Unenforceable Clause In Arbitration Agreement Does Not Void Agreement

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Arbitration (pd)One of my children's preschool teachers was fond of saying, "you get what you get and you don't get upset." (Not to my little angel, of course, but to other children.) In Curran v. Curran, the Appellate Division basically applied this admonition to the parties to an arbitration agreement, holding that they got what they intended out of the agreement, therefore they could not argue, after the fact, that an unenforceable provision in the agreement voided the entire agreement.

In Curran, plaintiff filed for divorce from defendant. With the advice of counsel, the parties entered into a consent order to refer all issues incident to their divorce to arbitration under the New Jersey Arbitration Act. In the consent order, the parties acknowledged that any arbitration award that was entered could only be set aside or modified by a court under the limited grounds set forth in the Arbitration Act — e.g., the award was procured by fraud, corruption, or undue means, the court found evidence of "evident partiality" by the arbitrator, the arbitrator exceeded his or her powers, etc.  But the parties also included a handwritten provision, which provided: "The parties reserve their rights to appeal the arbitrator's award to the appellate division as if the matter was determined by the trial court." This is the provision that would cause all of the problems.

After the arbitrator entered a preliminary award, plaintiff requested reconsideration. The arbitrator then issued a comprehensive award setting forth his findings of fact and conclusions of law. Plaintiff filed a motion in the Law Division for an order modifying the award, citing eight alleged "mistakes of law" made by the arbitrator. Plaintiff also argued that the intent of the handwritten provision was not to allow for direct appeal to the Appellate Division, but was instead was evidence that the parties intended a more searching review of the award that what would normally be allowed under the Arbitration Act. The trial court agreed, holding that the paragraph itself was unenforceable because it purported to "create subject matter jurisdiction by agreement." The trial court noted that "[t]he authority of a court to hear and determine certain classes of cases rests solely with the Constitution and the Legislature." But the trial court agreed with plaintiff that the handwritten provision demonstrated the parties' intent to provide for "a little more review" than what would normally be allowed under the Arbitration Act. Therefore, the trial court "in essence act[ed] as the Appellate Division of the arbitrator." It performed a comprehensive review of the arbitrator's decision and affirmed the award. 

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What Do eBay, The “40 Year-Old Virgin,” And The Litigation Privilege Have In Common?

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Jonah hillNot much, but please keep reading.

In the movie, the 40-Year-Old-Virgin, an almost unrecognizable Jonah Hill has a very small, but funny, part. He plays a customer at the “We Sell Your Stuff On Ebay” store, which is owned by Steve Carell’s character’s love interest, played by Catherine Keener. According to IMDB.com, Hills plays “Ebay Customer,” who is, to say the least, having trouble understanding how the store works. He wants to buy some "wonderful" shoes that he found at the store. Keener's character explains that she does not actually sell any of the items in her store at the store, she sells them on eBay. Hill's character just doesn't get it, eventually telling Keener's character that he just wanted to buy the shoes and take them home, but that she was "making it extremely difficult" for him to do so.

The recent Appellate Division decision, XCalibur Communications v. Karcich, involved a dispute over the sale of the plaintiff’s merchandise on eBay. No word on whether any of those sales involved shoes like the ones Hill’s character was looking to buy, but the decision helps clarify the scope of the litigation privilege, which is broader than many people think. 

Continue reading “What Do eBay, The “40 Year-Old Virgin,” And The Litigation Privilege Have In Common?”


by: Peter J. Gallagher (@pjsgallagher)

If you are like me, you just can’t read enough decisions about diversity jurisdiction. OK, hopefully you are not like me in that regard, but you might still find a recent decision from the Third Circuit interesting. In it, the Third Circuit discussed what it means to be a “stateless person” for purposes of diversity jurisdiction — the so-called “statelessness doctrine” — and ultimately questioned the rationale behind the entire concept.

In Freidrich v. Davis, plaintiff and defendant, both American citizens, were passengers on a flight from Philadelphia to Germany. While plaintiff was standing in line for the bathroom, she claims that defendant fell on her and broke her arm.  Plaintiff sued in federal court, claiming diversity jurisdiction, and defendant moved to dismiss for lack of subject matter jurisdiction. Defendant argued that, although he was a citizen of Pennsylvania, he was domiciled in Germany, and therefore was “stateless” for purposes of diversity jurisdiction and thus could be sued under the diversity jurisdiction statute. The district court granted the motion and the Third Circuit affirmed.

Under the diversity jurisdiction statute, district courts have jurisdiction over matters between: citizens of different states; citizens of a state and citizens of a foreign state; citizens of different states in which citizens of a foreign state are additional parties; and a foreign state, as plaintiff, and citizens of a state or different states. But, as the Freidrich court observed, for purposes of diversity jurisdiction, courts have explained that citizenship is synonymous with domicile, and domicile is the: “true, fixed and permanent home and place of habitation. It is the place to which, whenever he is absent, he has the intention of returning.” Under this rationale, the Supreme Court has held that citizenship for diversity purposes requires that an individual be both a citizen of the United States and domiciled within a state. If the individual is a U.S. citizen but domiciled in a foreign state, that person is considered “stateless” and a federal court cannot obtain jurisdiction over the person under the diversity jurisdiction statute.

In Friedrich , the district court concluded that defendant was an American citizen domiciled in Germany, and was, therefore, “stateless.” Among other things, the district court relied on the fact that defendant has continuously resided in Germany since 1996, sold his home in Pennsylvania in 1999 and currently owns no property in the state, purchased a home in Germany, owns and operates a business that caters exclusively to German customers , holds a German driver’s license, pays taxes in Germany, and has held a German residency permit since 2003. The Third Circuit affirmed this decision, but found the conclusion “troubling because it closes the doors of the federal court to a citizen of a State who wishes to sue another citizen based on diversity.” The Third Circuit further observed that “this ‘stateless person’ doctrine is an unintended consequence flowing from Congress’ now possibly outdated assumption that U.S. citizens generally reside in the United States.” Accordingly, although the Third Circuit applied the “stateless person” doctrine as it now exists, it did so reluctantly and invited Congress to consider taking another look at whether it is still appropriate or applicable.

(Incidentally, I tried to think of a way to work a reference to two of my favorite movies into this post — Airplane (since the injury occurred on a plane) and Young Frankenstein (the part about how to pronounce Frederick Frankenstein's name) — but just could not figure out how to do it.)