News & Noteworthy

Authored - NJ Contract Law Update - Parties Who Do Not Agree To Arbitration Clause Cannot Lightly Be Compelled To Arbitrate, Notwithstanding Public Policy Favoring Arbitration
OCTOBER 11, 2013 | Windels Marx - Commercial Litigation

In Hirsch v. Amper Financial Services, ___ N.J. ___, 2013 WL 4005282 (August 7, 2013), our State's highest Court emphasized that parties who clearly have not agreed to arbitrate--e.g., having agreed to no arbitration clause of any type--cannot be ordered to arbitration simply because they are "intertwined" in the substance of the dispute. The Hirsch Court thus overruled the "intertwinement" test from an earlier Appellate Division case.

When the interrelationship among the parties (no longer properly described as "intertwinement") is that of parent/subsidiary, etc., that relationship may be considered as weighing in favor of arbitration; but the issue is one of "agency" relationship; not intertwinement or equitable estoppel.

The Supreme Court emphasized the need for express waiver by a party of the right to (e.g.) a jury trial, on its own claims or defenses, in order for a party to be held to arbitration. That need persists even if other parties to the same controversy have agreed to broad arbitration language.

Interestingly, the defendant's concession in Hirsch that the various entities were "separate and distinct corporate entities" precluded a finding of agency.

The Court also noted, in effect, 'dueling presumptions' (semble): (1) a presumption in favor of arbitration; and (2) an arguable presumption against waiver of the rights (a) to litigate, and (b) to a jury trial, in favor of arbitration.

The Court did leave open the possibility of proving that a party's conduct (there, the plaintiff) could be such as to cause detrimental reliance on the prospect of arbitration, so as to compel arbitration; but found no such evidence in the case before it.

Finally, the Court emphasized additional "procedural tools" available to our courts, such as (1) stays of actions, and (2) severance of claims.

The moral of the story is that the 'mantra' of arbitration being desirable does not overcome a party's right to litigate and have a jury appointed--or grant a party power to compel another party to do so. When there is no express agreement between those parties--or extraordinary conduct or equities apart from (a) any such alleged legal "presumption", or (b) factual "intertwinement"--a party will not be compelled to arbitrate.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

Windels Marx helps you harness opportunity and mitigate risk with a team that provides your business with the service, quality and value essential to a trusted relationship.