit an error of law sufficient to vacate the arbitration award." The court also concluded that in view of the wide latitude the parties gave to the arbitrator to resolve their issues, the arbitrator did not exceed his powers.

II.

Michael contends that he retained the right to seek appellate review if the arbitrator exceeded the scope of his authority. Michael also contends the arbitrator exceeded the scope of his authority by disregarding the parties' stipulation that the new lease be triple net; modifying his own determination, evidenced by the original arbitration award, that the lease was a triple net lease; and by ordering that the new lease include three five-year renewal options.

Steven rejoins that this appeal is barred by the express language of the APDRA, and that even if the APDRA does not apply, Michael waived his right to appeal. Additionally, Steven asserts that the arbitrator did not exceed his powers, and in any event, the arbitrator's determinations concerning the lease are not reviewable by a trial court. Lastly, Steven contends that Michael's application to vacate the third supplemental arbitration award should not have been heard because it was untimely filed, and that in this appeal Michael relies upon documentary evidence that was not presented on his application to vacate the third supplemental award.

Michael replies that Steven essentially ignored Michael's argument that the arbitrator improperly ordered the three five-year renewal options to be included in the new lease; that Steven presented the court with improper materials; and that his counterclaim to vacate the arbitration award was timely filed under either the APDRA or New Jersey's version of the UAA. Michael also reiterates the arguments he made in his first brief.

 

 

III.

We must first decide whether Michael waived his right to file this appeal. He contends he did not, even though: his attorney prepared and sent to the bankruptcy court a proposed order stating that "[t]he parties waive any and all rights of appeal or to in any way challenge [the arbitrator's] decision, which shall be conclusive and final in all respects"; he agreed in his written arbitration agreement with Steven that "[t]he decision of the Arbitrator shall be final and binding, except as otherwise provided in N.J.S.A. 2A:23A-1, et seq., if the parties have selected this option. . . ."; and he signed the pre-hearing arbitration order, which stated that "[t]he parties waive any and all rights of appeal or to in any way challenge the Arbitrator's decision, which shall be conclusive and final in all respects[.]" We conclude that Michael waived his right to file this appeal.

The New Jersey Constitution provides that "[a]ppeals may be taken to the Appellate Division of the Superior Court from the law and chancery divisions of the Superior Court and in such other causes as may be provided by law." N.J. Const., art. VI, V, . 2. Nevertheless,

[t]he general rule . . . is that a party may, by express agreement or stipulation before trial or judgment, waive his right to appeal, and such agreements or stipulations will be enforced by dismissal of the appeal taken out of violation thereof, or by refusing to pass upon questions covered by the waiver. The intention and agreement to waive the right of appeal must be clear, and there must be sufficient consideration. Such agreements are upheld upon the grounds of public policy in encouraging litigants to accept as final decisions of courts of original jurisdiction.

 

[Mt. Hope Dev. Assocs. v. Mt. Hope Waterpower Project, L.P., 154 N.J. 141, 147 (1998) (quoting Harmina v. Shay, 101 N.J. Eq. 273, 274 (E. & A 1927)).]

 

The general rule applies to arbitrations. See N.J. Mfr. Ins. Co. v. Travelers Ins. Co., 198 N.J. Super. 9, 12-13 (App. Div. 1984) (holding enforceable a waiver-of-appeal provision in an inter-company arbitration agreement). Here, Michael's intention and agreement to waive appellate review of the arbitrator's decision could hardly be clearer. He stated his intention, firmly and clearly, to the bankruptcy court, and he reiterated it in the arbitration agreement that he and Steven signed. Michael does not dispute that the arbitration agreement was supported by adequate consideration.

Michael relies on Van Duren v. Rzasa-Ormes, 394 N.J. Super. 254 (App. Div. 2007), aff'd o.b., 195 N.J. 230 (2008), to support his argument that he is entitled to appellate review because the waiver in the pre-hearing arbitration order is against public policy and therefore void. He misreads our decision. In Van Duren, we dismissed the appeal of an arbitration award that had been confirmed by the trial court. We held that "an arbitration agreement . . . between two sophisticated business parties, each represented by counsel, that clearly precludes judicial review of an arbitration award beyond the trial court level, is enforceable." Supra, 394 N.J. Super. at 257 (emphasis added). We explained that just as parties may expand review of an arbitration award by contract, they may also "privately contract to further constrict the scope of limited judicial scrutiny by, for instance, eliminating the added layer of appellate review altogether." Id. at 265. "The only caveat is that their intention to do so must be clear and unequivocal." Ibid. (internal quotation marks and citation omitted). We also recognized that in "rare circumstances" private restrictions on judicial review would not be upheld, citing as an example a no-appeal clause prohibiting review by the trial court. Id. at 266. No such exception exists in this case. Accordingly, Michael's appeal must be dismissed.

Michael's appeal must be dismissed for another reason; it does not fall within the narrowly circumscribed scope of appellate review authorized by New Jersey's version of the UAA, N.J.S.A. 2A:23B-1 to -32.3 The UAA authorizes a court to vacate an arbitration award if

(1) the award was procured by corruption, fraud, or other undue means;

 

(2) the court finds evident partiality by an arbitrator; corruption by an arbitrator; or misconduct by an arbitrator prejudicing the rights of a party to the arbitration proceeding;

 

(3) an arbitrator refused to postpone the hearing upon showing of sufficient cause for postponement, refused to consider evidence material to the controversy, or otherwise conducted the hearing contrary to section 15 of this act, so as to substantially prejudice the rights of a party to the arbitration proceeding;

 

(4) an arbitrator exceeded the arbitrator's powers;

 

(5) there was no agreement to arbitrate, unless the person participated in the arbitration proceeding without raising the objection pursuant to subsection c. of section 15 of this act not later than the beginning of the arbitration hearing; or

 

(6) the arbitration was conducted without proper notice of the initiation of an arbitration as required in section 9 of this act so as to substantially prejudice the rights of a party to the arbitration proceeding.

 

[N.J.S.A. 2A:23B-23a(1) to (6).]

Because the decision to vacate or confirm an arbitration award is a decision of law, our review is de novo. Manger, supra, 417 N.J. Super. at 376. Nevertheless, the scope of our de novo review is "narrow," Fawzy v. Fawzy, 199 N.J. 456, 470 (2009), and "is informed by the authority bestowed on the arbitrator by the [UAA]. " Manger, supra, 417 N.J. Super. at 376.

Michael contends the arbitrator exceeded his powers by disregarding the parties' stipulation that the new Standish-Cozzolino Furniture lease would be a triple net lease. Michael argues that a true triple net lease would require the tenant, Cozzolino Furniture, to pay not only all repair costs for the building, including the cost of structural repairs, but all taxes, not just the taxes in excess of the 2004 base year. We disagree that the arbitrator exceeded his authority.

There is evidence that suggests the parties considered the 2005 Standish-Cozzolino Furniture lease to be a triple net lease, notwithstanding that the lease required the landlord, Standish, to make and pay for structural repairs. For example, in the original award, the arbitrator stated that the attorneys "have agreed and it is hereby ordered that the existing rent per square foot presently being paid will continue unabated for another five years on a triple net basis." That statement could be interpreted to reflect the parties' understanding that the 2005 lease was a triple net lease and would continue as such, even though it required the landlord to bear some building maintenance costs. Michael's differing interpretation does not establish that the arbitrator exceeded his authority. In fact, to the extent the record is subject to differing interpretations as to what the parties meant by a triple net lease, the uncertainty is in part due to the parties' disregard of the arbitration agreement's requirement that mutual agreements made between the parties be evidenced by "copies . . . attached hereto."

Similarly, the arbitrator's decision concerning property taxes was based on his determination that two provisions of the 2005 lease conflicted, and that a course of dealing between Standish and Cozzolino Furniture supported Steven's interpretation of the share of taxes Cozzolino Furniture was required to pay. The arbitrator did not exceed his authority when he made that determination.

Lastly, we reject Michael's argument that the arbitrator exceeded his authority by structuring the terms of a revised Standish-Cozzolino Furniture lease, including renewal options. As the arbitrator pointed out, a new lease had not been prepared after the original 2008 arbitration award. Considering the parties' history of disputes, it was unlikely that they would reach an agreement about revised lease terms. They had provided the arbitrator with broad authority to fully and finally resolve their dispute. The arbitrator did precisely that, and the court properly confirmed the arbitrator's award.

Appeal dismissed.

1 We refer to the parties by their first names for ease of reference and mean no disrespect.

2 There is no evidence in the record that the proposed order was filed.

3 The parties have referred to both the UAA and the New Jersey APDRA, N.J.S.A. 2A:23A-1 to -30. Parties to an arbitration agreement "must expressly elect to be governed by APDRA." Manger v. Manger, 417 N.J. Super. 370, 375 (App. Div. 2010). In the absence of such an express agreement, the UAA applies to "all agreements to arbitrate" made on or after January 1, 2003, with the exception of arbitrations conducted under collective bargaining agreements or collectively negotiated agreements. Ibid. (quoting N.J.S.A. 2A:23B-3(a)). When Steven filed his complaint to confirm the arbitration award, he alleged in paragraphs eleven and twelve that he and Michael had elected to proceed to arbitration not under the APDRA, but "in a manner mutually agreed to by counsel." In his answer, Michael admitted that he and Steven had elected to proceed in a manner mutually agreed to by counsel. Thus, the parties, through their pleadings, confirmed that they had elected not to proceed under the APDRA. The trial court entered its order confirming the arbitration award under the UAA.