Stephen Barr v. Bishop Rosen & Co., Inc. , 442 N.J. Super. 599 ( 2015 )


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  •                  NOT FOR PUBLICATION WITHOUT THE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