Michael E. Hirsch v. Amper Financial Services, LLC (070751)
2013 WL 4005282, 71 A.3d 849, 215 N.J. 174 (2013)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The doctrine of equitable estoppel cannot be used to compel a signatory to an arbitration agreement to arbitrate with a non-signatory based solely on the intertwinement of the parties and claims; traditional principles of estoppel, such as detrimental reliance, must be established.
Facts:
- EisnerAmper, an accounting firm used by Michael and Robyn Hirsch (plaintiffs), referred them to Marc Scudillo and Amper Financial Services, LLC (AFS) for investment planning in 2002.
- Plaintiffs hired Scudillo and agreed to a conservative investment strategy, but their relationship with Scudillo and AFS was never formalized in a written contract.
- Scudillo also served as a registered representative for a separate broker-dealer corporation, Securities America, Inc. (SAI).
- Between 2004 and 2008, on Scudillo's recommendation, plaintiffs purchased and reinvested in several securitized notes from Medical Provider Financial Corporation (Med Cap).
- To purchase the Med Cap notes, plaintiffs signed two applications with SAI, which Scudillo also signed as SAI's representative.
- Each SAI application contained an arbitration clause stating that 'All controversies that may arise between us... shall be determined by arbitration.'
- The Med Cap notes were later revealed to be part of a Ponzi scheme, causing plaintiffs to lose their entire investment.
Procedural Posture:
- Plaintiffs initiated arbitration proceedings with FINRA against SAI and Marc Scudillo.
- Plaintiffs filed a complaint with a jury demand in the New Jersey Law Division (trial court) against AFS and EisnerAmper.
- AFS and EisnerAmper filed an answer and a third-party complaint against SAI for indemnification and contribution.
- SAI, joined by AFS and EisnerAmper, filed a Motion to Compel Arbitration and Stay Proceedings in the Law Division action.
- The trial court granted the motion to compel arbitration, finding plaintiffs were trying to circumvent the policy favoring arbitration.
- The Appellate Division (intermediate appellate court) affirmed the trial court's order, but on the rationale of equitable estoppel due to the 'intertwined relationship' among the parties.
- The Supreme Court of New Jersey granted plaintiffs' petition for certification.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the doctrine of equitable estoppel, based solely on the intertwinement of parties and claims, compel a signatory to an arbitration agreement to arbitrate its claims against a non-signatory with whom the signatory has no such agreement?
Opinions:
Majority - Justice LaVecchia
No. The doctrine of equitable estoppel does not compel arbitration between a signatory and a non-signatory based merely on the intertwinement of parties and claims. The court reasoned that arbitration is fundamentally a creature of contract, requiring a party's consent to waive their right to sue in court. While traditional contract principles like estoppel can bind a non-signatory, equitable estoppel requires proof of detrimental reliance—that a party changed its position to its detriment based on the other party's conduct. The court explicitly rejected the 'intertwinement' theory as a standalone basis for compelling arbitration, stating it is untethered from the principles of consent and reliance. Here, there was no evidence that AFS or EisnerAmper knew of, let alone detrimentally relied on, the arbitration agreement between the plaintiffs and SAI. Therefore, compelling plaintiffs to arbitrate with AFS and EisnerAmper, who were not parties to the agreement, was improper.
Analysis:
This decision significantly clarifies and narrows the application of equitable estoppel in compelling arbitration in New Jersey. By explicitly rejecting the 'intertwinement' theory as a sufficient basis on its own, the court reinforces the principle that arbitration is a matter of consent. This holding curtails the ability of non-signatories to force signatories into arbitration simply because the claims and parties are factually related. The ruling provides a more predictable standard, requiring non-signatories to prove a more concrete legal basis, such as agency or traditional detrimental reliance, to compel arbitration, thereby protecting a party's right to their day in court.
