A U.S. District Court previously ruled that they lacked jurisdiction to deal with a psak from Bais Din Maysharim of Lakewood which affirmed a $4 million Settlement Agreement owed by R' Leib Kelman of Monsey to Harav Benzion Rabinowitz of Jerusalem. The court ruled that Rav Rabinowitz could not seek to affirm the psak in federal court because the parties' settlement agreement and arbitration agreement stipulated that enforcement could only be done in state court (which would not be an option to Rav Rabinowitz as he is not a U.S. citizen).
A higher court has now reversed this ruling, finding that the settlement agreement and arbitration agreement were "permissive" in that they merely allowed litigation in state courts, rather than mandated that litigation is to occur only there; therefore ruling that Bais Din's psak can be affirmed in federal court.
Between 2010 and 2014, Harav Benzion Rabinowitz of Jerusalem invested several million dollars with R' Leib Kelman of Monsey in a real estate deal involving a number of properties in New Jersey.
R' Kelman is CEO of Blue Onyx Cos., a Paterson, New Jersey company that renovates properties for housing.
A number of years ago the parties fell into a dispute regarding the business venture and they decided to part ways. On February 8, 2018, they entered into a Settlement Agreement whereby R' Kelman would pay Rav Rabinowitz $5.2 million over 2 years. The agreement stipulated that in the case of any dispute which may arise, the parties would adjudicate their claims either in Bais Din Maysharim in Lakewood or its counterpart in Bnei Brak, "without the right of appeal."
The agreement expressly stipulates that "any arbitration award of the Bais Din shall be final and binding... The Parties each hereby submit to the jurisdiction of the New Jersey State Courts located in Ocean County or the courts of Israel, as the case may be, for the enforcement of any arbitration award pursuant to this paragraph or for any equitable relief related to the rights and responsibilities contained in this Agreement."
Subsequently, a dispute arose and Rav Rabinowitz summoned R' Kelman to Bais Din Maysharim where he disputed the validity of the Settlement Agreement.
Prior to Bais Din hearing the case, the parties entered into an Arbitration Agreement which stipulated as follows:
"The decree of the Arbitrators shall be enforceable in the courts in the State of New Jersey and/or New York. . . . The Parties submit themselves to the personal jurisdiction of the courts of the State of New Jersey and/or New York for any action or proceeding to confirm or enforce a decree of the Arbitrators..."
Bais Din issued a written ruling that the agreement was still in effect, and therefore Rav Rabinowitz must pay the balance of the amount still owed, which was $4 million, "immediately."
The ruling additionally states:
As per the agreement, defendant must pay plaintiff reasonable attorney's wages, only according to the number of hours that he worked for him. In order to estimate and decide on this, plaintiff must submit a record that delineates his hours, and then the Bais Din will adjudicate on that.
Bais Din retains the right to adjudicate regarding any matter that arises related to this litigation.
On April 12, 2021, Rav Rabinowitz, represented by New York attorney Efrem Schwalb of Koffsky Schwalb LLC filed legal action in the United States District Court for the Southern District of New York seeking to confirm the Arbitration Award and issue a $4 million judgment against Kelman, together with attorney fees and costs.
The Petition alleged that the district court had subject matter jurisdiction based on the diversity of the parties (i.e. being that one party did not reside in the United States), and that venue was proper.
On May 3, 2021, R' Kelman, represented by Lakewood attorney Dominic J. Aprile of Bathgate, Wegener & Wolf, P.C., moved to dismiss the Petition for lack of subject matter jurisdiction or, in the alternative, to vacate the Arbitration Award.
First, Kelman asserted that the district court lacked subject matter jurisdiction based on the forum selection clauses in the Arbitration Agreement and the Settlement Agreement (i.e. he was arguing that the agreements stipulated that enforcement of the matter could only be done in State Court and not in Federal Court). Second, he argued that, even if the district court had subject matter jurisdiction, the Petition should be dismissed because the Arbitration Award was not final. Third, Kelman contended that, even if the district court had subject matter jurisdiction and the Arbitration Award was final, the Arbitration Award should be vacated under New York or New Jersey law because the Bais Din arbitrators exceeded the authority the parties bestowed on them.
On July 13, 2022, the district court dismissed the Petition for lack of subject matter jurisdiction, interpreting the Arbitration Agreement Forum Selection Clause to require that an action to confirm the Arbitration Award be brought in the state courts of New Jersey or New York. Accordingly, it granted R' Kelman's motion to dismiss without prejudice to Rav Rabinowitz's "right to recommence in the appropriate forum" (i.e. in State Court).The district court therefore left open the remaining questions, including whether (1) the Arbitration Award was final, (2) R' Kelman's motion to vacate was timely, or (3) the Arbitration Award should be vacated because the Bais Din arbitrators exceeded their authority. It also did not address Rav Rabinowitz's request for attorney fees and costs.
Rav Rabinowitz appealed this ruling to the U.S. Court of Appeals, Second Circuit.
In a written ruling now released, Circuit Judges Jacobs, Park, and Nardini have now reversed the lower court's decision, ruling that the petition did adequately plead subject matter jurisdiction based on diversity of citizenship. Because parties cannot contractually strip a district court of its subject matter jurisdiction, it was error to conclude that the forum selection clause did so. Second, the court interpreted the relevant forum selection clauses as permissive arrangements that merely allow litigation in certain fora, rather than mandatory provisions that require litigation to occur only there.
Accordingly, the judges ruled that the forum selection clauses did not bar proceedings from going forward in the U.S. District Court.
Judge Nardini wrote:
The district court dismissed the case for lack of subject matter jurisdiction of the Federal Rules of Civil Procedure, based on its conclusion that the forum selection clauses dictated that the Petition should have been filed in a different court. But forum selection clauses, however interpreted, have no bearing on a court's subject matter jurisdiction: "We have long recognized that parties have no power by private contract to oust a federal court of subject matter jurisdiction otherwise obtaining." New Moon Shipping Co. v. MAN B & W Diesel AG, (holding that it was error to dismiss case for lack of subject matter jurisdiction based on forum selection clause). As the Supreme Court has observed, the notion that forum selection clauses "tend to 'oust' a court of jurisdiction is hardly more than a vestigial legal fiction." M/S Bremen v. Zapata Off-Shore Co. The issue to be decided, properly framed, "is whether that court should have exercised its jurisdiction to do more than give effect to the legitimate expectations of the parties, manifested in their freely negotiated agreement, by specifically enforcing the forum clause." Id. Accordingly, the district court erred in dismissing the Petition for lack of subject matter jurisdiction.
The enforcement clause in the Settlement Agreement states that the decree "shall be enforceable" in certain courts; this means simply that the decree is capable of enforcement in the listed courts. In other words, these courts are nothing more than possible fora where an award of the Bais Din could be enforced. This language does not impart the parties' clear intent that an award must be enforced exclusively in these fora.
The enforcement clause in the Arbitration Agreement states that the parties "submit themselves to the personal jurisdiction" of certain courts - operates simply as mutual consent to personal jurisdiction in those courts; it does not suggest that personal jurisdiction cannot exist elsewhere.
Courts located in states other than New Jersey and New York could still exercise personal jurisdiction over the parties (assuming the parties had adequate contacts), even though the parties did not specifically consent to personal jurisdiction in those courts.
Because we determine that the Arbitration Agreement Forum Selection Clause is permissive, we disagree with the district court that the lack of specific references to federal courts in that provision suggests that the parties intended for enforcement of a Bais Din award to occur exclusively in state courts.
We are also unpersuaded by the district court's determination that a permissive interpretation of the Arbitration Agreement Forum Selection Clause renders superfluous the clause's references to New York and New Jersey law. These references simply confirm that, if a party brings an action pursuant to certain provisions of New Jersey or New York law, he may do so in the state courts of New Jersey or New York. They do not preclude other permissible fora; nor do they specify the law to be applied in any other fora.
Even if we interpreted the Arbitration Agreement Forum Selection Clause as mandatory, we would nonetheless determine that the phrase "courts in the State of New Jersey and/or New York" includes federal courts in the state of New York. This is because we agree with the "widely-accepted rule that forum selection clauses that use the term `in a state'. . . permit jurisdiction in both the state and federal courts of the named state, whereas forum selection clauses that use the term 'of a state' . . . limit jurisdiction over the parties' dispute to the state courts of the named state."
We also conclude that the Forum Selection Clause in the Settlement Agreement is permissive. We do not interpret the parties' agreement to "submit to the jurisdiction of the New Jersey State Courts located in Ocean County or the courts of Israel" to clearly indicate that the parties must enforce a Bais Din award in only these courts. Courts are not limited to adjudicating disputes among parties that "submit" to their jurisdiction. As noted above, a court may exercise personal jurisdiction over an unconsenting party so long as its contacts with the forum satisfy statutory and constitutional requirements. We interpret this language merely as ensuring that at least these courts would be available to enforce the award. Our conclusion is reinforced by the statement that judgment may be rendered on a Bais Din award "in any court having jurisdiction thereof" - a phrase that sweeps in far more courts than those in Toms River or Tel Aviv.
Because both the Arbitration Agreement Forum Selection Clause and the Settlement Agreement Forum Selection Clause are permissive, the district court erred by determining that they are an improper forum for Rav Rabinowitz to confirm the Arbitration Award.
The matter will now be remanded back to the District Court to address the remaining issues of Rav Rabinowitz's request for attorney fees and costs, and to determine whether the Arbitration Award was final, R' Kelman's motion to vacate was timely, and the Bais Din arbitrations exceeded their authority.
This story highlights how imperative it is to seek out professional help from experienced Toanim and Lawyers prior to entering into any agreements, especially when they involve arbitration and enforcement provisions.
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