Michael E. Hirsch v. Amper Financial Services, LLC (070751)
215 N.J. 174
| N.J. | 2013Background
- Plaintiffs (Michael & Robyn Hirsch and Hirsch, LLP) invested $550,000 in securitized notes from Medical Provider Financial Corporation (Med Cap) on advice of financial advisor Marc Scudillo.
- Scudillo was a registered representative of Securities America, Inc. (SAI) and also employed by Amper Financial Services, LLC (AFS), an affiliate of accounting firm EisnerAmper; plaintiffs had no written engagement with AFS/Scudillo.
- Plaintiffs signed two SAI account/applications (bearing FINRA arbitration clauses) to purchase the Med Cap notes; Scudillo signed as SAI’s registered representative.
- After Med Cap collapsed amid SEC fraud allegations, plaintiffs filed FINRA arbitration against SAI and Scudillo and a separate Law Division complaint (jury demand) against AFS and EisnerAmper; AFS/EisnerAmper filed a third-party complaint against SAI.
- SAI moved in the Law Division to compel arbitration of the claims against AFS and EisnerAmper, invoking a broad arbitration clause, agency principles, and equitable estoppel; trial court granted and the Appellate Division affirmed relying on an "intertwinement" rationale.
- The New Jersey Supreme Court reversed, holding that intertwinement alone cannot invoke equitable estoppel to force arbitration absent an express agreement, agency showing, or proof of detrimental reliance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a non-signatory (SAI) may compel arbitration of claims against non-signatories (AFS, EisnerAmper) under equitable estoppel | Estoppel cannot be used to erase the requirement of mutual agreement to arbitrate; arbitration clause only binds SAI and plaintiffs | Intertwinement of parties/claims and broad arbitration language justify estoppel to compel arbitration | Reversed: intertwinement alone is insufficient; equitable estoppel requires more (detrimental reliance or other contract-law basis) |
| Whether agency principles bind AFS/EisnerAmper to the SAI arbitration clause | Plaintiffs: No agency existed that would bind AFS/EisnerAmper to SAI’s arbitration clause | SAI/AFS: Scudillo’s dual role and relationships create agency/standing to compel arbitration | No. Scudillo signed as SAI’s agent; record lacks agency or corporate control tying AFS/EisnerAmper to SAI’s contract |
| Scope of the arbitration clause — does it cover disputes involving other affiliated entities? | Clause only evidences an agreement between plaintiffs and SAI; does not expressly include AFS or EisnerAmper | Clause is broad and covers all controversies related to accounts/transactions, so claims fall within it | Broad language does not create arbitration obligations where no agreement between specific parties exists; must examine actual consent/contractual relation |
| Validity of the Appellate Division’s "intertwinement" theory as basis for compelling arbitration | Intertwinement theory improperly expands estoppel to compel arbitration without contractual consent | Intertwinement is an appropriate equitable tool where claims and parties are closely connected | Rejected intertwinement-as-sufficient: estoppel must be tethered to agency, reliance, written/oral agreement, or similar contract-law principle |
Key Cases Cited
- EPIX Holdings Corp. v. Marsh & McLennan Cos., Inc., 410 N.J. Super. 453 (App. Div. 2009) (applied intertwinement/reliance analysis to allow non-signatory to compel arbitration)
- Angrisani v. Financial Technology Ventures, L.P., 402 N.J. Super. 138 (App. Div. 2008) (refused to compel arbitration where plaintiff’s conduct did not support equitable estoppel)
- Knorr v. Smeal, 178 N.J. 169 (2003) (equitable estoppel requires detrimental reliance; doctrine prevents repudiation of conduct causing injustice)
- Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124 (2001) (arbitration favored but must be based on parties’ agreement; courts may not rewrite contracts to broaden arbitration scope)
- Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009) (state contract-law doctrines may bind nonparties to arbitration agreements via traditional principles such as estoppel or agency)