A New Jersey appellate court stayed arbitration proceedings because it determined that a rider agreement signed by both parties allowing litigation was controlling over a generic construction contract.

In South Street Theatre Co., Inc. v. McGowan Builders, Inc., No. L-1577-07, 2008 WL 2521075 (N.J. Super. Ct. App. Div. June 26, 2008), South Street Theatre (Theatre) and McGowan entered into a generic construction contract for expansion of the Theatre’s facilities.

The pertinent parts of the construction contract were the provisions on dispute resolution. Generally, claims were first to be sent to the Architect, then to a mediator, and finally to an arbitrator. Additionally, the parties signed a rider contract that was appended to the construction contract. Theatre was dissatisfied with McGowan’s performance and terminated the contract.

Thereafter, McGowan filed a demand for arbitration seeking damages resulting from the Theatre’s termination of the contract. The Theatre objected to arbitration and filed a motion to stay with the court. The lower court examined the construction contract, then the rider, and determined that no consensual agreement stated that arbitration was the sole resolution forum. The lower court granted Theatre’s motion to stay arbitration.

On appeal, McGowan argued that the lower court improperly construed the contracts. The Court affirmed the lower court’s decision. The Court noted that the construction contract did not contain any language identifying arbitration as an exclusive remedy. Simply, the contract stated that disputes between the parties would be subject to arbitration, not that arbitration would be the sole remedy for resolving disputes.

However, the rider, which both parties signed, elaborated on potential dispute resolution. The rider provided detail as to the appropriate venue to file a suit and recovery of litigation costs. The rider was drafted specifically by the parties for their specific purpose. According to the Court, if arbitration had been the sole remedy, the rider would not have addressed details associated with the use of litigation for resolving disputes.

The Court determined that the rider, which was drafted and signed by the parties, trumped the generic construction contract. In sum, the rider did not state that arbitration was to be the sole remedy to resolve disputes. Accordingly, the Court affirmed the lower’s court decision to stay the arbitration proceedings.