NOT FOR PUBLICATION WITHOUT THE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-5291-14T4
26 FLAVORS, LLC,
Plaintiff,
v.
TWO RIVERS COFFEE, LLC,
d/b/a BROOKYLN BEAN,
Defendant/Third-Party
Plaintiff-Respondent,
v.
EMIL FRIEDMAN,
Third-Party
Defendant-Appellant.
_____________________________
Argued April 6, 2017 - Decided September 12, 2017
Before Judges Hoffman, O'Connor and Whipple.
On appeal from Superior Court of New Jersey,
Chancery Division, Middlesex County, Docket
No. C-0007-15.
Paul H. Schafhauser argued the cause for
appellant (Chiesa, Shahinian & Giantomasi,
PC, attorneys; Mr. Schafhauser and Michelle
M. Sekowski, on the brief).
Hillel I. Parness argued the cause for
respondent (Parness Law Firm, PLLC,
attorneys; Mr. Parness, on the brief).
PER CURIAM
Third-party defendant Emil Friedman appeals from a
provision in a May 15, 2015 order granting defendant/third-party
plaintiff Two Rivers Coffee, LLC leave to file a third-party
complaint against him.1 Friedman also appeals from those
provisions of a June 30, 2015 order permitting defendant to
retain counsel and to pay for its attorney's fees. After
reviewing the record and applicable legal principles, we
conclude the provisions in the orders under review are moot.
I
Both plaintiff and defendant sell coffee products. At the
time in question, they were bound by a non-compete agreement.
Significantly, Friedman is a member of both plaintiff and
defendant. Specifically, he is the only member of plaintiff and
one of four members of defendant.
In any event, suspecting defendant was competing against it
in violation of their agreement, in January 2015, plaintiff
filed a complaint and order to show cause (OTSC) seeking
defendant be temporarily restrained from engaging in the conduct
1
For the balance of the opinion, we refer to defendant/third-
party plaintiff Two Rivers Coffee, LLC as "defendant," and
third-party defendant as "Friedman."
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that allegedly violated the non-compete agreement. Thereafter,
one of defendant's members asked Friedman to authorize defendant
to retain counsel, so defendant could defend itself against
plaintiff's OTSC; Friedman refused.
Mayer Koenig, Eugene Schreiber, and Steven Schreiber (the
three members) are three of the four members of defendant.
Fearing defendant's profits would suffer if plaintiff prevailed
on its OTSC, the three members pooled $20,000 of their own money
and hired counsel to represent defendant. Nine days after
defendant filed a response to the OTSC, plaintiff filed a
voluntary dismissal, purportedly pursuant to R. 4:37-1(a).
Thereafter, in accordance with the non-compete agreement,
plaintiff initiated arbitration proceedings on the question
whether defendant had violated such agreement.
Defendant then filed two motions seeking various relief in
connection with the OTSC. Among other things, defendant sought
leave to file a third-party complaint against Friedman;
authorization, albeit after the fact, to retain counsel to
defend itself against the OTSC; permission to reimburse the
three members for the monies they spent to retain counsel, as
well as to pay any other fees and costs it incurred to defend
itself against the OTSC.
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On May 15, 2015, the court entered an order granting
defendant's motion for leave to file a third-party complaint
against Friedman. Although Friedman opposed the motion on the
ground the case had been dismissed, precluding the filing of a
third-party complaint, the court found plaintiff had not been
authorized under R. 4:37-1(a) to voluntarily dismiss its
complaint.2 The court determined defendant's response to the
OTSC the equivalent of an answer, which prohibited plaintiff
from dismissing the complaint without a court order. See
Pressler & Verniero, Current N.J. Court Rules, comment 1.1 on R.
4:37-1 (2017)(citing In re Estate of Horowitz, 220 N.J. Super.
300, 302 (Law Div. 1987)) (holding "[i]t is clearly too late to
seek to voluntarily dismiss a matter without court order after
the court has taken the merits under advisement.").
On June 30, 2015, the court granted defendant's motion to:
(1) prohibit Friedman from participating in defendant's decision
2
This rule provides in pertinent part:
an action may be dismissed by the plaintiff
without court order by filing a notice of
dismissal at any time before service by the
adverse party of an answer or of a motion
for summary judgment, whichever first
occurs; or by filing a stipulation of
dismissal specifying the claim or claims
being dismissed, signed by all parties who
have appeared in the action.
4
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to retain counsel; (2) authorize defendant to reimburse the
three members for the monies they used from personal funds to
retain counsel on defendant's behalf; and (3) authorize
defendant to retain and pay counsel for the fees defendant
incurred in connection with the OTSC. In its oral decision, the
court made it clear it granted the above relief only with
respect to the OTSC and not for any other proceeding, including
the arbitration hearing.
Friedman had argued the court did not have jurisdiction to
grant this relief, contending defendant had to seek such relief
from an arbitration panel. The court determined paragraph 11.2
of defendant's operating agreement, which bound all four
members, enabled the court to consider and grant the relief.
Paragraph 11.2 states in relevant part:
All disputes with respect to any claim for
indemnification and all other disputes and
controversies between the parties hereto
arising out of or in connection with this
Operating Agreement shall be submitted to a
Beth Din arbitration in accordance with
Orthodox Jewish religion. . . . An award
rendered by Beth Din pursuant to this
Agreement shall be final and binding on all
parties to the proceeding. . . . Except as
set forth below, the parties stipulate that
the provisions of this paragraph shall be a
complete defense to any suit, action or
proceeding instituted in any federal, state,
or local court or before any administrative
tribunal with respect to any controversy or
dispute arising out of this Agreement. The
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arbitration provisions hereof shall, with
respect to such controversy or dispute,
survive the termination or expiration of
this Agreement. Notwithstanding anything
herein to the contrary, any party may seek
from a court any provisional remedy that may
be necessary to protect any rights or
property from such party pending the
establishment of the arbitral tribunal or
its determination of the merits of the
controversy.
[Emphasis added].
Relying on this language, the court noted that, although
the members agreed disputes among them were to be submitted to
arbitration, the operating agreement provided a party could seek
a provisional remedy from the court if necessary to protect its
rights or property because an arbitration panel had not yet been
established or, if established, a party could not wait for the
panel's decision on the merits. The court regarded the relief
defendant sought to be a provisional remedy because plaintiff
had sought provisional relief in the form of an OTSC. It found
the relief defendant requested necessary because:
[I]t would have been a breach of the
members' fiduciary duty not to hire counsel
[and] let [defendant] default with nothing.
. . . I think that would have been a breach
of fiduciary duty to the [defendant]
company.
So, it is my view that it was incumbent upon
somebody to retain counsel to at least make
an appearance in connection with the
provisional remedy sought. . . .
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And it is my view [a provisional remedy] . .
. applies to the retention of counsel, and
the payment of counsel fees, in defense of a
provisional remedy.
The court also relied upon paragraph 6.1.2 of the operating
agreement, which provides all "decisions and documents relating
to the day-to-day management and operation of [defendant] shall
be made and executed by a [m]ajority in [i]nterest of the
[m]embers." The court determined decisions about litigation
were those that fell into the latter category. The court
stated,
[E]ven if [Friedman] protests the defense,
[he] was outvoted. Because it’s a per
capita vote. So, it was completely, in my
view, appropriate for the three members to,
in fact, retain counsel to defend against a
provisional remedy. . . .
And, as I’ve previously stated, I think it
would have been a breach of fiduciary duty
to allow [defendant] to go undefended and
default in this action. And, in fact, the
three members, on the per capita vote,
properly retained counsel.
II
On appeal, Friedman asserts the following arguments for our
consideration:
POINT I: THE TRIAL COURT ERRED IN ALLOWING
THE FILING OF A "THIRD-PARTY COMPLAINT"
AGAINST MR. FRIEDMAN IN A MATTER THAT HAD
ALREADY BEEN DISMISSED BY 26 FLAVORS.
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POINT II: THE TRIAL COURT ERRED IN GRANTING
THE MINORITY MEMBERS LEAVE TO FILE A FUTILE
AND PREJUDICIAL THIRD-PARTY COMPLAINT
AGAINST MR. FRIEDMAN.
POINT III: THE TRIAL COURT ERRED IN
SUMMARILY DECIDING THIS MATTER WHEN (I) THE
MINORITY MEMBERS' MOTION WAS NOT SUPPORTED
BY COMPETENT EVIDENCE; (II) THE TRIAL COURT
DISREGARDED COMPETENT EVIDENCE SUBMITTED
THROUGH MR. FRIEDMAN'S CERTIFICATION; AND
(III) MATERIAL ISSUES OF FACT REMAINED IN
ANY EVENT.
POINT IV: THE TRIAL COURT ERRED IN
DETERMINING THAT THE THIRD-PARTY CLAIMS WERE
NOT PREJUDICIAL TO MR. FRIEDMAN'S BARGAINED-
FOR RIGHTS.
POINT V: THE TRIAL COURT ERRED IN HOLDING
THAT THE THIRD-PARTY CLAIMS WERE NOT SUBJECT
TO THE ARBITRATION PROVISIONS CONTAINED IN
DEFENDANT'S OPERATING AGREEMENT.
a. There is a strong presumption in
favor of arbitration and thus any
doubts concerning the scope of
arbitrable issues must be resolved
in favor of arbitration.
b. The third-party complaint was
filed in connection with the 26
Flavors lawsuit commenced under the
non-compete agreement - not
regarding any dispute under
[defendant's] operating agreement.
c. The application for reimbursement
of retainer fees was not a
"provisional remedy."
d. Even assuming that the
application for reimbursement of
retainer fees could constitute a
"provisional remedy," there was no
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pending action under the non-compete
agreement.
POINT VI: THE TRIAL COURT ERRED IN FAILING
TO COMPEL THE MINORITY MEMBERS OF
[DEFENDANT] TO PARTICIPATE IN THE
ARBITRATION THAT MR. FRIEDMAN COMMENCED IN
ACCORDANCE WITH THE ARBITRATION PROVISIONS
OF [DEFENDANT'S] OPERATING AGREEMENT.
POINT VII: THE TRIAL COURT ERRED IN DEEMING
UNCONTROVERTED EVIDENCE OF THE MINORITY
MEMBERS' UNCLEAN HANDS TO BE IRRELEVANT.
POINT VIII: THE TRIAL COURT ERRED IN FAILING
TO REQUIRE THE MINORITY MEMBERS TO SUBMIT AN
AFFIDAVIT OF SERVICES.
POINT IX: ANY FURTHER PROCEEDINGS INVOLVING
MR. FRIEDMAN SHOULD BE ADJUDICATED BY A
DIFFERENT JUDGE.
There is a strong public policy presumption in favor of
arbitration. Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Cantone Research, Inc., 427 N.J. Super. 45, 57-58 (App. Div.
2012), certif. denied, 212 N.J. 460 (2012). If there is a valid
and enforceable agreement to arbitrate disputes and the
particular dispute between the parties falls within the scope of
the agreement, the agreement must be enforced. Martindale v.
Sandvik, Inc., 173 N.J. 76, 86, 92 (2002). Moreover, where the
terms of a contract are clear and unambiguous, the court must
enforce them, Watson v. City of E. Orange, 175 N.J. 442, 447
(2003) (Long, J., dissenting), and give the words "their plain,
ordinary meaning." Pizzullo v. N.J. Mfrs. Ins. Co., 196 N.J.
9
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251, 270 (2008) (quoting Zacarias v. Allstate Ins. Co., 168 N.J.
590, 595 (2001)).
Here, the terms of paragraph 11.2 of defendant's operating
agreement are clear and unambiguous. Disputes must be submitted
to arbitration, unless a party's right or property requires
protection in the form of a provisional remedy before an
arbitration panel can be established, or such party cannot wait
for a panel's decision on the merits the panel has been tasked
to decide.
In our view, there were no facts justifying the court
intervene and determine defendant was authorized, without the
unanimous consent of all members, to hire counsel to defend it
against plaintiff's OTSC, pay its counsel's fees, and reimburse
the three members for the money they spent to hire counsel.
There was no evidence defendant's rights or property were in
need of a provisional remedy before an arbitration panel could
act. We fully understand defendant's desire to obtain counsel
to represent it, pay counsel fees from its funds, and reimburse
those members who paid for its debts. But given defendant was
in fact represented during the short period of time plaintiff
pursued its OTSC, and there was no urgency in reimbursing the
three members, resort to the court for a remedy was unnecessary.
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However, although we disagree with the trial court
paragraph 11.2 of the operating agreement enabled it to
intervene and order the subject relief under these facts, we
concur paragraph 6.1.2 of the operating agreement permits a
majority of defendant's members to make decisions relating to
the day-to-day management and operation of defendant, which
includes retaining and paying for an attorney. Therefore, the
three members did not need a court's or arbitration panel's
approval to retain an attorney to protect defendant's interests,
pay counsel with company funds, or reimburse its members for
paying defendant's counsel fees. The subject provisions in the
two court orders under review are essentially superfluous,
providing relief where none was needed. However, to the extent
these provisions reflect the court’s interpretation of paragraph
6.1.2, we affirm.
We have considered Friedman's remaining arguments and
conclude they are without sufficient merit to warrant discussion
in a written opinion. R. 2:11-3(e)(1)(E). Friedman's argument
the court erred by failing to compel the three members to
participate in arbitration is not before us.
Affirmed.
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