BHARAT RAO VS. PRAVIN PATEL (C-000172-19, BERGEN COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0342-19T2
BHARAT RAO and
CHRISTINE RAO,
Plaintiffs-Respondents,
v.
PRAVIN PATEL,
Defendant-Appellant.
____________________________
Argued October 7, 2020 – Decided November 4, 2020
Before Judges Fuentes, Rose and Firko.
On appeal from the Superior Court of New Jersey,
Chancery Division, Bergen County, Docket No. C-
000172-19.
Andrew Fede argued the cause for appellant (Archer &
Greiner, PC, attorneys; Patrick Papalia and Tyler J.
Wicks, on the briefs).
David F. Lyttle argued the cause for respondents.
PER CURIAM
Defendant Pravin Patel (Patel) appeals from an August 1, 2019 order of
the Law Division confirming an arbitration award in favor of plaintiffs Bharat
Rao and Christine Rao (Rao) 1 for the sum of $1,161,883.51 and an August 30,
2019 order assessing costs, attorney's fees, and expenses against Patel in the sum
of $5,359.50. For the reasons that follow, we affirm.
I.
We discern the following facts from the record. Rao and Patel each owned
a fifty-percent interest in two corporations, Key Products I, Inc. and Key
Products II, Inc., which operated two Dunkin' Donuts stores in Paramus. Patel
agreed to operate the day-to-day operations along with his wife at each location,
and Rao was an absentee owner. Rao made an equal contribution as "seed
money" but was not involved in the operation of the stores. A dispute arose
between the parties when Rao suspected Patel was using monies from the stores
to fund his personal expenses.
As per their partnership agreement, Rao elected to arbitrate the matter and
sought court intervention on May 23, 2016. Ultimately, the parties entered into
a consent order on July 14, 2016 that transferred the dispute to binding
1
We sometimes refer to Bharat Rao and Christine Rao as "plaintiffs" in this
opinion. "Rao" refers to Christine Rao.
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arbitration before a retired judge. The arbitration commenced on July 19, 2016
and concluded three years later with the arbitrator issuing a final award on June
3, 2019.
The parties agreed to retain a joint independent auditor, whose fees were
paid equally by both sides, to conduct a financial review of both companies.
After Patel's inquiry as to whether any prior relationship existed between Rao
and the auditor, and no history having been disclosed, Patel agreed to retain the
auditor. The auditor performed a forensic accounting analysis on unreported
income, expenses claimed without supporting documentation, personal loans
taken by Patel, suspect personnel and payroll payments, and discretionary
spending that was unacceptable under standards promulgated by the Internal
Revenue Service.
The auditor issued two financial statement attestations or "reports" as
noted by the arbitrator. The first report covering the period from January 1,
2011 through December 31, 2016, indicated Patel failed to report $230,812.66
of business income. Later, the auditor conceded the first report was incorrect
and should only reflect $2,719.25 of unreported income.
On January 22, 2019, the auditor testified regarding his second report,
which covered the time period beginning January 1, 2017 and ending August 31,
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2018. The auditor opined that corporate payments totaling $20,882.26 for
Patel's health insurance and vehicle expenses constituted "unacceptable
discretionary spending." The arbitrator took issue with the scope of the
amendment to the parties' shareholder agreement providing Patel was entitled to
"insurance paid" by the companies and concluded it did not include health
insurance. The auditor also assessed $92,394 of equipment against Patel.
During an off-the-record conversation during the September 8, 2017
arbitration hearing, Patel's attorney learned that the auditor ostensibly had a
relationship with Bharat Rao's brother and moved to have the auditor
disqualified. The auditor denied knowing the brother. The arbitrator conducted
hearings during the arbitration proceedings regarding Patel's allegations on the
issue of the auditor's alleged bias. He ruled that if the auditor could supply a
statement of continued objectivity, he could continue in the arbitration process,
which he did. Thereafter, on September 6, 2018, Patel filed a complaint against
the auditor with the New Jersey Board of Accountancy (Board) alleging
professional misconduct and incompetence. The Board dismissed the complaint
on January 25, 2019.
On March 13, 2019, the arbitrator issued an order rejecting five of the six
conclusions reached by the auditor in his second report. On March 28, 2019,
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the arbitrator issued an award in favor of Rao in the sum of $1,161,888.51 to be
paid by Patel. The record shows that the arbitrator had to issue seventeen orders
to secure defendant's compliance with discovery and imposed a $15,000
monetary penalty for frustrating the discovery process. He also awarded counsel
fees incurred by Rao to compel Patel to produce discovery and for thwarting
Rao's efforts to obtain information and documents.
On June 26, 2019, Rao filed a verified complaint seeking confirmation of
the arbitration award pursuant to N.J.S.A. 2A:23B-22 and 2A:23B-25(a). Patel
challenged the summary enforcement action claiming the auditor's findings were
patently biased, fraudulent, and corrupt.
On July 31, 2019, the trial court heard oral argument and placed its
decision on the record that day. The trial court granted Rao's motion to confirm
the arbitration award, rejected Patel's challenge, and certified the award. In
addition, the trial court did not find any basis to modify the award based on
ministerial errors pursuant to N.J.S.A. 2A:24-9. The trial court explained that
the arbitrator's "decision was perfectly, in his mind, appropriate under the
circumstances"; he "had the benefit of hearing from the parties"; "reading the
reports of the auditor"; and hearing "arguments with respect to the [auditor's]
alleged conflict."
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Further, the trial court stated, "[a]ll of these matters were raised in front
of [the arbitrator]" and rejected Patel's request for post-arbitration discovery.
On August 1, 2019, the trial court entered an order and judgment confirming the
arbitration award. Thereafter, Rao sought counsel fees and costs against Patel
and on August 30, 2019, the trial court entered an order awarding $5,359.50 to
Rao.
On appeal, Patel argues that the trial court erred by confirming the
arbitration award; by refusing to grant discovery as to the relationship between
plaintiffs and the auditor; and in awarding counsel fees and costs to plaintiffs
after confirming the award.
II.
"[T]he scope of review of an arbitration award is narrow." Fawzy v.
Fawzy, 199 N.J. 456, 470 (2009). Our Supreme Court has held that
"[a]rbitration can attain its goal of providing final, speedy and inexpensive
settlement of disputes only if judicial interference with the process is minimized;
it is, after all, 'meant to be a substitute for and not a springboard for litigation. '"
Barcon Assocs., Ins. Co. v. Tri-County Asphalt Corp., 86 N.J. 179, 187 (1981)
(quoting Korshalla v. Liberty Mut. Ins. Co., 154 N.J. Super. 235, 240 (Law Div.
1977)). With this goal in mind, "'[a]rbitration should spell litigation's
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conclusion rather than its beginning . . . .'" Borough of E. Rutherford v. E.
Rutherford PBA Local 275, 213 N.J. 190, 201 (2013) (quoting N.J. Tpk. Auth.
v. Local 196, I.F.P.T.E., 190 N.J. 283, 292 (2007)) (alteration in original).
"The public policy of this State favors arbitration as a means of settling
disputes that otherwise would be litigated in a court." Badiali v. N.J. Mfrs. Ins.
Grp., 220 N.J. 544, 556 (2015). As a result, "courts grant arbitration awards
considerable deference." E. Rutherford PBA Local 275, 213 N.J. at 201.
Because a trial court's decision to affirm or vacate an arbitration award is a
decision of law, our review is de novo. Minkowitz v. Israeli, 433 N.J. Super.
111, 136 (App. Div. 2013) (citing Manger v. Manger, 417 N.J. Super. 370, 376
(App. Div. 2010)).
N.J.S.A. 2A:23B-22 sets forth the standard for confirming an arbitration
award. The statute provides:
After a party to an arbitration proceeding receives
notice of an award, the party may file a summary action
with the court for an order confirming the award, at
which time the court shall issue a confirming order
unless the award is modified or corrected pursuant to
section 20 or 24 of this act or is vacated pursuant to
section 23 of this act.
[N.J.S.A. 2A:23B-22.]
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Arbitration awards may be vacated, modified, or corrected by a court if
(1) "procured by corruption, fraud, or other undue means"; (2) the arbitrator was
partial or corrupt, or committed misconduct thereby prejudicing the parties'
rights; (3) the arbitrator refused to postpone the hearing when there was
sufficient cause to do so, failed to consider material evidence, or otherwise
inappropriately conducted the hearing so as to prejudice the rights of the parti es;
(4) the arbitrator exceeded his or her power; (5) there was no agreement to
arbitrate; or (6) the arbitration was conducted without sufficient notice,
substantially prejudicing the rights of the parties. See N.J.S.A. 2A:23B-23(a).
A court may also modify or correct an award if (1) there was an evident
mathematical mistake; (2) the arbitrator made an award on a claim not submitted
to arbitration; or (3) "the award is imperfect in a matter of form not affecting the
merits of the decision . . . ." N.J.S.A. 2A:23B-24(a).
A court may only confirm, vacate, modify, or correct arbitration awards
on the grounds provided in the statute. See N.J.S.A. 2A:23B-20 to -24. The
statute "directs a court to correct errors; it does not provide for remand to the
arbitrator." Tretina Printing, Inc. v Fitzpatrick & Assocs. Inc., 135 N.J. 349,
360 (1994). As our Supreme Court stated in Tretina:
the Legislature intended that courts correct mistakes
that are obvious and simple—errors that can be fixed
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without a remand and without the services of an
experienced arbitrator . . . . [I]n the absence of a
statutory provision or an authorization in the arbitration
agreement, a court that is asked to vacate, modify, or
confirm an award usually has no power, except by the
consent of the parties, to recommit the matter to the
arbitrator.
[Id. at 360-61.]
Here, the arbitrator considered the evidence, the testimony presented, and
articulated his findings in support of the award. Having reviewed the extensive
record, we discern no basis to vacate the arbitration award or compel post-
arbitration discovery.
Moreover, we conclude there is no legal basis under N.J.S.A. 2A:23B-23
to disagree with the trial court's ruling upholding the arbitrator's award. To
constitute a valid ground for vacating an arbitration award under "undue means"
in N.J.S.A. 2A:23B-23(a)(1), the error must be "so gross as to suggest fraud or
misconduct." Tretina Printing, Inc., 135 N.J. at 357 (quoting Perini Corp. v.
Greate Bay Hotel & Casino Inc., 129 N.J. 479, 494 (1992). We agree with the
trial court that as new information was brought to the arbitrator's attention about
a potential conflict of interest or impropriety involving the auditor, the arbitrator
gave Patel the opportunity to object and the auditor was tasked with certifying
as to his continued objectivity. We concur in the trial court's view that Patel did
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not establish grounds to allow post-arbitration discovery, and arbitrations are
not designed to devolve into another litigated matter, a posture sought to be
avoided by the use of arbitration in the first place.
The trial court acted well within its discretion in awarding counsel fees
and costs to Rao under N.J.S.A. 2A:23B-21(b),2 and N.J.S.A. 2A:23B-25(b)(c),
which allows reasonable costs of the summary action to be awarded to the
prevailing party. See Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 440
(2001). Here, the trial court provided a detailed analysis of the lodestar standard
and calculation thereof and the factors set forth in RPC 1.5(a). We note that
plaintiffs sought $7,781.50 in counsel fees and costs but were only awarded
$5,359.50. There was no abuse of discretion in awarding counsel fees and costs
by the trial court.
The remaining arguments raised by Patel lack sufficient merit to warrant
discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
2
N.J.S.A. 2A:23B-21(b) states: "An arbitrator may 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 or by the agreement of the
parties to the arbitration proceeding."
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