Another Attempt to Compel Arbitration Based on Inadequate and Unclear Documents Fails

Barr v. Bishop Rosen & Co., Inc., 442 N.J. Super. 599 (App. Div. 2015).  Both before and after Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430 (2014), cert. denied, 135 S.Ct. 2804 (2015), New Jersey’s appellate courts have insisted that agreements under which a party gives up the right to sue and instead is limited to an arbitration remedy must be clear.  This opinion by Judge Fisher found, as in those cases, that the documents that purported to waive the plaintiff’s right to sue did not do so.

The case came to the Appellate Division on an appeal as of right from a decision of the Law Division that had denied defendant’s motion to compel arbitration.  Such decisions are appealable as of right, as discussed here and here.  But defendant had also moved to dismiss the entire complaint, and the Law Division had granted that motion only in one respect.  Defendant tried to include the ruling on the motion to dismiss in its appeal as of right on the motion to compel arbitration.  Judge Fisher would have none of that.  “[E]ven when an interlocutory order is appealable as of right or is before us by leave, some other interlocutory order in the case does not become appealable as of right and is reviewable only in the exercise of our sole discretion.”  Thus, review here was limited to the denial of defendant’s motion to compel arbitration, which implicated the de novo standard of review.

Plaintiff was a stockbroker who was employed by defendant.  Plaintiff sued for breach of contract and violations of statutes relating to wages and commissions.  Arguing that arbitration was required, defendant pointed to two documents that plaintiff had signed in order to register with the National Association of Securities Dealers (known as Forms U-4), which registration was a condition of his employment.  One of those Forms U-4 was signed in 1997 and the other in 2009.  Both contained language regarding arbitration.  But neither one contained sufficient language, under the New Jersey caselaw, to constitute a waiver of plaintiff’s right to sue.

Judge Fisher observed that Atalese and other cases “reveal the ease with which parties may craft enforceable waiver clauses.”  Thus, there is no bias against arbitration in New Jersey caselaw.  But the Forms U-4 did not satisfy what the law requires, since they did not “explain what arbitration is”or “indicate how arbitration is different from a proceeding in a court of law,” or make clear that, by purportedly agreeing to arbitrate, plaintiff had given up his right to sue in court.

But defendant had another argument.  In 2000, defendant provided plaintiff with a memorandum that stated (unlike the Forms U-4) that arbitration includes a waiver of a judicial remedy.  Defendant furnished that memorandum pursuant to an NASD rule that required it “to provide a model arbitration disclosure statement whenever asking an associated person, such as plaintiff, to sign a new or amended Form U-4.”

In fact, provision of that model disclosure was required before seeking execution of a new or amended Form U-4.  But defendant had not provide the memorandum when or before plaintiff signed amended Forms U-4 in 2003 and 2005, or in connection with the 2009 Form U-4.  Instead, the 2000 memorandum was a “stand-alone” document that was not provided to plaintiff “until three years after execution of the first [1997] arbitration agreement and nine years before the second [in 2009].”  Judge Fisher concluded that the 2000 memorandum “did not fairly or adequately reform the language contained in the 1997 agreement or inform the language contained in the 2009 agreement and fails to animate Bishop Rosen’s contention that plaintiff would have understood that either the 1997 or 2009 agreements were to be interpreted in the light of the language of the 2000 memorandum.”

Judge Fisher noted that the memorandum “would likely have been adequate had Bishop Rosen simultaneously sought plaintiff’s execution of a new Form U-4.”  But defendant did not do that, and defendant did not present the memorandum again in 2009 when plaintiff again signed a Form U-4.  The memorandum was simply too disconnected in time from the Forms U-4 to permit the memorandum to be viewed as part and parcel of any of those Forms.