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

NOT FOR PUBLICATION WITHOUT THE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,
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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
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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
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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.
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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 do not 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:
(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
(continued)
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.
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.]
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was a stand-alone document – an acknowledgment separate and
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.
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