Business Conflict Blog

Syndicate content
Updated: 10 min 4 sec ago

Arbitration Jurisprudence Takes Strange Turn

Tue, 2019-10-22 11:38

The twisted course of arbitration jurisprudence in New Jersey has taken yet another peculiar detour. In the most recent development, it is hard not to infer a judicial bias against arbitration reminiscent of the 19th century.

In Itzhakov v. Segal (A-2619-17T4, August 28, 2019), the mid-level Appellate Division reviewed the trial court’s denial of defendant’s motion to compel arbitration. The court below had determined that the parties — commercial entities engaged on a breach of contract claim — had not conveyed their intention to arbitrate with sufficient clarity, and ordered plenary discovery in preparation for trial. The Appellate Division modified the order below to the extend of limiting discovery to the issue of the validity and scope of the arbitration agreement. On the way, however, the court wreaked havoc like a tornado.

The contract at issue was for the sale of an interest in a business. The contract was drafted by Mr. Yisroel Knopfler, was written in Hebrew, and contained a provision that in the event of dispute over the contract’s meaning the parties would “accept his interpretation as if it were one hundred valid and credible witnesses.” A second dispute resolution clause reads in translation:

It is hereby agreed between us that any questions of Jewish law that are relevant to this sale and to this document shall be decided by the Lakewood [NJ] Rabbinical Court, and we are required to do as they decide, and signing this document constitutes an acceptance of everything in the arbitration agreement that the said court regularly uses, and under no circumstances shall any dispute between us come to the civil courts, G-d forbid.

A subsequent contract for a related deal also contained language that “all disputes arising from this transaction shall be decided solely by the Badatz Rabbinical Court of Lakewood, in accordance with the standard arbitration agreement of the Rabbinical Court, which is hereby incorporated into this agreement.”

In determining “the validity and enforceability of the arbitration agreements,” the Appellate Division relied upon New Jersey Supreme Court’s 2014 Atalese opinion, which invalidated an arbitration agreement between an individual consumer and a debt adjustment firm on the ground that the term “arbitration” was not explained. The absence of express language advising the consumer that “arbitration” meant that the consumer had waived the right to sue in court was, to the Atalese Court, evidence of the lack of a meeting of the minds, and thus resulted in no enforceable agreement.

Those many of us who were alarmed by Atalese and its progeny took some solace in the fact that it and subsequent cases were in the settings of consumer or employment disputes. It was a case (we told ourselves) of well-meaning paternalism disguised as legal principle. But the Itzhakov Court dispelled even that faint hope by holding that “the principle that a person must knowingly waive the right to sue in court applies to any contracting party,” even commercial parties. “[E]ven a sophisticated party, or one represented by counsel, will not be deemed to waive his or her rights — whether constitutional, statutory, or common-law — without clear and unambiguous language.” Because the agreement at issue “does not explain with sufficient clarity that the parties waived their right to sue in civil court… [or] clearly contrast arbitration with litigation,” the court below correctly declined to compel the parties to arbitrate, absent “extrinsic evidence that illuminates the meaning of the arbitration provision.”

Thus, pursuant to this interpretation, the law of the State of New Jersey is that any contract containing an arbitration clause between any two parties — of any level of sophistication — must feature an “explanation” of what arbitration is, and “clear and unambiguous language” that agreement to arbitrate constitutes a waiver of the right to sue. And the required clarity of this required language — whatever the standard — is not satisfied by “under no circumstances shall any dispute between us come to the civil courts, G-d forbid “

Auto supply dealers, credit card companies, e-commerce enterprises, banks, national wholesalers, suppliers and retailers of business-to-business commerce, international internet service providers, take note. Your arbitration clauses may be enforceable in 49 states and the District of Columbia. But in New Jersey? G-d forbid.

New Swiss Rules of Mediation

Thu, 2019-08-08 12:48

The Swiss Chambers’ Arbitration Institution (SCAI) has revised its Rules of Mediation, effective July 1, 2019. The text of the new Rules is available here. The new Rules revise those that have been in effect since 2007.

Of particular interest are Articles 16 and 17, which provide for the issuance of a “mediation certificate confirming that the mediation took place and stating whether it led to a settlement,” and “a certificate of authenticity of the settlement agreement.” In the case of the latter certificate, the SCAI Secretariat requires either the parties’ signature to the settlement agreement at the Secretariat, or written confirmation by the mediator that s/he witnessed the parties signing the agreement.

These provisions satisfy the requirements of Article IV of the newly executed Singapore Convention, and are the first institutional Rules to do so, as far as I can tell.

Other provisions of interest in the new SCAI Mediation Rules include the designation of a “seat of mediation” in Article 14 — a concept that I do not immediately grasp — and the empowerment of an arbitrator, in proceedings pending before the SCAI, to “suggest that the parties seek to amicably resolve the dispute, or any part of it, by recourse to mediation,” in Article 19. This second provision is oddly placed in the Mediation Rules, since it refers to the powers of an arbitrator. It also is distinctly precatory, in contrast to AAA Commercial Arbitration Rule R-9, which requires parties to AAA arbitrations to mediate the matter concurrently with the arbitration, unless one or both parties formally opts not to do so.

“Infinite” Arbitration Clauses

Tue, 2019-07-09 12:59

Prof. David Horton of the University of California, Davis, School of Law has posted a provocative article scheduled to be published by the University of Pennsylvania Law Review. Titled “Infinite Arbitration Clauses,” it collects and comments upon purported arbitration “agreements” pursuant to which one party seeks to obligate another party to arbitrate, rather than litigate, a wide scope of facets of their past, current or future relationship — irrespective of whether those claims arise from a “container contract” in which the arbitration agreement appears.

Adding to the concern is the growing enforceability of “delegation clauses,” by which courts increasingly recognize parties’ intention that arbitrators, not courts, determine whether a dispute is subject to arbitration. Several courts have determined that the mere selection of AAA Commercial Rules is sufficient to divest courts of the power to determine whether a dispute is arbitrable. (Rule 7 of the AAA Commercial Rules provides in part that “[t]he arbitrator shall have the power to rule on his or her jurisdiction, including any objections to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”)

Prof. Horton cites some arbitration “agreements” that purport to wrest from judicial control all claims of any sort that one party might bring against another:

“All disputes, claims or controversies whether based on any prior, current or future agreement,… event or occurrence, whether individual, joint or class in nature, including contract and tort disputes and any other matter at law or equity… shall be resolved by arbitration.”

“Any dispute between us shall be submitted to arbitration.”

“I agree that any claim dispute or controversy between myself and the Company shall be submitted to and determined exclusively by arbitration.”

“[The obligation to arbitrate] survives the termination of your services with us [and] is indefinite.”

Section 2 of the Federal Arbitration Act restricts the enforceability of arbitration agreements under federal law to “provision[s] in .. a contract… to settle by arbitration a controversy arising out of such contract or transaction….” Prof. Horton raises the question, however, whether such a restriction is jurisdictional in federal courts, or whether it even exists under state arbitration law.

Promising to arbitrate personal injuries arising from a motor vehicle accident that has not yet occurred? Promising to arbitrate future claims of negligence? Barring class claims of injury resulting from unsafe products?The whole thing reminds me of one of my favorite “arbitration agreements:

Good old American Mediation Association — you can count on them!