Stephen Barr v. Bishop Rosen & Co., Inc.

126 A.3d 328, 442 N.J. Super. 599, 2015 N.J. Super. LEXIS 180

• Court: New Jersey Superior Court Appellate Division
• Decided: October 26, 2015
• Docket: A-2502-14T2
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-2502-14T2

STEPHEN BARR, APPROVED FOR PUBLICATION Plaintiff-Respondent, October 26, 2015 v. APPELLATE DIVISION BISHOP ROSEN & CO., INC.,

Defendant-Appellant. ____________________________________________________

Argued September 29, 2015 – Decided October 26, 2015

Before Judges Fisher, Espinosa1 and Currier.

On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2526-14.

Barry M. Bordetsky argued the cause for appellant (Law Offices of Barry M. Bordetsky, attorneys; Mr. Bordetsky, on the brief).

Brian E. Kasper argued the cause for respondent (Stark & Stark, attorneys; Mr. Kasper, of counsel and on the brief).

The opinion of the court was delivered by

FISHER, P.J.A.D.

1 Judge Espinosa did not participate at oral argument but the parties have consented to her joinder to the panel without additional argument. Defendant Bishop Rosen & Co., Inc., appeals the denial of

its motion to compel arbitration, contending that – individually

or collectively – documents executed by plaintiff Stephen Barr

during his seventeen years of employment created a valid and

enforceable arbitration agreement that precluded plaintiff's

right to sue Bishop Rosen on claims alleging breach of contract

and violations of New York statutes regarding commissions and

wages. Because these documents fail to clearly evince an

effective waiver of plaintiff's right to seek relief from Bishop

Rosen in a judicial forum, we affirm.

I

Bishop Rosen is a brokerage firm that employed plaintiff as

a stockbroker from sometime in 1997 to June 2014. As a

condition of employment, plaintiff registered with the National

Association of Securities Dealers, Inc. (NASD), now known as the

Financial Industry Regulatory Authority (FINRA).2

2 In 2007, the NASD merged with parts of the New York Stock Exchange Group into a single organization known as FINRA. Order Approving Proposed Rule Change Regarding Consolidation of the Member Firm Regulatory Functions of NASD and NYSE Regulation, Inc., 72 Fed. Reg. 42,169 (Aug. 1, 2007). As it exists now, FINRA is a self-regulatory organization of securities brokers and dealers subject to regulation by the Securities and Exchange Commission that performs financial regulation of member brokerage firms and has regulatory oversight over all securities firms that do business with the public. Ibid.

2 A-2502-14T2 In order to register with the NASD, plaintiff executed a

Uniform Application for Securities Industry Registration or

Transfer Form U-4 (Form U-4) on September 9, 1997, and another

twelve years later, on July 8, 2009. Both these agreements

contain arbitration clauses. Plaintiff also executed two

amended Form U-4 documents, one on May 15, 2003, and the other

on January 28, 2005; neither contained an agreement to

arbitrate.

On October 27, 1999, the SEC approved NASD Rule 3080, which

required entities such as Bishop Rosen to provide a model

arbitration disclosure statement whenever asking an associated

person such as plaintiff to sign a new or amended Form U-4. On

or about April 17, 2000, at Bishop Rosen's request, plaintiff

acknowledged receipt of a memorandum which referenced and

explained Rule 3080's disclosure requirements. The memorandum

otherwise stood alone; it existed separate and apart from any of

the executed Form U-4's. Stated another way, it cannot be

disputed that plaintiff acknowledged receipt of the 2000

memorandum three years after he signed the 1997 Form U-4 and

nine years before he signed the 2009 Form U-4.

II

On or about November 23, 2009, Christine Sone, a former

Bishop Rosen client, whose accounts were handled by plaintiff,

3 A-2502-14T2 commenced a FINRA arbitration against both plaintiff and Bishop

Rosen; she alleged state and federal securities law violations

and other fraudulent conduct. During the Sone Arbitration, one

attorney represented both Bishop Rosen and plaintiff.

Ultimately, the arbitrator denied Sone's claims but

directed Bishop Rosen to pay the administrative fees, which

included Sone's filing fee of $300 and the arbitrator's fee of

$21,375. Throughout the Sone proceedings, plaintiff paid the

legal defense costs associated with defending both himself and

Bishop Rosen of approximately $214,549.65. It is not clear

whether this was voluntary or whether Bishop Rosen compelled

plaintiff to bear this expense; these payments came to Bishop

Rosen both directly from plaintiff and through deductions from

his salary and commissions. Plaintiff asserts that as a result

of those deductions, he worked "for more than two years without

receiving any pay for work performed for the benefit" of Bishop

Rosen.

III

Plaintiff filed this civil action against Bishop Rosen in

the Law Division on June 27, 2014, alleging breach of contract,

violations of New York wage and compensation laws, unjust

enrichment, quantum meruit, and breach of Bishop Rosen's alleged

duty to indemnify him. Plaintiff later amended his complaint to

4 A-2502-14T2 include two additional counts, one to confirm the Sone

arbitration award, and the other for a declaratory judgment

regarding the fees associated with the Sone arbitration.

Bishop Rosen moved to dismiss the amended complaint and

compel arbitration. By way of a thorough written opinion, Judge

Joseph P. Quinn dismissed the count that sought confirmation of

the Sone arbitration award insofar as it sought an order

precluding defendant from seeking indemnification from

plaintiff. The judge, however, denied the motion to dismiss the

remainder of the amended complaint, and he also denied the

motion to compel arbitration.

Bishop Rosen filed a notice of appeal of this interlocutory

order as of right, see R. 2:2-3(a), seeking reversal of the

order insofar as it denied the motion to dismiss and refused to

compel arbitration. We pause to observe that although the Rule

permits an appeal as of right of "any order either compelling

. . . or denying arbitration," it does not follow that other

aspects of the order unrelated to the arbitrability

determination, or other interlocutory orders entered in the

action, are also appealable as of right. To the contrary, even

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

5 A-2502-14T2 the exercise of our sole discretion. See Edwards v. McBreen,

369 N.J. Super. 415, 419-20 (App. Div. 2004); Towpath Unity

Tenants Ass'n v. Barba, 182 N.J. Super. 77, 81 (App. Div. 1981);

see also Henry Heide, Inc. v. WRH Prods. Co., 766 F.2d 105, 112

(3rd Cir. 1985). Accordingly, we decline to consider that part

of Bishop Rosen's appeal that seeks to overturn the trial

judge's denial of its motion to dismiss. We consider only

whether plaintiff was required to arbitrate any or all of the

claims alleged without deciding whether any of those claims

state a claim upon which relief may be granted.

IV

The existence of a valid and enforceable arbitration

agreement poses a question of law, and as such, our standard of

review of an order denying a motion to compel arbitration is de

novo. Hirsch v. Amper Fin. Servs., LLC, 215 N.J. 174, 186

(2013); Frumer v. Nat'l Home Ins. Co., 420 N.J. Super. 7, 13

(App. Div. 2011). We first briefly outline the applicable legal

standards and thereafter consider the language employed by the

parties to effectuate their agreement.

A

An agreement to arbitrate "must be the product of mutual

assent, as determined under customary principles of contract

6 A-2502-14T2 law." Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430,

442 (2014), cert. denied, __ U.S. __, 135 S. Ct. 2804, __ L. Ed.

2d __ (2015). Mutual assent requires that the parties

understand the terms of their agreement. Ibid. In considering

whether an agreement includes a waiver of a party's right to

pursue a case in a judicial forum, "clarity is required." Moore

v. Woman to Woman Obstetrics & Gynecology, L.L.C., 416 N.J.

Super. 30, 37 (App. Div. 2010). That is, the waiver "must be

clearly and unmistakably established," Garfinkel v. Morristown

Obstetrics & Gynecology Assocs., 168 N.J. 124, 132 (2001), and

"should clearly state its purpose," Marchak v. Claridge Commons,

Inc., 134 N.J. 275, 282 (1993). And the parties must have full

knowledge of the legal rights they intend to surrender. Knorr

v. Smeal, 178 N.J. 169, 177 (2003). Although an arbitration

clause need not identify "the specific constitutional or

statutory right guaranteeing a citizen access to the courts"

that are being waived, it must "at least in some general and

sufficiently broad way" convey that parties are giving up their

right to bring their claims in court or have a jury resolve

their dispute. Atalese, supra, 219 N.J. at 447. An arbitration

agreement that fails to "clearly and unambiguously signal" to

parties that they are surrendering their right to pursue a

7 A-2502-14T2 judicial remedy renders such an agreement unenforceable.

Atalese, supra, 219 N.J. at 444, 448.

In Atalese, the Court provided several examples of language

sufficient to meet these expectations. For example, the Court

referred to Martindale, where the Court had previously "upheld

an arbitration clause because it explained that the plaintiff

agreed 'to waive [her] right to a jury trial' and that 'all

disputes relating to [her] employment . . . shall be decided by

an arbitrator.'" Id. at 444. The Court also approved a clause

we considered in Griffin v. Burlington Volkswagen, Inc., 411

N.J. Super. 515, 518 (App. Div. 2010), where the parties, in

"agreeing to arbitration," expressed their "understand[ing] and

agree[ment] that they are waiving their rights to maintain other

available resolution processes, such as a court action or

administrative proceeding, to settle their disputes." Atalese,

supra, 219 N.J. at 445. And the Court endorsed a clause

considered in Curtis v. Cellco P'ship, 413 N.J. Super. 26, 31

(App. Div.), certif. denied, 203 N.J. 94 (2010), where the

parties agreed that "[i]nstead of suing in court, we each agree

to settle disputes (except certain small claims) only by

arbitration." Atalese, supra, 219 N.J. at 445.

These examples reveal the ease with which parties may craft

enforceable waiver clauses. The key, as the Court recognized,

8 A-2502-14T2 is clarity; the parties must know at the time of formation that

"there is a distinction between resolving a dispute in

arbitration and in a judicial forum." Ibid.; see also Rockel v.

Cherry Hill Dodge, 368 N.J. Super. 577, 583-87 (App. Div.),

certif. denied, 181 N.J. 545 (2004).

B

With these principles as our framework, we consider the

language employed in this case and its impact on plaintiff's

claims. As previously mentioned, plaintiff executed two Form U-

4 agreements containing arbitration clauses – one in 1997 and

the other in 2009 – that state, respectively:

[1997:] I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions or by-laws of the organizations indicated in Item 10 as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.

[2009:] I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the [the self-regulatory organization] indicated in Section 4 (SRO Registration) as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.

9 A-2502-14T2 We agree with Judge Quinn that these clauses failed to clearly

and unambiguously inform plaintiff of his waiver of the right to

pursue his claims in a judicial forum.

Although the 1997 and 2009 clauses state the parties'

agreement to arbitrate any dispute, claim or controversy, they

fail to "explain what arbitration is," nor do they "indicate how

arbitration is different from a proceeding in a court of law."

Atalese, supra, 219 N.J. at 446. As the Supreme Court observed,

"an average member of the public may not know – without some

explanatory comment – that arbitration is a substitute for the

right to have one's claim adjudicated in a court of law." Id.

at 442. The clauses before us contain any waiver language

remotely similar to those considered in Martindale, Griffin, and

Curtis and approved in Atalese, supra, 219 N.J. at 444-45.

Consequently, Bishop Rosen is relegated to urging the

importance of its April 17, 2000 memorandum, which was both

submitted to plaintiff pursuant to NASD Rule 3080 (now known as

FINRA Rule 2263), and required Bishop Rosen to provide a model

arbitration disclosure statement whenever asking an associated

person, such as plaintiff, to sign a new or amended Form U-4.3

3 NASD Rule 3080 provides in part:

A member shall provide an associated person with the following written statement (continued)

10 A-2502-14T2 Only this memorandum mentions that arbitration within the

meaning of the Form U-4 includes a waiver of a judicial remedy.

It is noteworthy, however, that Rule 3080 required Bishop

Rosen to provide plaintiff with such a disclosure whenever

seeking an initial or amended Form U-4. Bishop Rosen failed to

make this disclosure during the execution of plaintiff's amended

2003 and 2005 Form U-4 agreements, and failed to do so when

obtaining plaintiff's new Form U-4 in 2009. The required

disclosure was only made by way of the 2000 memorandum, which

was a stand-alone document – an acknowledgment separate and

(continued) whenever the associated person is asked, to sign a new or amended Form U-4.

The Form U-4 contains a predispute arbitration clause. It is in item 5 on page 4 of the Form U-4. You should read that clause now. Before signing the Form U-4, you should understand the following:

(1) You are agreeing to arbitrate any dispute, claim or controversy that may arise between you and your firm, or a customer, or any other person, that is required to be arbitrated under the rules of the self- regulatory organizations with which you are registering. This means you are giving up the right to sue a member, customer, or another associated person in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.

[Emphasis added.]

11 A-2502-14T2 apart from the Form U-4 agreements plaintiff executed years

before and years after. The only document that contained the

waiver language required by our jurisprudence – the 2000

memorandum – was not provided to plaintiff until three years

after execution of the first arbitration agreement and nine

years before the second.

Interestingly, the NASD warned Bishop Rosen and its other

members that a failure to provide the mandatory disclosure could

"risk[] an adverse decision in later litigation concerning any

inadequacy in the disclosure." These words proved prophetic.

We conclude 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 light of the language of the 2000 memorandum.

The applicable securities regulation also required that

Bishop Rosen make this disclosure prior to seeking an associated

person's execution of a new or amended Form U-4. Consequently,

the 2000 memorandum has no bearing on the 1997 Form U-4 that

plaintiff executed. At best, when considering its introductory

12 A-2502-14T2 language,4 the memorandum suggests only that Bishop Rosen was

advising plaintiff that he should understand when signing a Form

U-4 in the future that he will concomitantly be waiving the

right to sue Bishop Rosen in a judicial forum.5

This separate disclosure would likely have been adequate

had Bishop Rosen simultaneously sought plaintiff's execution of

a new Form U-4. But a new Form U-4 with an arbitration

agreement was not sought until 2009, nine years after plaintiff

received the memorandum. And, although the securities

regulation required that Bishop Rosen again disclose to

plaintiff what was stated in the 2000 memorandum when seeking

the 2009 Form U-4, Bishop Rosen failed to comply. That failure

alone was fatal to the contention that the 2009 arbitration

agreement also contained an adequate waiver of plaintiff's right

to sue Bishop Rosen in court. The passage of nine years from

4 The first sentence of the 2000 memorandum states: "A member shall provide an associated person with the following written statement whenever the associated person is asked to sign a new or amended Form U-4" (emphasis added). 5 The issue bears similarities to Leodori v. Cigna Corp., 175 N.J. 293, 307, cert. denied, 540 U.S. 938, 124 S. Ct. 74, 157 L. Ed. 2d 250 (2003), where the Court held that an employee's signed receipt of the employer's handbook did not constitute agreement with its terms because the acknowledgement did not express that "the recipient has received and agreed to an arbitration policy." The 2000 memorandum also lacks a statement that plaintiff agreed to its terms. In fixing his signature to the document, plaintiff expressed only that he "read and understood the above disclosure."

13 A-2502-14T2 disclosure to execution of the 2009 Form U-4 was too great to

permit an understanding that the 2009 agreement incorporated

language provided in 2000. Additionally, the 2000 memorandum

refers to the NASD and the NASD rules; as mentioned earlier, by

2007, the NASD merged with parts of the New York Stock Exchange

Group, to consolidate into FINRA. As a result, by the time

plaintiff executed a Form U-4 in 2009, he was registering with a

different organization, with amended rules, different by-laws,

and a different corporate structure.

In short, the 2000 memorandum and the 2009 Form U-4 may not

be fairly read together, as if executed at the same time. The

memorandum merely directed plaintiff to keep in mind that if

asked to execute an arbitration agreement at some point in the

future – here, nine years later – the language used in that

future document should be understood to mean he will be waiving

his right to sue Bishop Rosen in a judicial forum. Even were we

to assume simultaneousness is not essential, this passage of

time was far too substantial to permit an assumption that the

2000 memorandum informed that to which plaintiff agreed in 2009.

Affirmed.

14 A-2502-14T2