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New Jersey Supreme Court Limits Rights to Compulsory Arbitration

Thursday, August, 22, 2013

In a decision from August 7th, 2013, the New Jersey Supreme Court officially limited the right to compel arbitration between signatories and non-signatories, and this overturned the earlier decisions coming from trial and appellate courts.  The case, Hirsch v. Amper Financial Services LLC, concerned an alleged Ponzi scheme.  The Supreme Court in New Jersey found unanimously in favor of the plaintiff investors, disregarding the defense claim that “intertwinement of the parties in a dispute” was allegedly sufficient enough to apply equitable estoppel. 


Robyn and Michael Hirsch through Hirsch LLP were the purchased securities that defaulted, which they claim was the result of a Ponzi scheme.  The plaintiffs argued that the former account Eisner Amper LLP, had violated the New Jersey Consumer Fraud Act and was guilty of breach of fiduciary duty by leading the plaintiffs to this faulty investment.  The case also included Securities America Inc. (SAI), which served as the broker dealer for the transactions in question.  The plaintiffs had already started arbitration against SAI in 2010. 


It’s important to note that the Supreme Court recognized that New Jersey law allows arbitration to be compelled by a non-signatory against a signatory to a contract on the basis of agency principles.  Also, equitable estoppel was not determined as a solid basis for doing so.  The Supreme Court found that the arbitration clause in consideration was sufficiently broad to cover all disputes under the umbrella of business transactions between SAI and the plaintiffs.  The clause didn’t directly include claims that included other parties.  The court further found no evidence within the court records that neither of the parties on the defense expected to arbitrate their disputes in detrimental reliance of plaintiff conduct or that either party was even aware of the arbitration clause of the plaintiff’s agreement with SAI prior to lawsuit filing.