Opinion
CASE NO.: 96-24692 (NLW).
January 8, 2010
Michael Farhi, Esq., Kates, Nussman, Rapone et al, Hackensack, NJ, Co-Counsel for Doric Apartment Corp.
Fred R. Gruen, Esq., Gruen Goldstein, Union, NJ, Co-Counsel for Doric, LLC.
Richard Honig, Esq., Hellring, Lindeman, Goldstein Siegel, LLC, Newark, NJ, Co-Counsel for Doric Apartment Corp.
Barry Roy, Esq., Rabinowitz, Lubetkin Tully, Livingston, NJ, Co-Counsel for Doric, LLC.
OPINION
This matter was brought before the court by Doric Apartment Corporation, Inc. ("DAC") on a motion to reopen the bankruptcy case and vacate a portion of an arbitration award rendered on October 6, 2009. As set forth below, the court reopens the case but declines to grant the motion to vacate the arbitration decision. Additionally, the decision of the arbitrator is confirmed.
JURISDICTION
The Court has jurisdiction to determine this matter under 28 U.S.C § 1334 and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on July 23, 1984. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(O). The following constitutes the bankruptcy court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.
STATEMENT OF FACTS
A. Background
DAC filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on May 31, 1996 ("Petition Date"). On the Petition Date, DAC owned and operated a cooperative apartment building located in Union City, New Jersey. DAC has continued to own and operate the building, which is comprised of 435 residential units.
The filing of the Chapter 11 case was precipitated by the foreclosure action commenced by the mortgagee, Federal Home Loan Mortgage Corporation ("Freddie Mac") against DAC. In that foreclosure proceeding Freddie Mac had requested appointment of a receiver to oversee the cooperative apartment building, and it appears that DAC filed its Chapter 11 case to forestall appointment of the receiver.
The foreclosure proceeding by Freddie Mac was not the only problem DAC faced when it filed its Chapter 11 case. It appears that the apartment building was converted to cooperative ownership sometime in the 1980's and the apartment units were offered for sale. Although a number of units were sold, as of the Petition Date, approximately 135 residential units were still owned by the sponsor, Doric Realty Co. ("Sponsor"). Inevitably, conflicts arose between DAC and the Sponsor over management of the building as well as payment of maintenance fees and other charges. In 1991, the Sponsor filed a lawsuit in the Superior Court of New Jersey, Hudson County ("State Court Action") against Union City, the Union City Rent Leveling Board and DAC. DAC in turn counterclaimed against David B. Bistricer, Morris Bistricer and the Sponsor. Shortly after the Chapter 11 case was filed the State Court Action was removed to the bankruptcy court (Adv. Pro. 96-2729). Additionally, DAC moved to compel the Sponsor to pay post-petition maintenance and other charges and to compel disgorgement of rents allegedly improperly collected by the Sponsor. A motion to remand the State Court Action was filed and was carried along with the DAC's motion until December 1996 when the Hon. William F. Tuohey appointed Harvey Smith, Esq. ("Mr. Smith") as mediator to help the parties negotiate a resolution of the litigations. Hearings on the motions were further suspended while the parties engaged in mediation.
Also during the case, both DAC and Freddie Mac proposed plans of reorganization. DAC was not able to obtain funding for its plan and as a result, withdrew its plan. However, the Disclosure Statement for the Freddie Mac plan was approved and Freddie Mac was permitted to go forward. The Freddie Mac plan was not favored by either DAC or the Sponsor because it provided for the sale of the cooperative apartment building. If a sale of the building occurred, it would have caused the building to de-convert to a rental building, thereby causing a complete loss of ownership for those who had purchased the residential units. In turn, this raised the specter of multiple bankruptcy filings by unit holders who would still be liable for payment of mortgages. This potential result undoubtedly caused all parties to focus on settlement.
A settlement was in fact reached among DAC, Freddie Mac, the Sponsor, Union City and its Rent Leveling Board that was embodied in a Settlement Agreement and a series of court orders entered in July and August 1998, incorporating the Settlement Agreement and certain amendments. The court's order dated July 21, 1998, specifically authorized DAC to enter into and perform the obligations under the Settlement Agreement. Importantly, DAC's application to the court for approval of the Settlement Agreement detailed how critical the services of an arbitrator would be to the performance of the Settlement Agreement:
The Court appointed Harvey Smith ("Smith") of the law firm of Lowenstein Sandler, Kohl, Fisher Boylan to be mediator in this case. Smith was a breath of fresh air in these proceedings. Both Bistricer and the Debtor trust the judgment of Smith. Both sides believe that Smith exercises good judgment and that he is fair and reasonable and that he listens fully to both sides. Smith has a clear understanding of the facts of the case as well as the needs and problems in the Building.
Under the Settlement Agreement, all disputes between the Debtor and Bistricer shall be decided by the arbitrator (Harvey Smith, Esq.) or his successor. The parties will not have the right to resort to litigation in the courts. The arbitrator shall hear the position of the two sides, make a decision and shall award or assess legal fees as he deems appropriate. The arbitrator shall hear the position of the two sides, make a decision and shall award or assess legal fees as he deems appropriate. The arbitration procedure (which shall be fixed by the arbitrator) shall cover such things as disputes with respect to an annual budget (except for the first year's budget which is attached to this application and shall govern the Building during the first year), disputes with regard to who the managing agent is for the Building, who the construction manager is for the repairs and renovations to the Building, and who the Trustee is that collects the rents from units in the Building which are subleased to persons and not occupied by the owners thereof. The arbitrator will not make selections of the aforesaid individuals and he/she will not write the budget. Instead, each side will present a proposed budget or nominate a person/entity as Construction Manager, Building Manager or Trustee and the arbitrator will make a selection. Compensation and expenses of the arbitrator shall be assessed or awarded by the arbitrator as the arbitrator deems appropriate in his sole and absolute discretion.
(Application for Order Authorizing and Directing Debtor to Enter Into and Perform Obligations Under Settlement Agreement with David Bistricer, Authorizing Debtor to Borrow Money from CS First Boston Pursuant to 11 U.S.C. § 364(d)(1), Conditionally Increasing Legal Rents With Respect to Subleased Apartments, Dismissing Debtor's Chapter 11 Bankruptcy Case Pursuant to 11 U.S.C. § 1112(b) and Retaining Jurisdiction to Assure Compliance with Court Orders (Dkt. No. 300).
The Settlement Agreement's various provisions amply reflect the continuous involvement of the arbitrator in all manner of disputes:
• § 4.01(D) requires the parties to submit to the arbitrator all disputes regarding disbursements from an escrow account established by the Settlement Agreement.
• § 4.02 requires the parties to submit to the arbitrator all disputes as to "reasonable and/or necessary repairs, renovations and maintenance," and the budgets for same.
• § 4.03 requires the parties to submit all disputes regarding the selection or termination of the building manager, a construction manager or a contractor to the arbitrator.
• § 4.04 provides that if the parties cannot agree on a budget for maintenance of the building, the arbitrator shall select a budget. Further, if the parties cannot agree on maintenance charge increases or special assessments the dispute is to be submitted to the arbitrator. Importantly, as a precondition to increases in maintenance charges or imposition of special assessments DAC is required to obtain the written consent of Doric LLC — which can not be unreasonably withheld. If DAC believes Doric LLC is unreasonable in withholding its consent the dispute is to be promptly submitted to the arbitrator.
• § 8.04 reiterates that the parties agree that any and all disputes, contested matters or requests for relief (in law, equity or otherwise) relating to the Doric between the Doric, DRC, DMC, Doric LLC, Contractor, Construction Manager, Trustee, Building Manager and any other owners of Equity interest shall be presented to the Arbitrator exclusively for binding arbitration.
§ 8.04 also provided that its terms would not apply to Doric Realty Corp., David Bistricer, Morris Bistricer and DMC once the interests of Doric Realty were transferred to Doric LLC. § 1.26 of the Settlement Agreement provided for Doric LLC to receive all of the units owned by Doric Realty Corp.
• § 8.10 provides that all notices required under the Settlement Agreement to be sent to the parties are also to be sent to the Arbitrator.
• § 9.16 again reiterated that all disputes will be submitted to the arbitrator for binding arbitration. This section also provided the manner in which an arbitration should proceed: "The arbitrator shall determine the rules of the arbitration proceeding(s) in his/her sole and absolute discretion. Each party shall present to the Arbitrator such evidence as may be relevant and proper. The Arbitrator shall hear and determine all matters in dispute between the parties."
(November 9, 2009 Declaration of Joel Ellis ("Ellis Decl."), Ex. B).
From the case history and the Settlement Agreement sections recited above it is readily apparent to the court that the parties anticipated disputes arising with some frequency and provided for the ongoing participation of the arbitrator.
B. The Present Dispute
Since 1998 four different individuals have acted as arbitrators under the Settlement Agreement. Most recently, this Chapter 11 case was reopened in April 2009 in order for the court to determine whether appointment of a successor arbitrator was required. By order dated April 13, 2009, the court directed the appointment of Gary S. Stein ("Mr. Stein" or "Arbitrator") as the successor arbitrator.
Shortly after his appointment, DAC and Doric LLC entered into arbitration before Mr. Stein on the issue of whether Doric LLC unreasonably refused to consent to a special assessment for a contract for (i) roof and bulkhead repairs, and (ii) waterproofing and masonry repairs to the north facade of the building. Mr. Stein heard witnesses and considered exhibits put before him by both DAC and Doric LLC. Mr. Stein issued his decision on June 18, 2009 ("June 18, 2009 Arbitration Decision") wherein he found that there was "undisputed evidence" of an emergent need for repair of the roof and bulkheads. (Ellis Decl. Ex. C at p. 7) Mr. Stein acknowledged that:
Conceivably, even with respect to an emergency repair, the settlement agreement might authorize a reasonable withholding of consent to the precise manner of repair selected by the building if the disparity in price between the proposed repair and comparable alternatives was so significant that the proposed repair did not constitute the reasonable exercise of business judgment.
(Id. p. 8) He nonetheless concluded that the evidence demonstrated only a debatable issue about the roof proposed by DAC and the one proposed by Doric LLC. (Id. p. 9) As a result, Mr. Stein authorized DAC to proceed with its proposal for repair of the roof and bulkheads. Additionally, because the evidence clearly demonstrated that the overhaul of the ventilation system must be completed simultaneously with the work on the roof, Mr. Stein also authorized that work subject to certain limitations. (Id. p. 15) For the most part, it appears to this court that Mr. Stein did not find that Doric LLC acted reasonably when it withheld its approval of the costs budgeted for the roof and related repairs.
However, because it is not mandated by existing building codes and is not in the nature of an emergency repair, Mr. Stein did not authorize installation of aluminum picket railing around the exterior of the roof. (Id., p.p. 8-9).
However, because Mr. Stein concluded that the north facade repair could be deferred he found Doric LLC's refusal to consent to be reasonable. More specifically, Mr. Stein stated:
Because the proposed repair of the north facade and the related replacement of doors and windows inevitably will increase the Doric AC annual budget and the maintenance charges for all apartment owners, the critical legal issue is whether Doric LLC unreasonably has withheld its consent to the proposed facade repair described in the project manual and the related replacement of windows and doors in the north facade. I have determined that Doric LLC's consent was not unreasonably withheld.
(Id. p.p. 28-29) After reviewing the repairs proposed by both parties, he concluded that had the parties consulted, their differences could have been narrowed and he urged the parties to meet to attempt to eliminate disagreements. (Id. p.p. 30-31)
Unfortunately, once again DAC and Doric LLC were not able to agree. As identified by Mr. Stein in a decision issued on August 19, 2009, ("August 19, 2009 Arbitration Decision") he was required "to resolve the issues regarding the North Facade and the Building Manager which were submitted for Arbitration." (Ellis Decl. Ex. D at p. 1) With regard to the facade repairs, Mr. Stein authorized the repairs proposed by DAC's engineers but limited the work to the northeast portion of the facade and eliminated from the proposal demolition of balcony dividers and brick removal for resized windows and doors. (Id.) Mr. Stein also required that invitations to bid on the facade repairs be sent to non-union contractors as well as union contractors. (Id. p. 2) Similarly, Mr. Stein modified the DAC proposal to require alternate bidding on pipe scaffolding and wing/hanging scaffolding as well as bids directly from scaffolding vendors. (Id.) Mr. Stein also directed that the balcony windows and doors were to be replaced by windows and doors of the same size rather than resized. (Id. p. 3) Finally, he authorized replacement of the current Building Manager and established the terms for doing so. (Id.)
Approximately six weeks later Mr. Stein issued a decision dated October 6, 2009 ("October 6, 2009 Arbitration Decision"). (Ellis Decl. Ex. F) That decision addressed two issues: (i) a proposed special assessment to cover unanticipated arbitration expenses of $251,041.09 resulting from the arbitration over the roof and facade repairs and (ii) a special assessment to cover an operating deficit for 2008. Doric did not consent to either special assessment. Only the first special assessment bears on the matter before the court and the ruling regarding the assessment for the 2008 deficit will not be discussed.
The arbitration expenses for which a special assessment was sought included DAC's counsel fees, expert witness fees, court reporter fees and fees payable to the law firm with which the arbitrator is associated as counsel. (Id. p. 5).
In this decision Mr. Stein noted that determination of whether the fees paid by either DAC or Doric LLC are excessive would require an extensive evidentiary hearing. (Id. p. 6) Since both parties agreed such a hearing was not needed to resolve the fee issues he determined that he did not have such a record before him. (Id.) As a result, Mr. Stein found that
In the absence of an evidentiary basis that would demonstrate that Doric AC paid excessive and unreasonable attorney fees or excessive and unreasonable expert fees, I am unable to conclude that those fees were excessive or unreasonable. Accordingly, they are allowable elements of the proposed special assessment for unanticipated arbitration expenses.
(Id.)
Mr. Stein then turned to the Doric LLC fee request which was contained in a letter brief and a certification by Fred Gruen ("Mr. Gruen") dated September 22, 2009. Exhibit D to Mr. Gruen's certification asserted that Doric LLC incurred arbitration expenses totaling $184,892.52 as a result of legal fees and expert witness fees as follows: (i) Pashman Stein — $56,024.98, (ii) Abraham Backenroth — $5,504.27, (iii) Ravin Greenberg — $7,710.46, (iv) Gruen and Goldstein — $74,996.75 and (v) Wachter Associates — $40,656.06. (Id. p.p. 6-7) Mr. Gruen claimed that Doric LLC's refusal to consent to special assessments for the roof and facade repairs yielded significant cost savings. (Id. p. 7) Mr. Gruen further argued that the cost savings should be treated as a fund in court from which Doric LLC's arbitration expenses should be paid. (Id.)
Mr. Stein agreed that the cost savings benefitted all unit owners and constituted a fund in court from which certain of the legal fees incurred by Doric LLC could be paid. He analyzed the matters as follows:
The result of the arbitration proceeding involving the roof repair and the repair of the north facade clearly resulted in significant benefits to Doric AC. Among other cost savings, a guard rail on the roof was eliminated at a savings of $115,000. The proposed removal of the concrete block dividers on the balconies was eliminated and that was estimated to reduce costs by approximately $44,000. Elimination of repairs to the brickwork to accommodate windows of a different size would reduce costs by approximately $60,000. The arbitration resulted in a decision to replace balcony windows and doors with windows and doors of the same size, which reduced the cost of the window and door replacement by approximately $25,000. In addition, the proposed specifications to repair the north facade will be implemented only on the northeast portion of the north facade rather than on the entire north facade. The arbitration proceeding also required that the rebidding of the north facade contract be open to non-union contractors and that the rebidding would require the submission of bids from both pipe scaffolding and swing scaffolding. Accordingly, the changes mandated by the arbitration award will significantly reduce the costs of the project for Doric AC and, in the long run, may result in substantial savings. I have concluded that those savings and cost reductions constitute a Fund in Court that will have a beneficial value to all unit owners of Doric AC within the meaning of Rule 4:42-9(a)(2).
(Id. p.p. 9-10) However, Mr. Stein did not award all of the fees requested by Doric LLC. Rather, he determined that $50,000 of the $74,996.75 counsel fees incurred by Gruen and Goldstein in representing Doric LLC would be allowed. (Id. p. 10) No other fees were awarded in favor of Doric LLC.
The precise manner in which Doric LLC's claim for fees was put before the Arbitrator is not clear. Mr. Gruen claims that following the June 18, 2009 Decision, DAC and Doric LLC met with Mr. Stein, at his suggestion, to attempt to resolve the remaining issues regarding the repair work on the north facade of the building. (December 2, 2009 Certification of Fred Gruen ("Gruen Cert.") ¶ 4). According to Mr. Gruen, the parties reached an agreement, but DAC then "sought to renege on the settlement." (Id.) Consequently, Mr. Stein "chose between Doric's and DAC's written outlines of the settlement and gap filling proposals." (Id.) Mr. Gruen characterizes the resulting August 19, 2009 Decision as "the final Arbitration Decision," and further claims that prior to issuance of that decision, Doric LLC asserted a claim for reimbursement of its fees. (Id. ¶ 10-11) This claim appears to have been presented to DAC in the course of an email exchange between Michael Farhi ("Mr. Farhi") and Mr. Gruen on August 4 and 5, 2009. (See Exs. A through D annexed to September 22, 2009 Certification of Fred Gruen ("Sept. Gruen Cert.") attached as Ex. A to the Gruen Cert.) The subject of the email was a special assessment to be levied on shareholders for the costs of the arbitrations dealing with the roof and facade repairs. As with the earlier disputes DAC and Doric LLC could not find common ground. On August 5, 2009, Mr. Gruen sent Mr. Farhi an email advising him that Doric LLC considered DAC's fees and expenses excessive, and that it would not consent to a special assessment unless the arbitration fees and expenses of Doric LLC were added to the special assessment. (Sept. Gruen Cert. Ex. D) It appears that DAC rejected the position of Doric LLC as on or about August 25, 2009, DAC proposed special assessments to cover only its costs. (Ellis Decl. ¶ 14)
In fact, the court is unable to ascertain how any of the disputes referenced above were presented to Mr. Stein. The court queried both counsel and did not receive an clear answer from either.
It appears that DAC and Doric LLC began discussions about the special assessment even prior to the emails attached to the Sept. Gruen Cert. Mr. Farhi's August 4th email states that he is requesting Mr. Stein to schedule an arbitration "next week." (Sept. Gruen Cert. Ex. A).
At some point in September 2009 the DAC proposed special assessments and Doric LLC's claim for fees were submitted for arbitration. Mr. Gruen claims Doric LLC proposed, and DAC agreed, that to save further expense the matters would be presented to Mr. Stein on the papers. (Gruen Cert. p. 5, n. 1). DAC does not challenge this statement, but does contend that Mr. Gruen's September 22, 2009 letter to Mr. Stein was the first time that Doric LLC made a claim for payment of its fees incurred during the arbitration. (Ellis Decl. ¶ 15; December 10, 2009 Affirmation of Michael Farhi ("Farhi Aff.") ¶ 12) Mr. Stein's October 6, 2009 Arbitration Decision inter alia, awarded a portion of the fees sought by Doric LLC triggered the present motion to vacate the arbitrator's award. DAC's principal argument is that the prior arbitration decisions were final, and the award of fees in connection with those arbitrations was an act outside the scope of the arbitrator's authority. Doric LLC rejects this contention and argues that Mr. Stein erred by failing to award Doric LLC's expert fees. Finally, Doric LLC requests that it be allowed fees for defending the present motion.
DISCUSSION
A. Fund in Court
Mr. Stein grounded his award of counsel fees to Doric LLC on N.J. Court Rule 4:42-9(a)(2) and Trimarco v. Trimarco, 396 N.J. Super. 207 (App. Div. 2007). Rule 4:42-9(a)(2) provides, in pertinent part, that attorney fees shall not be allowed in the taxed costs except that the court in its discretion may make an allowance out of a fund in court. Trimarco was relied upon for the proposition that the fund in court need not be "a `pot of money.'" 396 N.J. Super. at 215 (citing Sarner v. Sarner, 38 N.J. 463, 468-69 (1962)). Indeed, the Trimarco court further quoted from Sarner to the effect that a fund in court "applies more generally where a party's actions have `created, preserved or increased property to the benefit of a class of which he is a member.' Included obviously, are actions by a stockholder on behalf of the corporation." Id.
DAC concedes that N.J.S.A. 2A:23B-21(b) permits an arbitrator to "award reasonable attorney's fees and other reasonable expenses of arbitration if such an award is authorized by law in a civil action involving the same claim . . . ". However DAC contends that neither the New Jersey Court Rule nor any case authority support Mr. Stein's ruling. Accordingly, they contend that the requirements of N.J.S.A. 2A:23B-21(b) are not met, and under N.J.S.A. 2A:23B-23(a)(4) the decision should be vacated because Mr. Stein exceeded his powers. DAC contends that in both Trimarco and Sarner v. Sarner, the New Jersey courts found bad faith to be a necessary part of the determination to award fees from a fund in court when the actions of a corporate board is at issue. This is simply a misapplication of both cases and misapprehends the purpose of a fund in court.
The revised New Jersey Arbitration Act became effective January 1, 2003. Pursuant to N.J.S.A. 2A:23b-3(c) its provisions govern the matter before the court.
In Sunset Beach Amusement Corp. v. Belk, 33 N.J. 162 (1960) Chief Judge Weintraub examined some of the principles that underlie the concept of a fund in court. He noted:
In general, allowances are payable from a "fund" when it would be unfair to saddle the full cost upon the litigant for the reason that the litigant is doing more than merely advancing his own interests. Thus, for example, when there are classes of claimants to the fund and the services redound to the benefit of others as well, it is fair that all contribute to the cost by a charge against the subject matter.
. . .
Where the litigant creates a fund which will benefit others, again it is just that the fund be charged.
More recently, in Henderson v. CCMUA, 176 N.J. 554, 564 (2003) the Court succinctly stated that "The fund in court exception generally applies when a party litigates a matter that produces a tangible economic benefit for a class of persons that did not contribute to the cost of the litigation."
The common premise of the fund in court cases is that the parties that reap the benefit of a litigation should share the cost of achieving that result. In the October 6, 2009 Arbitration Decision, Mr. Stein adhered to this central premise of the fund in court exception. In his decision Mr. Stein cataloged the cost savings from the elimination of the proposal to removal concrete block dividers on the balconies, the elimination of the repairs to the brickwork to accommodate windows of a different size, and the elimination of the proposal to replace balcony windows and doors with windows and doors of a different size. He also noted that other changes to the repair proposal (including opening bidding to non-union contractors) may also result in substantial savings. Thus, there is no error in his interpretation and application of the fund in court exception contained in Rule 4:42-9(a)(2).
Significantly, neither in Trimarco nor in Sarner did the court require a finding of bad faith as a prerequisite to the allowance of attorney fees from a fund in court. After reviewing the case law applicable to Rule 4:42-9(a)(2) the court in Trimarco stated
Thus, the Rule's exception allows attorney fee awards when a shareholder's derivative action results in the conferral of benefits, whether of a pecuniary or non-pecuniary nature, upon the defendant, that the defendant may, in the exercise of the court's equitable discretion, be required to yield in the form of an award of attorney's fees. Other jurisdictions are in accord (citations omitted).
396 N.J. Super. at 216. Subsequently, the court in Trimarco described the tangible benefits of the shareholders derivative action before it, which did include "unquantifiable savings from elimination of past mismanagement and misconduct." Id. at 217. This statement is an acknowledgment of the facts as presented in that case and describes one of the beneficial results of plaintiff's Litigation. By no means can this statement be construed as a holding that a finding of bad faith is a necessary component for an award of counsel fees from a fund in court. Similarly, in Sarner, misconduct by the individual defendant and the corporate defendant's failure to act was an issue, but bad faith was not a required element for the fee award. The court in Sarner plainly stated "Since the results benefitted the corporations, their creditors and all stockholders as such, the burden of the litigation should be paid out of the treasuries of the three corporations which profited." 38 N.J. at 469. Thus, neither case provides a basis for voiding the award of fees to Doric LLC.
DAC also contends that Sarner requires a litigant with both personal and derivative causes of action to present clear evidence demonstrating the savings resulting from the derivative action. DAC argues that Doric LLC's opposition to the cost of the repairs did not confer a benefit on the other Doric shareholders because the total fees allowed by Mr. Stein exceeds the monetary value of the tangible savings identified in the October 6, 2009 Arbitration Decision as constituting the fund in court. Accordingly, DAC concludes that there is no clear evidence that a benefit was conferred.
Mr. Stein approved DAC's request for a special assessment of $251,041.49 for its arbitration costs. This amount was later increased to $272,287.22. (Ellis Decl. ¶ 16). If the fee award to Doric LLC must be added, the Doric shareholders face a special assessment in excess of $322,000.00. DAC contends that the total tangible cost savings identified by Mr. Stein total $244,000.
The court in Sarner addressed three issues: (i) whether there was a fund in court warranting an award of counsel fees since the plaintiffs were pursuing their own interests as well as a class action and all members of the class were party litigants, (ii) whether the trial court properly issued a separate order allowing counsel fees after judgment, where the judgement did not provide for any allowance, and (iii) if a counsel fee was properly allowed, whether the trial court had sufficient information before it to calculate an award. 38 N.J. at 467.
As to the first issue, the Supreme Court found that the litigation benefitted the defendant corporations and that an award of counsel fees was proper. Id. at 469. As to the second issue, the Supreme Court determined that the trial court did not abuse its discretion in awarding the counsel fee by separate order. Id. at 470.
Lastly, the Supreme Court determined that the trial court did not have a sufficient affidavit of services before it when it made the fee award. Consequently the matter was remanded for presentation of a more detailed proof of services rendered. Id. at 470-71. Appellants had contended that the affidavit of services was so deficient in detail that it was impossible to determine whether the services related to the derivative cause of action or the individual causes of action. The Supreme Court agreed, stating that
To support the allowance of a counsel fee there must be sufficient information in the record to inform the trial court when the services were rendered and what services were rendered. Thus, bearing in mind the unique nature of this mixed litigation, the trial court should have required a more definitive affidavit or other proofs. (citations omitted)
Id. at 471.
Unlike the defendants in Sarner, DAC does not contend that Mr. Stein lacked sufficient information to make a fee award. Rather, they raise an issue that is not analogous to the issues addressed in Sarner. DAC urges this court to consider whether the cost to the Doric shareholders from a special assessment that included a fee award to Doric LLC outweighs the benefit conferred, and whether that should be a reason to void the allowance of counsel fees.
DAC's argument fails principally for two reasons. First, Mr. Stein determined that not only were there dollar-specific cost savings from elimination of certain repairs, but also that changes in how the additional work would be bid and performed would yield future cost savings. Plainly then, Mr. Stein considered intangible as well as tangible benefits when he allowed counsel fees in favor of Doric LLC. In this regard, it is reasonable to assume and infer that Mr. Stein believed that such practices as inviting non-union contractors to bid, would carry over to other building maintenance and repair contracts, thereby yielding additional future savings. Notably, the court in Trimarco found "intangible benefits conferred" constituted part of the fund in court. Trimarco, 396 N.J. Super. at 217. When considered in the context of the intangible as well as tangible cost savings it does not appear that the arbitration cost in this matter exceeds the benefit. Moreover, DAC has not provided the court with any case where the decision to award fees from a fund in court was made or measured by the costs incurred by a defendant in the litigation. Significantly in both Trimarco and Sarner the entities that ultimately were charged with payment were also bearing their costs from defending the litigation.
B. The Finality of the Arbitration
Voluntary arbitration is favored as an efficient means of dispute resolution. Malik v. Ruttenberg, 398 N.J. Super. 489, 494-95 (App. Div. 2008). Arbitration is intended to provide the final disposition of a dispute in an expeditious and inexpensive manner. Barcon Assocs., Inc. v. TriCounty Asphalt Corp., 86 N.J. 179, 187 (1981). The New Jersey Arbitration Act codifies the policy favoring arbitration and precludes judicial interference with an arbitrator's award except as permitted by N.J.S.A. 2A:23B-23(a). Malik, 398 N.J. Super. at 495.
Here, DAC contends that Mr. Stein's award of attorney fees should be vacated under N.J.S.A. 2A:23B-23(a)(4) because Mr. Stein exceeded his powers by making a "supplemental" award of fees after he issued the June 18, 2009 Arbitration Decision. DAC points out that the language of the June 18, 2009 Arbitration Decision does not characterize the decision as interim, and that there is no provision in the Settlement Agreement which provides for allowance of counsel fees or other arbitration fees. DAC also observes that "the arbitrator's powers are limited by the agreement of the parties and an arbitrator may not exceed the scope of the powers granted to him or her by the parties." Kimm v. Blisset, LLC, 388 N.J. Super. 14, 25 (App. Div. 2006).
The court disagrees with DAC's analysis. First, it is not apparent from the June 18, 2009 Arbitration Decision that it was a final decision in the sense that it disposed of all the issues. The matter was submitted to arbitration because Doric LLC refused to consent to the special assessment for the contracts that DAC wished to execute for the roof and facade repairs. Mr. Stein authorized the roof repairs subject to the limitations set out in the June 18, 2009 Arbitration Decision. However, he specifically did not authorize the north facade repairs desired by DAC and strongly encouraged the parties to resolve their differences regarding how to proceed with the north facade repairs. As is recited above, mutual agreement eluded DAC and Doric LLC and, the arbitration was resumed to deal with the manner in which the repairs to the north facade would be done.
Nor can the August 6, 2009 Arbitration Decision be viewed as final because it provided merely for limited repair work to the northeast facade. The remaining scope of repair to the entire north facade depends in part on the results achieved by the repairs to the northeast facade which were authorized by the August 6, 2009 Arbitration Decision. While we might optimistically conclude that the parties will agree on how to proceed, the most realistic assessment is that Mr. Stein will once again to be involved in resolving disputes regarding completion of the repairs to the north facade.
This continuing involvement of an arbitrator was plainly contemplated by the parties to the Settlement Agreement as evidenced by the various sections of the Settlement Agreement comprehensively detailing the many types of disputes to be submitted to arbitration. Further indicating the regular involvement of the arbitrator is § 8.10 of the Settlement Agreement that provides for all notices required to be sent to the parties under the Settlement Agreement to also be sent to the arbitrator.
Finally, the ongoing use of the arbitrators services is apparent from both the August 19, 2009 Arbitration Decision and the October 6, 2009 Arbitration Decision. In August 2009 Mr. Stein addressed not only some unresolved issues regarding repairs to the north facade but also the procedure for replacing the building manager. Similarly in October 2009 Mr. Stein addressed a special assessment for the 2008 operating deficit as well as the special assessment for DAC's arbitration costs. In short, there is an almost continuous role for the Arbitrator in assisting DAC and Doric LLC in making decisions for the operation of the cooperative apartment building. In this regard, the Arbitrator's role under the Settlement Agreement is considerably different from an arbitrator that decides a discrete dispute with limited issues. Given the degree to which DAC and Doric LLC regularly involve the Arbitrator in management decision-making the concept of finality of arbitration does not readily fit here.
Because the facts of Kimm vary so greatly from the matter at hand, the court does not find it applicable. In Kimm, there were two arbitrations that occurred after the plaintiff filed suit to collect his unpaid legal fees. The first arbitration was non-binding, and dissatisfied with the result, plaintiff filed a demand for a trial de novo as well as an amended complaint. 388 N.J. Super at 1920. Thereafter, at a settlement conference with the court both plaintiff and the defendants agreed to binding arbitration to resolve their differences. Id. The arbitrator issued his decision in February 2004 awarding plaintiff certain of his unpaid legal fees but denying plaintiff's request for fees in connection with his collection action. Id. at 22. The arbitrator also denied defendant's request for attorney fees. After the award was made, plaintiff requested that the arbitrator grant him additional fees. Id. at 23. Plaintiff argued that the arbitrator did not address his contract-based claim for fees. Id. Plaintiff also submitted a certification of services for fees and costs of his collection action. Id. In August 2004 the arbitrator issued his decision, granting a supplemental arbitration award to plaintiff. Id. Plaintiff thereafter sought confirmation of both arbitration awards in the New Jersey Superior Court. Id. at 23-24. The court confirmed the first award, but vacated the supplemental award on the ground that the arbitrator lacked authority to act once the original award had issued. Id. at 24. Plaintiff appealed the decision regarding the supplemental award.
The Appellate Division affirmed the trial court's determination regarding the supplemental arbitration award. The court pointed out that the only agreement to arbitrate was the oral one made at the settlement conference and that the dispute submitted to arbitration included plaintiff's entitlement to additional fees for enforcement of his contractual rights. Id. at 32. It observed that there was no agreement by the parties that the arbitrator's authority would not end when the award issued. Id. at 33-34. "In light of the fact that defendants never agreed that the arbitrator would have any continuing authority, plaintiff's unilateral application for further relief was, by definition beyond the terms of the original agreement to arbitrate." Id. at 34.
The matter at hand is inapposite to Kimm. The Settlement Agreement sets forth a wide scope of matters for arbitration. In particular, § 4.04 of the Settlement Agreement provides that if the parties cannot agree on a special assessment the dispute is to be submitted to the arbitrator. In point of fact, the issue of fees only arose in connection with the August 2009 proposed special assessment for DAC's arbitration cost. Neither DAC nor Doric LLC appear to have raised the issue of arbitration costs at an earlier date. Moreover, as indicated earlier, by agreement and by their conduct, the parties have regularly placed the arbitrator in the middle of all manner of managerial decisions whenever they have reached an impasse. In this case it is not readily apparent when the arbitrator's role might be characterized as at an end. In Kimm, the arbitrator was presented with specific issues and rendered a decision. The plaintiff's request for a supplemental award was effectively a request that the arbitrator rethink his prior final decision. The fee issue presently before the court bears no resemblance to the issues considered in Kimm. C. Notice
DAC also argues that Block v. Plosia, 390 N.J. Super. 543 (App. Div. 2007) precludes an award of attorney fees to Doric LLC because they did not have fair notice that Doric LLC would seek counsel fees. DAC argues that Doric LLC was obligated to give notice when the disputes regarding the roof and facade repairs were first brought before Mr. Stein. Doric LLC argues that the arbitration was an ongoing process and that prior to the October 6, 2009 Arbitration Decision DAC had ample opportunity to respond to Doric's claim. The court agrees with Doric LLC that this arbitration regarding repairs was an ongoing process and that DAC had ample notice before the fee request was considered and granted by the arbitrator. In lieu of further burdening the record, the court refers the parties to its findings recited above.
D. Doric's Request for Additional Fees
Doric LLC requests that the court modify the October 6, 2009 Arbitration Decision to increase its award of attorney fees to $75,000 and to add an award of $40,656 on account of expert fees. Doric argues that Mr. Stein erred by not allowing these sums.
The court rejects this request because at best, Doric LLC simply argues that the arbitrator made a mistake. Even if correct, this is an insufficient basis to vacate or modify an arbitration decision. Tretina Printing, Inc. v. Fitzpatrick Associates, Inc. 135 N.J. 349, 359 (1994) holds that in the absence of misconduct by the arbitrator or the existence of a statutory ground for modifying or vacating an arbitrator's decision the court should uphold the arbitrator's award. Doric LLC has not articulated a statutory basis for modifying the fee award or any misconduct by the arbitrator. Accordingly the court will not modify the fees awarded to Doric LLC.
Nor does the court find a basis to award compensation to Doric LLC for the costs of this motion. As to the request for fees under Fed.R.Bankr.P. 9011, Doric LLC has not followed the requirements and the request for sanctions is not properly before the court. A party requesting sanctions under Rule 9011 must comply with the procedural requirements of Rule 9011(c). That is, a motion for sanctions must be made separately from other motions or requests and the motion cannot be presented to the court prior to the motion being served on the nonmovant. And the motion can only be presented to the court after expiration opf the 21 day "safe harbor" for the nonmovant to withdraw or correct the offending document. In re Jazz Photo Corp., 312 B.R. 524, 531-32 (Bankr. D.N.J. 2004) With regard to N.J.S.A. 2A:23B-25, subsection (c) provides that the court "may add reasonable attorney's fees and reasonable expenses of litigation incurred in a judicial proceeding . . ." By the statutory language it is evident that any such award is in the court's discretion. The court declines to exercise its discretion to make such an award. Neither party to this motion has been put to an extraordinary expense, and Doric LLC has in fact benefitted from the instant decision. Further, the court does not wish to take any step that encourages either Doric LLC or DAC to seek court intervention when either party disagrees with the arbitrator's decision. Such an approach is counter to the parties' intention as expressed in the motion seeking approval of the Settlement Agreement and the very terms of the Settlement Agreement. Finally, it is counterproductive. It should not escape notice that the legal fees expended to date could easily satisfy much of the costs associated with disputed repairs.
CONCLUSION
For the reasons set forth above the court denies DAC's motion to vacate the October 9, 2009 Arbitration Decision. Instead, pursuant to N.J.S.A. 2A:23B-23(d) said decision is confirmed.