SHOCKING: NJ APPELLATE DIVISION RULING MAY UPEND MANY AGREEMENTS COMMONLY USED IN OUR COMMUNITY REQUIRING PARTIES TO SUBMIT TO ARBITRATION FOR DISPUTE RESOLUTION

In a shocking move, the New Jersey Appellate Division has just released a decision with far reaching effects which may be used as a basis to overturn many "agreements to arbitrate" which are common practice in our community to be included in agreements for divorces, partnerships, business dealings, lending, rental agreements, nursing homes, and the like.

This decision rules that arbitration agreements mean "we agree to adjudicate our case exclusively in Beis Din and not in court," only if the arbitration agreement includes an explicit stipulation that the agreement to arbitrate in Beis Din means not only that the parties agree that they have an option to go to Beis Din, but also that are waiving the option to go to court.

This ruling has far reaching effects, as it will turn upside down the reliance by parties in on a quick venue of arbitration as a pathway to dispute resolution in lieu of long winded court proceedings that on an average take 3-5 years until matters get resolved.

The case involves Lakewood real estate development companies Bedrock Steel (co-founded by Mark Hess and James Forman) and Accurate Builders (owned by Yaakov / Jack Klugman).

In November 2019, the parties entered into contracts where Bedrock Steel would perform certain work for Accurate's construction projects in Raritan and Middletown.

The contracts are standard and permit the parties to commence litigation in a "court of competent jurisdiction." The contracts did not contain arbitration clauses.

After all of the work was performed, Bedrock alleged that Accurate still owed them $192,015.74.

Between April and October 2021, Bedrock sent Accurate three hazmanos to Beis Havaad Rabbinical Court in Lakewood to address the unpaid balance.

Following receipt of the third hazmana, Mr. Klugman responded, "I don't know why I am being sent an hazmanah. I agree that I owe [plaintiff] the money and we paid him some of it. I am happy to come but I don't know what we will discuss."

Subsequently, on November 15, 2021, Mr. Klugman notified Beis Havaad that he had retained Rabbi Gershon Spiegel as his toein, and that he wanted to go to Bais Din of Mechon L'Hoyroa in Monsey. Despite agreeing that he owed the money, he wanted a hearing in Beis Din to adjudicate his counter-claims in the matter. The Monsey Bais Din then sent out a hazmana for a session.

The day prior to the scheduled hearing, Mr. Hess announced that he had retained Rabbi Duvy Markstein as his toein and that he needed to reschedule the yeshivas Beis Din. That was in January 2022.

For the next six months, there was radio silence between the parties.

On July 5, 2022, represented by Toms River Attorney Jonathan Fleisher, Bedrock filed a civil lawsuit in New Jersey Superior Court, charging Accurate with Breach of Contract, Breach of the Implied Contract, Breach of Covenant of Good Faith and Fair Dealing, Unjust Enrichment, Quantum Meruit, and Violation of the New Jersey Prompt Payment Act.

The civil lawsuit did not mention the previous hazmanos to Beis Din, which were sent at the behest of Bedrock.

In response, Accurate retained Newark Attorneys Kevin W. Weber, Esq. and Michael A. Conforti, Esq. who filed a Motion to compel arbitration, on the basis that - although no formal arbitration agreement was yet signed - the parties did already agree to arbitrate the matter in Beis Din and therefore the court can not now take jurisdiction of the matter.

They wrote to the Court, "it is beyond dispute that Bedrock offered, and Accurate accepted, an agreement to arbitrate the parties dispute. Thus, the sole issue before this Court is whether there is an enforceable agreement to arbitrate...

"Obviously, while a signature is the most traditional form of assent, it is not the only method. Pursuant to established case law, the court may find some other unmistakeable indication that the party affirmatively had agreed to arbitrate his claims. In this case, Plaintiff, as the offerer to arbitrate, affirmatively agreed to arbitrate its claims upon Accurate's acceptance of Bedrock's invitation to Beis Din. In fact, Accurate did accept the hazmana to Beis Din and a date was all set until Bedrock cancelled the session and then did not reschedule...

"A contracting party is bound by the apparent intention that they outwardly manifests to the other party... Bedrock never expressed to Accurate any intention to terminate the agreement to arbitrate... Bedrock can not, at this junction, assert that the parties never had an enforceable agreement to arbitrate. The Court should therefore enforce the parties agreement to arbitrate this dispute."

Bedrock responded with Opposition to the Motion, arguing that they did not, at any point in time, agree to establish arbitration as the only method for adjudication.

They claimed that they originally were under the impression that under Jewish Law, they were constrained to arbitrate their dispute in Beis Din. However, after discussion with their newly retained Toein and other rabbinic figures, they concluded that they were not required to bring this case to a Beis Din since Mr. Klugman openly admitted his obligation to pay and was "only attempting to use the Beis Din system to delay the proceedings."

Throughout all of these proceedings, there is no indication that the Plaintiff ever intended to be contractually required to go to a beis din. Rather, the Plaintiff attempted, in good faith, to adjudicate this dispute as required under Jewish Law. However, no arbitration agreement was ever signed, no arbitration proceedings (beyond sending a hazmana) were undertaken, and certainly no waiver of the Plaintiff’s right to have this matter adjudicated by the Court was ever entered into, either written or verbally.

It is a cardinal rule that arbitration is a matter of contract, and parties are bound by arbitration awards only if they agreed to arbitrate a matter. “An agreement to arbitrate, like any other contract, must be the product of mutual assent, as determined under customary principles of contract law. A legally enforceable agreement requires ‘a meeting of the minds’. Consequently, to be enforceable, the terms of an arbitration agreement must be clear, and any legal rights being waived must be identified.” Antonucci v. Curvature Newco. New Jersey Courts in numerous cases have held that where a complete “meeting of the minds” is lacking, particularly a clear intent to waive the right to a trial by jury, that there is no binding arbitration agreement. 

In the present matter, there was no meeting of the minds that the Parties would be required to arbitrate. Rather, the Parties merely expressed their intent to appear before an arbitral panel, and would then agree to enter into an arbitration agreement.

To illustrate: Suppose that the Parties had appeared before the Bais Din Mechon Lehora’ya, and the Bais Din had required that the Parties sign an arbitration agreement which includes certain procedures. Now suppose further that either of the Parties had then objected and said that they do not consent to arbitrate per those procedures (which regularly occurs).

Certainly, the objecting party could not then be required to arbitrate before the Beis Din, since without signing an arbitration agreement, that party never agreed to be bound by the procedures of the beis din, nor by any ruling of the beis din. Indeed, at that point, either party could merely say that they don’t like the beis din at all, and would certainly not be required to proceed. Thus, clearly, agreeing to appear at a bais din is not a final agreement to arbitrate before the beis din.

Moreover, there is no doubt whatsoever that the requirements of Atalese were not satisfied in this matter. Per the Court in Atalese, a binding arbitration agreement requires language that explains that a party who agrees to arbitration waives the right to sue in court and makes clear that arbitration and civil litigation are distinct proceedings. None of that was present in this matter, as there was no explicit agreement to limit the Plaintiff’s possible adjudication to arbitration before a bais din.

Additionally, although it was the initial intent of the Plaintiff to have this matter adjudicated before a Bais Din, as required by Jewish Law, that obligation no longer applies.

Indeed, the Defendant has explicitly admitted to owing the monies sought to the Plaintiff, and therefore, no further adjudication by a Beis Din is required. Thus, even if the Court finds that there was initially a full meeting of the minds to arbitrate, that assent was based completely on the religious obligation to adjudicate before a bais din, and is only valid to the extent that Plaintiff is obligated as such by Jewish Law. Since that obligation is now void, and there was no further written or verbal agreement to be bound to adjudication by the Bais Din, the entire purpose of Plaintiff’s assent to arbitrate is now frustrated. 

Last, as to the Defendants arguments that the Plaintiff had a hazmana sent from a beis din, per the arguments set forth above, the hazmana is not an agreement to arbitrate. There is no agreement until the Parties explicitly express their intent to be bound by the arbitration, which is normally done through signing an arbitration agreement. Moreover, the Defendant rejected the hazmana and stated his desire to proceed before a different beis din. Thus, even if the hazmana could somehow be considered a show of intent to be presently bound to arbitrate before the beis din, that intent is voided by the rejection of the Defendant. Therefore, there is no binding arbitration agreement and this matter should proceed for adjudication before the Court.

Accurate replied:

To compel arbitration, the Court must find that the Plaintiff knowingly and voluntarily chose arbitration. Here, Plaintiff admits that “Plaintiff sent a hazmana” so that the parties could  “submit the dispute to a ‘Beis Din’ (Jewish halachic court).” That admission should suffice for the Court to hold that Plaintiff chose a dispute resolution forum, and must be bound by that voluntary choice.

There is no real question that Plaintiff went down the voluntary path of arbitration. Plaintiff even points out that Defendant-Developers “would be hiring a Toen (a Beis Din halachic advocate)” as part of the rabbinical arbitration process, and Plaintiff similarly “was forced to hire its own Toen.”

Plaintiff hinges its entire opposition on the belief that because “no arbitration agreement was ever signed,” that means in and of itself that “there is no indication that the Plaintiff ever intended to be contractually required to go to a beis din.” Obviously, however, a “meeting of the minds” to arbitrate can occur without the parties signing physical documents (as happened here). The agreement to arbitrate between Plaintiff and Defendant-Developers is thus valid and enforceable under both New Jersey law and basic canons of contract law, and the claims made by Plaintiff in this case fall squarely within that same scope.

In the Motion to Compel Arbitration, Defendant-Developers submitted ample evidence of Plaintiff summoning Defendant-Developers to rabbinical arbitration, including Defendant-Developers’ agreement to Plaintiff’s offer to arbitrate. Not only does Plaintiff fail to submit any evidence to rebut that “meeting of the minds,” Plaintiff moreover concedes that the parties “expressed their intent to appear before an arbitral panel.” Although Plaintiff further adds that it was purportedly the parties’ intention “to appear before an arbitral panel, and then agree to enter into an arbitration agreement,” Plaintiff provides nothing to evidence such a two-pronged agreement to later agree—indeed, Plaintiff provides nothing whatsoever to contradict Defendant-Developers’ emails evidencing the parties’ mutual assent to arbitrate. The Court should not just take Plaintiff’s unsupported word that some different multi-layered process existed. See Hagrish v. Olson (“A contracting party is bound by the apparent intention he or she outwardly manifests to the other party. It is immaterial that he or she has a different, secret intention from that outwardly manifested.”) Nothing in the record suggests that the parties contemplated a written, signed arbitration agreement. 

Plaintiff additionally provides a hypothetical rabbinical procedural process, but the Court should not endeavor to determine what are the correct/best methods under Jewish Law.

Plaintiff acknowledges that “although it was the initial intent of the Plaintiff to have this matter adjudicated before a Bais Din, as required by Jewish Law, that obligation no longer applies.” This admission is critical for at least two reasons: (1) Plaintiff affirms its “initial intention” to submit this matter to Bais Din, which the Court should enforce under New Jersey civil law; and (2) Plaintiff argues that, under Jewish Law, “that obligation is now void.” In other words, voiding the parties’ admitted agreement to arbitrate at Bais Din would require the Court to examine Jewish Law, which is plainly constitutionally improper. On the other hand, because Plaintiff admits that its initial intention was to arbitrate at Bais Din, customary principles of contract law support enforcing that mutually assented-to agreement.

Further, Plaintiff misconstrues Atalese to conclude that “a binding arbitration agreement requires language that explains that a party who agrees to arbitration waives the right to sue in court and makes clear that arbitration and civil litigation are distinct proceedings.” (citing Atalese v. U.S. Legal Services Group, L.P.). While it is true that consumer contract arbitration clauses “must be sufficiently clear to a reasonable consumer,” the New Jersey Supreme Court also makes clear that, more generally, arbitration agreements “must be the product of mutual assent, as determined under customary principles of contract law.” At issue in this matter is not a consumer contract arbitration provision, however, and so Atalese is relevant only to the extent that it informs what may establish “mutual assent” for purposes of an agreement to arbitrate. The unique aspect here is that Defendant-Developers are the offerees to rabbinical arbitration, which are more akin to the consumers being protected under Atalese. Indeed, “under customary principles of contract law,” Plaintiff, as the offeror to rabbinical arbitration, outwardly expressed its intention to arbitrate, to which Defendant-Developers agreed. 

The Court should not enforce that mutual assent under customary principles of contract law. 

Judge Wellerson ultimately denied the motion to compel arbitration, concluding that the alleged agreement to arbitrate was not in writing and therefore there "was nothing to bind the parties to the rabbinical forum to begin with."

Subsequently, Accurate appealed the matter to the Appellate Division, arguing that: (1) they accepted Bedrock's offer to arbitrate the dispute between them, and therefore the parties have an enforceable agreement to arbitrate; (2) Bedrock should have been equitably estopped from disavowing the agreement to arbitrate.

In a decision with far reaching impact, the 3-panel court this week denied the appeal, which means that the matter can now continue in Superior Court, and is not compelled to be adjudicated in Beis Din.

The court cited the Uniform Arbitration Act which declares that "an agreement contained in a record to submit to arbitration any existing or subsequent controversy . . . is valid, enforceable, and irrevocable."

The key element lies in the definition of "record" - therefore, a party seeking to compel arbitration must produce a written record of [the arbitration agreement.]

While we have concluded that an oral agreement to arbitrate is unenforceable at a pre-arbitration stage, the parties do not actually contend they reached an oral agreement to arbitrate. Their competing certifications do not assert or recount any verbal discussion they may have had about arbitration. Instead, they rely only on the written hazmana and the various emails to argue whether they agreed to arbitrate and whether that agreement is enforceable. An enforceable arbitration agreement may be found if it is memorialized "in a record." So, the initial question is whether the "record" contains such an agreement.

The parties' emails suggest an agreement on the location of the proceeding described in the hazmana, and the hazmana describes the claim to be discussed. The parties never seemed to have agreed on a date for whatever was to occur, although we do not find that fatal to an agreement's validity or enforceability.

The parties' competing certifications, however, reveal a dispute about their intentions about what would occur once they appeared at the bais din. For instance, plaintiff's representative asserted in his certification that he "did not intend to be bound by any arbitral panel without signing an arbitration agreement," and indeed it is customary – although we express no competency in what Jewish law requires – for rabbinical tribunals to first secure the parties' agreement to arbitrate and the scope of the terms, fees, and rules, of the arbitration in writing before proceeding further. So, there is no reason to conclude on this factual record that the parties – through the hazmana and their emails alone – intended anything other than to meet and discuss something.

In short, there is – at best – a genuine factual dispute about whether the parties' communications evinced an intent to arbitrate or an intent to meet to discuss how to proceed. Until resolution of that factual dispute – a dispute that would have to be resolved in our courts, since State Law declares that "the court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate" – the trial court would be unable to compel arbitration. And this dispute would require the trial court to consider whether there was a "meeting of the minds," through consideration of the parties' testimony about what they thought they had or hadn't agreed on through their emails and other written communications since, when compiled and considered collectively, they are hardly unambiguous or are otherwise silent as to what the parties thought they had agreed to discuss at the bais din.

 

The court would also be required to consider a more difficult question about whether plaintiff freely and voluntarily entered into an arbitration agreement. That is, Bedrock's representative stated in his certification that "the only reason that we initially proceeded with a Beis Din was because we were required to do so by Jewish Law;" he went on to explain that he was later advised that Jewish law no longer compelled a proceeding in the bais din because defendants' representative "explicitly admitted that he owed the money, and was simply using the Beis Din system to delay our judgment." 

It is not clear from the record whether defendants dispute this interpretation of Jewish law since their representative's certification is silent on the matter, but, if they do, it would require the trial judge's determination about the impact of Jewish law on whether plaintiff freely entered into an arbitration agreement. See, e.g., Atalese v. U.S. Legal Servs. Grp.

Additionally, established case law does favor arbitration over the courts because arbitration typically proceeds quicker.

However, in this case, more than two years have passed without a meaningful step toward a resolution of plaintiff's claim even though defendants seem to have admitted an indebtedness. Whatever interest the law has in arbitration as a quick and efficient means of resolving this dispute has long since evaporated here.

Through application of the legal principles about the existence of an enforceable arbitration – and but for the matter to which we will shortly turn – we would be compelled to relegate the parties to an even lengthier delay by remanding for an evidentiary hearing to determine whether the parties reached an enforceable agreement to arbitrate.

But we need not impose such a mandate because, for different reasons, we conclude the order denying the motion to compel arbitration must be affirmed. 

We affirm because even if an arbitration agreement could ultimately be found "in a record," that record is silent about whether the parties intended to waive their right to sue in a court of law or whether they intended that arbitration would be the exclusive means of adjudicating their disputes.

To be sure, the Court in Atalese recognized that an arbitration agreement "by its very nature" involves a waiver of the right to sue. But most arbitration agreements – or at least those that have been enforced – include an express agreement that arbitration is mandatory and the sole means of resolving disputes.

In short, our Supreme Court has recognized that "[a] clause depriving a citizen of access to the courts should clearly state its purpose . . . to assure that the parties know that in electing arbitration as the exclusive remedy, they are waiving their time-honored right to sue." Marchak v. Claridge Commons, Inc. The Court later held (in Atalese) that in arbitration may not be compelled absent an express waiver of the right to seek relief in a court of law.

Even if an agreement to arbitrate might be cobbled together from the materials contained "in a record," those emails did not include or even suggest a waiver of their right to seek relief in a court of law. Nor do those emails contain or suggest that the parties agreed or understood that arbitration was mandatory or constituted the exclusive means for resolving their disputes. 

 

Even viewing the "record" in a light most favorable to defendants, any agreement that might be gleaned from the parties' emails can be understood as suggesting nothing more than arbitration in the bais din was an option that, by filing suit, plaintiff declined to pursue, the court concluded.

Based on this ruling, all current agreements existing between parties that select arbitration as a dispute resolution venue can be rescinded by any party on the basis that it lacked specific language of exclusivity and waiver of rights afforded under court procedures.

Agreements identifying Badatz of Lakewood or Mayshorim, including on many rental agreements, also are not binding as a matter of New Jersey State law without the specific language stated above.

Home purchasers who find themselves in disputes should review their arbitration clauses to see if they include the express wording that not only is Beis Din an option, but that it is the only option.

Nursing homes and similar "end of life care," as well as those whose elderly family members enter such facilities may be especially impacted with this ruling as many of those facilities require patients to sign agreements to arbitrate all disputes, including for unfair death.

This decision is not limited to Rabbinical Court arbitration rather it applies to all arbitration panels including AAA, JAMS and the like. However, our community is significantly affected as many parties, whether prior to going into a business deal or a divorce proceeding, go to Rabbis and contract drafters which set forth the terms of their transactions and contain arbitration clauses in case of dispute a Beis Din will decide the dispute.

Going forward arbitration clauses will require clear waiver language saying that the parties waive their rights to court  rules and procedures and exclusively choose arbitration as the only means of remedy.

It is possible to petition the New Jersey Supreme Court to review and perhaps even reverse this ruling. However, it is a very expensive endeavor with no guarantee of success. Such an endeavor would therefore require community activists such as Agudath Israel to join together to become a possibility.

This story also highlights how imperative it is to seek out professional help from experienced Toanim and Lawyers prior to entering into any agreements.

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