TANSUKH SURATWALA VS. SAILESH GANDHI (C-000093-19, BERGEN COUNTY AND STATEWIDE) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0279-19T1
TANSUKH SURATWALA,
NEHA SURATWALA, TRUPTI
T. SURATWALA FAMILY
TRUST, and SURATWALA
SPOUSAL ACCESS TRUST,
Plaintiffs-Appellants,
v.
SAILESH GANDHI, SHASIN
GANDHI, AUM SIDHDHY VINAYAK
HOSPITALITY LLC, AUM SIDHDHY
VINAYAK LLC, EMMONS
HOSPITALITY MANAGEMENT
LLC, SAV LLC, and SHREE
BADRINATH LLC,
Defendants-Respondents.
__________________________________
Argued telephonically March 24, 2020 –
Decided May 8, 2020
Before Judges Yannotti and Currier.
On appeal from the Superior Court of New Jersey,
Chancery Division, Bergen County, Docket No. C-
000093-19.
Justin D. Santagata argued the cause for appellants
(Kaufman Semeraro & Leibman LLP, attorneys; Justin
D. Santagata, on the briefs).
Andrew B. Zinman (Robinson Brog Leinwand Greene
Genovese & Gluck, PC) of the New York Bar, admitted
pro hac vice, argued the cause for respondents
(Robinson Brog Leinwand Greene Genovese & Gluck,
PC, attorneys; Matthew Cono Capozzoli and Andrew
B. Zinman, on the brief).
PER CURIAM
Plaintiffs appeal from an order of the Chancery Division dated August 26,
2019, which dismissed their complaint without prejudice and required that they
arbitrate their disputes with defendants Sailesh Gandhi (Sailesh), Aum Sidhdhy
Vinayak LLC (Vinayak), Aum Sidhdhy Vinayak Hospitality LLC (Vinayak
Hospitality), Emmons Hospitality LLC (Emmons Hospitality), and Emmons
Hospitality Management LLC (Emmons Hospitality Management).1 For the
reasons that follow, we reverse the trial court's order compelling arbitration and
remand for a plenary hearing.
I.
In April 2019, plaintiffs Tansukh Suratwala (Tansukh), Neha Suratwala
(Neha), Trupti Suratwala (Trupti), Tansukh Suratwala Spousal Access Trust
1
For ease of reference, we refer to the individuals involved in this m atter by
their first names.
A-0279-19T1
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(Access Trust), and Trupti T. Suratwala Family Trust (Family Trust) filed their
complaint in the Chancery Division. They named Sailesh, Shashin Gandhi
(Shashin), Vinayak, Vinayak Hospitality, Emmons Hospitality, Emmons
Hospitality Management, Sav LLC (Sav), and Shree Badrinath LLC (Shree) as
defendants. In the complaint, plaintiffs also identify Stacy Gandhi as a
defendant, but her name does not appear in the caption.
Plaintiffs allege Tansukh and Trupti established the Access Trust and the
Family Trust. Trupti is the administrator of the Family Trust. According to the
complaint, all of the defendant companies were formed under the New York
Limited Liability Company Law (New York's LLC Law), N.Y.L.L.C.L. §§ 101
to 1403. Sailesh is the manager of the defendant companies.
Plaintiffs allege Neha and the Family Trust each have a ten percent
interest in Emmons Hospitality and Emmons Hospitality Management. Emmons
Hospitality and Emmons Hospitality Management own or manage a motel and
rental units in Brooklyn, New York.
In addition, Neha has a 10.08 percent interest in Vinayak Hospitality, and
the Family Trust has a 10.09 percent interest in the company. Vinayak
Hospitality and Vinayak Hospitality Management own and operate a motel in
South Ozone Park, New York.
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Plaintiffs further allege Neha and the Access Trust both have a ten percent
interest in Sav, a company that owns and operates multi-family properties and
parking lots in Brooklyn. Plaintiffs also allege that the Access Trust actually
has a twenty percent interest in the company. Shree owns and operates a motel
in Brooklyn.
Plaintiffs claim that in certain years Sailesh, Shashin or Stacy made
distributions to members of Vinayak Hospitality, Sav, Emmons Hospitality, and
Shree and that either Neha, the Family Trust, or the Access Trust received no
distributions or less than they should have received.
Plaintiffs asserted claims for distributions allegedly due under New York's
LLC Law, conversion, unjust enrichment, and breach of fiduciary duties. They
also asserted claims under the federal Racketeer Influenced and Corrupt
Organizations Act (federal RICO), 18 U.S.C. §§ 1961 to 1968, and New
Jersey's Racketeer Influenced and Corrupt Organizations Act (NJRICO),
N.J.S.A. 2C:41-1 to -6.2. Plaintiffs sought, among other relief, dissolution of
the defendant companies, compensatory damages, treble damages, and
attorney's fees.
In June 2019, defendants filed a motion to compel arbitration and to
consolidate the arbitrations. In support of their motion, defendants relied upon
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arbitration clauses in the operating agreements for Vinayak, Vinayak
Hospitality, Emmons Hospitality, and Emmons Hospitality Management. Each
operating agreement requires arbitration of "[a]ny dispute, claim or controversy
arising out of" the agreement.
The operating agreements for Vinayak, Vinayak Hospitality, and Emmons
Hospitality also state that they "shall be governed by and construed in
accordance with the substantive and procedural laws of the State of New York ."
However, the operating agreement for Emmons Hospitality Management states
that it "shall be governed by and construed in accordance with the substantive
and procedural laws of the State of New Jersey."
Plaintiffs opposed the motion. They argued defendants could not compel
arbitration of the claims regarding Sav and Shree because defendants did not
provide the court with the operating agreements for these entities. They also
argued the NJRICO claims are not subject to arbitration.
In addition, plaintiffs argued that the court should not consider the
operating agreements for the other companies because they were provided as
exhibits to a certification by defendants' attorney. Plaintiffs asserted that
defendants' counsel could not certify as to their authenticity.
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Moreover, plaintiffs argued that a manager of a limited liability company
cannot bind the other members to an operating agreement, and the court must
conduct a plenary hearing to determine if they are bound by the agreements.
They claimed there is evidence of forgery on the signature pages of the Emmons
Hospitality and Emmons Hospitality Management operating agreements.
Plaintiffs submitted a certification signed by Tansukh, Neha, and Trupti.
They state that defendant's counsel could not possibly have personal knowledge
of the signature pages on the operating agreements attached to his certification.
They state that:
For over [forty] years, our family has been in business
with four other families managing various motels and
hotels. One of these four families is the family of
Sailesh Gandhi. Over the past [forty] years, these five
families have established no less than [twenty] entities
to own and operate these various motels and hotels.
These five families have signed many documents and
operating agreements related to such entities. We have
reviewed the "operating agreements" attached as
Exhibits A through D to [d]efendants' counsel's
certification. We did not sign those "operating
agreements." It is entirely possible that the signature
pages from those "operating agreements" are borrowed
from other documents and operating agreements that
we did, in fact, sign. We did not sign the "operating
agreements" submitted by [d]efendants for [Emmons
Hospitality] or [Emmons Hospitality Management], but
the signature pages on those "operating agreements"
prove our point. The signature pages are identical,
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despite that the "operating agreements" were
purportedly executed [ten] years apart.
In response, Sailesh submitted a certification in which he states that, to
the best of his recollection, the four operating agreements provided to the court
"are true and correct operating agreement[s] for those entities." Sailesh states
that his family executed the amended operating agreement for Vinayak
Hospitality and other operating agreements.
He states the agreements were then "dropped off" at the offices of
plaintiffs' attorney for signature by plaintiffs and other members. Sailesh asserts
that plaintiffs and other members executed the agreements. He added that the
operating agreement for Emmons Hospitality also had been executed by all
members, including plaintiffs. Sailesh attached to his certification a copy of the
First Amendment to the Amended and Restated Operating Agreement of
Vinayak Hospitality.
The motion judge heard oral argument and thereafter entered an order
dated August 26, 2019, which denied the motion to compel arbitration of the
claims regarding Sav and Shree but granted the motion to compel arbitration of
the claims regarding Sailesh, Vinayak, Vinayak Hospitality, Emmons
Hospitality, and Emmons Hospitality Management. The judge also denied the
motion to consolidate the arbitration proceedings.
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The judge provided a statement of reasons for his order. The judge stated
that the court could not compel arbitration of the claims regarding Sav and Shree
because defendants had not presented the court with the operating agreements
for these entities. The judge stated, however, that plaintiffs must arbitrate the
claims regarding Sailesh, Vinayak, Vinayak Hospitality, Emmons Hospitality,
and Emmons Hospitality Management.
The judge noted that Sailesh had certified that the operating agreements
for Vinayak, Vinayak Hospitality, Emmons, and Emmons Hospitality were "true
and correct" and each agreement contains a provision requiring arbitration of
any claims arising out of the agreement. The judge also found that plaintiffs'
NJRICO claims are subject to arbitration.
The judge determined that any further issues regarding arbitrability of the
claims, including the claims that the operating agreements were forged, should
be determined in the first instance by the arbitrator. The judge also determined
that consolidation of the arbitrations was a procedural matter that should be
decided by the arbitrator. This appeal followed.
Plaintiffs appeal and argue: (1) the trial court erroneously applied New
Jersey law; (2) under New York law, forgery or lack of authority for an
arbitration clause must be determined by a court, not an arbitrator; and (3) the y
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proffered sufficient evidence for a plenary hearing on whether the operating
agreements are real and executed by a sufficient number of members.
II.
We turn first to plaintiffs' contention that the motion judge erred by
applying New Jersey law in determining whether they are required to arbitrate
their claims arising under the operating agreements for Vinayak, Vinayak
Hospitality, Emmons Hospitality, and Emmons Hospitality Management.
Plaintiffs argue that New York law governs the interpretation and application of
the operating agreements for these companies.
"Choice-of-law determinations present legal questions, which are
subjected to de novo review." Fairfax Fin. Holdings Ltd. v. S.A.C. Capital
Mgmt., L.L.C., 450 N.J. Super. 1, 33 (App. Div. 2017) (citing Bondi v.
Citigroup, Inc., 423 N.J. Super. 377, 418 (App. Div. 2011); Arias v. Figueroa,
395 N.J. Super. 623, 627 (App. Div. 2007)). In addressing these issues on
appeal, we owe no special deference to the trial court's interpretation or
application of the law. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan,
140 N.J. 366, 378 (1995).
"Ordinarily, when parties to a contract have agreed to be governed by the
laws of a particular state, New Jersey courts will uphold the contractual choice
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if it does not violate New Jersey's public policy." Instructional Sys., Inc. v.
Computer Curriculum Corp., 130 N.J. 324, 341 (1992) (citing Winer Motors,
Inc. v. Jaguar Rover Triumph, Inc., 208 N.J. Super. 666, 671-72 (App. Div.
1986); Kalman Floor Co. v. Jos. L. Muscarelle, Inc., 196 N.J. Super. 16, 21-22
(App. Div. 1984)). We will apply the law of the state that the parties have
chosen unless:
(a) the chosen state has no substantial relationship to
the parties to the transaction and there is no other
reasonable basis for the parties' choice, or
(b) application of the law of the chosen state would be
contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the
determination of the particular issue and which . . .
would be the state of the applicable law in the absence
of an effective choice of law by the parties.
[Id. at 341-42 (quoting Restatement (Second) of
Conflicts of Laws § 187 (1969)).]
As we stated previously, the operating agreements for Vinayak, Vinayak
Hospitality, and Emmons Hospitality each state that they "shall be governed by
and construed in accordance with the substantive and procedural laws of the
State of New York." The operating agreement for Emmons Hospitality
Management states, however, that the agreement "shall be governed and
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construed in accordance with the substantive and procedural laws of the State of
New Jersey."
The record shows that all four entities were formed in New York, pursuant
to New York's LLC Law. Each company has a principal office in New York,
and apparently conducts business solely in New York. Although the operating
agreement for Emmons Hospitality Management states that seven of the eleven
members of the company have New Jersey addresses, there is no evidence
showing that the company has a substantial relationship to New Jersey or that
the parties' choice of New Jersey law was reasonable.
We therefore conclude that the court must apply New York law in
addressing the question of whether plaintiffs are required to arbitrate claims
arising from the Vinayak, Vinayak Hospitality, Emmons Hospitality, and
Emmons Hospitality Management operating agreements.
III.
Plaintiffs argue that under New York law, the court, not an arbitrator, must
determine whether they are bound by the operating agreements for the four
subject companies. Plaintiffs recognized that the operating agreements for the
companies include arbitration clauses, but they contend they are not bound by
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the arbitration clauses. They claim they did not execute the agreements provided
to the trial court and the agreements are forged.
New York's arbitration statute provides that "[a] party aggrieved by the
failure of another to arbitrate may apply" to the court "for an order compelling
arbitration." N.Y.C.P.L.R. 7503(a). Unless there is a "substantial question" as
to whether the parties made or failed to comply with "a valid agreement" and
arbitration of the claim is not otherwise barred, "the court shall direct the parties
to arbitrate." Ibid.
Where "any such [substantial] question" has been raised, the court shall
try the matter "forthwith." Ibid. Here, plaintiffs contend they have raised a
"substantial question" as to the validity of the agreements, which must be
resolved by the court, not an arbitrator. We agree.
In Weinrott v. Carp, 32 N.Y.2d 190, 192-93 (1973), the parties entered
into an agreement which included an arbitration clause. One of the parties
sought to stay the arbitration proceedings on the ground that the contract was
induced by fraud. Id. at 192. The Court of Appeals affirmed the denial of the
stay and the parties proceeded to arbitration. Id. at 192-93. The Court later
held, consistent with Prima Paint Corp. v. Flood & Conklin Manufacturing Co.,
388 U.S. 395 (1967), that "[a]s a general rule . . . under a broad arbitration
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provision the claim of fraud in the inducement should be determined by
arbitrators." Id. at 198-99.
Weinrott does not, however, apply in this case because plaintiffs are not
alleging they were fraudulently induced to enter into the operating agreements .
They are alleging "fraud in the factum," which is "an attack upon the very
existence of a contract from its beginning, in effect alleging that there was no
legal contract" and that the instrument is "void ab initio." Mix v. Neff, 99
A.D.2d 180, 182 (N.Y. App. Div. 1984) (citations omitted). A claim of fraud in
the factum differs from fraud in the inducement because if the latter is proven,
the contract is voidable. Id. at 182-83.
Such a claim is a "substantial issue" under N.Y.C.P.L.R. 7503(a), which
must be resolved by the court. See Housekeeper v. Lourie, 39 A.D.2d 280, 285
(N.Y. App. Div. 1972); DeSantis v. Empire State Coin-Op Distribs., Inc., 174
A.D.2d 1043, 1043 (N.Y. App. Div. 1991). Therefore, the court must conduct
a plenary hearing to determine if the parties entered into a valid agreement,
which includes an arbitration clause. See Housekeeper, 39 A.D.2d at 285;
DeSantis, 174 A.D.2d at 1043; Howe Assocs. v. Comstock, Inc., 199 A.D.2d 55,
55-56 (N.Y. App. Div. 1993).
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Our conclusion is supported by O'Neill v. Krebs Communications Corp.,
16 A.D.3d 144, 144 (N.Y. App. Div. 2005). In that case, the plaintiff claimed
that a forgery took place and the agreement was altered after it was signed,
thereby voiding the entire agreement including the arbitration clause. Ibid. The
court noted that under New York and federal law, a court must "treat an
agreement containing an arbitration clause as if there were two separate
agreements – the substantive agreement between the parties, and the agreement
to arbitrate." Ibid. (citing Weinrott, 32 N.Y.2d at 198-99; Prima Paint Corp.,
388 U.S. at 409).
New York's Appellate Division stated, however, that the plaintiff had
alleged fraud "but . . . not the type that permeates the entire agreement so as to
invalidate the arbitration clause as well." Id. at 144-45 (citation omitted). The
appellate court held that the trial court "properly found that the parties entered
into a valid agreement to arbitrate any disputes arising out of their agreement. "
Id. at 145. The trial court "properly ended its inquiry there, and referred all
issues concerning the alleged alteration of the contract after it was signed and
the authenticity of the submitted contract, upon which [the defendant] bases i ts
claim, to the arbitrator to resolve." Ibid. (citations omitted).
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Here, plaintiffs claim they never executed the operating agreements for
Vinayak, Vinayak Hospitality, Emmons Hospitality, and Emmons Hospitality
Management that were presented to the trial court. They claim the agreements
are forged. Their allegation "permeates the entire agreement" and raises a
question as to whether they entered into a "valid agreement" to arbitrate. Id. at
144-45. Under New York law, that issue must be resolved by the court, not an
arbitrator.
Our conclusion is also supported by decisions applying the Federal
Arbitration Act, 9 U.S.C. §§ 1 to 16. In Prima Paint, the Supreme Court held
that the federal courts may adjudicate a claim that a party was fraudulently
induced to enter into an arbitration agreement, but the courts should not consider
a claim of fraud in the inducement of the contract generally. 388 U.S. at 403-
04. Under Prima Paint, the arbitration clause is viewed as an agreement separate
and apart from the contract in which it is found.
However, the Prima Paint principle does not apply where a party alleges
"fraud in the factum." Kyung In Lee v. Pacific Bullion, Inc., 788 F. Supp. 155,
157 (E.D.N.Y. 1992). The court explained:
In raising a claim of fraudulent inducement of contract,
a party must argue that its knowing assent to the terms
of the contract followed from a false promise by the
other side. Thus, unless the specific arbitration
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provision itself was obtained via a false promise, the
signatory has fairly agreed to submit disputes to
arbitration. By contrast, where fraud in the factum of
the entire contract is alleged, it makes no sense to apply
Prima Paint's requirement of a specific attack on the
making of the arbitration clause itself. If no agreement
ever arose between the parties, there can be no
severable agreement to arbitrate. Similarly, if a party's
signature w[as] forged on a contract, it would be absurd
to require arbitration if the party attacking the contact
as void failed to allege that the arbitration clause itself
was fraudulently obtained.
[Ibid.]
Other courts have similarly concluded that a bona fide claim of fraud in
the factum as to the entire contract renders the Prima Paint principle
inapplicable. See Cancanon v. Smith Barney, Harris, Upham & Co., 805 F.2d
998, 1000-01 (11th Cir. 1986) (holding that where plaintiffs made out a clear
case of fraud in the factum, the defendant was not entitled to entry of an order
referring the matter to arbitration); Solymar Invs., Ltd. v. Banco Santander,
S.A., 672 F.3d 981, 995-96 (11th Cir. 2012) (distinguishing claims of fraud in
the factum from fraud in the inducement and holding that a claim of fraud in the
inducement should be referred to arbitration); Nuclear Elec. Ins. v. Central
Power & Light Co., 926 F. Supp. 428, 434 (S.D.N.Y. 1996) (finding that where
a party claims it never assented to a contract containing an arbitration clause due
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to fraud, that party.s claim must first be evaluated by a court before the dispute
can referred to arbitration).
IV.
Plaintiffs further argue they presented sufficient facts to support their
claim that they did not execute the operating agreements provided to the trial
court and that the agreements are forged. Plaintiffs contend they presented
sufficient evidence to warrant a plenary hearing on this issue. Again, we agree.
Here, defendants presented the subject operating agreements to the trial
court and claimed plaintiffs were bound by the arbitration clauses in those
agreements. The agreement for Vinayak states that the parties executed the
agreement. Appended to the agreement is a separate page, which includes
signatures of the members, including Trupti and Neha.
The Vinayak Hospitality agreement is signed by Sailesh, as managing
member. It states that the parties, which include Trupti and Neha, have executed
the agreement. Defendants did not provide a copy of the signatures of the parties
who executed the agreement.
Defendants also provided the trial court with the Amended and Restated
Operating Agreement for Emmons Hospitality. That document includes a page
with signatures of the company's members, which include Trupti and Neha.
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However, in their certification, Tansukh, Neha, and Trupti state without
qualification that they did not sign the agreements defendants submitted to the
court. They suggest the signature pages appended to the agreements may have
been "borrowed" from other documents and operating agreements. Tansukh,
Neha, and Trupti also point out that the signature pages for the Emmons
Hospitality and Emmons Hospitality Management operating agreements are the
same, even though these agreements were executed ten years apart.
As stated previously, in his certification, Sailesh asserts the agreements
provided to the court are "true and correct" operating agreements for the
companies. He states that in 2011, the members of "various entities" decided to
amend the operating agreements for companies that he or Tansukh managed.
He states his family members executed the amended operating agreement for
Vinayak and other amended operating agreements.
Sailesh further states the agreements were "dropped off" at the offices of
plaintiffs' attorney and they were to be signed by plaintiffs and other members
of the companies. Sailesh also states that the operating agreement for Emmons
Hospitality was executed by all members, including plaintiffs.
In addition, Sailesh provided the court with a copy of the First Amendment
to [the] Amended and Restated Operating Agreement for Vinayak Hospitality,
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which states that "[i]n all other respects, the [o]perating [a]greement shall
remain in full force and effect without change or modification." Signatures for
Trupti, Tansukh, and Neha appear on this document, as trustees for the Family
Trust.
We are convinced that the documents at issue, and the competing
certifications, raise genuine issues of material fact as to whether plaintiffs
executed the operating agreements with the arbitration clauses that defendants
seek to enforce. Accordingly, we remand the matter to the trial court for a
plenary hearing to determine whether plaintiffs executed and are bound by the
subject agreements. The trial court may, in its discretion, allow the parties the
opportunity for discovery on the issues to be addressed at the hearing.
V.
Plaintiffs contend the trial court erred by finding that the claims they
asserted under NJRICO are subject to arbitration. We are convinced that, in the
event the trial court finds that plaintiffs are bound by the subject agreements and
are required to arbitrate their claims against Sailesh, Vinayak, Vinayak
Hospitality, Emmons Hospitality, and Emmons Hospitality Management, the
court may order plaintiffs to arbitrate their claims under NJRICO.
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In Caruso v. Ravenswood Developers, Inc., 337 N.J. Super. 499, 501
(App. Div. 2001), we held that the trial court correctly found that NJRICO
claims were subject to arbitration. There, the parties entered into an agreement
for the construction of a home. Ibid. The contract provided that "[a]ny dispute
arising in connection" with the agreement, or any amendment to the agreement,
would be "heard and determined by arbitration . . . ." Id. at 502.
We held that the plaintiffs' claims under the Consumer Fraud Act (CFA),
N.J.S.A. 56:8-1 to -210, and NJRICO were arbitrable. Id. at 505. We noted that
the plaintiffs relied upon the same facts in support for their breach of contract,
consumer fraud, and NJRICO claims. Id. at 508. We stated:
Although plaintiffs couch the claims in the relevant
statutory language, it is apparent that the claims are
subsumed in the subject matter of the arbitration
agreement between the parties. Furthermore, plaintiffs
. . . exercise[d] their right to limit the scope of the
arbitration agreement when they insisted upon the
language that the arbitration would not preclude pursuit
of specific performance in [s]uperior [c]ourt. This is
highly suggestive that the parties understood that all
disputes concerning the performance of the contract by
both parties would be resolved through arbitration.
[Ibid.]
Plaintiffs argue, however, that under New York law, a party may not
waive access to the courts for a statutory claim unless the waiver is "clear,
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explicit, and unequivocal . . . ." Crespo v. 160 W. End Ave. Owners Corp., 253
A.D.2d 28, 32-33 (N.Y. App. Div. 1999) (quoting Waldron v. Goddess, 61
N.Y.2d 181, 183 (1984)). Plaintiffs contend a provision requiring arbitration of
claims "arising out of" an agreement is insufficient to encompass statutory
claims. However, Crespo does not support that contention.
In Crespo, the plaintiff asserted a claim under New York law, alleging he
had been unlawfully terminated from his position on the basis of his age. Id. at
29. A collective bargaining agreement required arbitration of "all differences
arising between the parties . . . as to the interpretation, application or
performance of any part of th[e] agreement . . . ." Ibid.
The court held that a statutory claim was not a "difference" between the
parties concerning the interpretation, application or performance of the
agreement. Id. at 32-33. The court found that because the arbitration clause's
application to statutory claims was not sufficiently clear, the plaintiff was not
required to arbitrate his age-discrimination claim. Id. at 33-34.
The arbitration clauses at issue in this case are, however, sufficiently clear
to require arbitration of the NJRICO claims. As noted, the clauses require
arbitration of "[a]ny dispute, claim or controversy arising out of" the respective
agreements. Plaintiffs' NJRICO claims are based upon the same facts as the
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claims for distributions that were wrongfully withheld and conversion. The
arbitration clauses encompass plaintiffs' NJRICO claims.
In support of their argument, plaintiffs also rely upon Conde v. Yeshiva
University, 16 A.D.3d 185 (N.Y. App. Div. 2005). However, in that case, the
relevant arbitration clause provided for arbitration of "[a]ny dispute, difference,
or controversy related to wages, hours and working conditions . . . ." Id. at 186
(emphasis added). The court thereafter held that the plaintiffs were not required
to arbitrate their employment discrimination claims because the arbitration
clause "lacked the necessary explicit incorporation of statutory
antidiscrimination requirements to presume arbitrability . . . ." Ibid.
In this case, however, the subject arbitration clauses are broader than those
at issue in Conde. The clauses each require arbitration of any "[a]ny dispute,
claim or controversy arising out of" the respective agreements. There is no
limitation, as there was in Conde, concerning matters "related to wages, hours
and working conditions . . . ." Ibid.
Plaintiffs further argue that if New Jersey is deemed to have the dominant
interest regarding arbitrability of claims asserted under NJRICO, and New
Jersey law applies to this issue, the arbitration clause in the subject agreements
is insufficient because it does not state that statutory claims shall be arbitrated.
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In support of this contention, plaintiffs cite Garfinkel v. Morristown Obstetrics
& Gynecology Associates, P.A., 168 N.J. 124 (2001), and Atalese v. United
States Legal Services Group, L.P., 219 N.J. 430, 445 (2014). We disagree.
In Garfinkel, the plaintiff physician alleged he was unlawfully discharged
in violation of the New Jersey Law Against Discrimination (LAD), N.J.S.A.
10:5-1 to -42. Garfinkel, 168 N.J. at 127. The plaintiff's employment agreement
required that, with the exception of post-employment restrictions and pension
benefits, arbitration of "any controversy or claim, arising out of, or relating to"
the agreement was required. Id. at 128.
The Court held that parties to an agreement may waive statutory remedies
in favor of arbitration. Id. at 131 (citing Red Bank Reg'l Educ. Ass'n v. Red
Bank Reg'l High Sch. Bd. of Educ., 78 N.J. 122, 140 (1978)). However, the
waiver of statutory rights "must be clearly and unmistakably established, and
contractual language alleged to constitute a waiver will not be read
expansively." Id. at 132 (quoting Red Bank Reg'l Educ. Ass'n, 78 N.J. at 140).
The Court found the arbitration clause at issue was insufficient to
constitute waiver of the plaintiff's remedies under the LAD. Id. at 134. The
Court stated that the clause "suggests that the parties intended to arbitrate only
those disputes involving a contract term, a condition of employment, or some
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other element of the contract itself." Ibid. In addition, the contract did not
mention "statutory claims redressable by the LAD." Ibid.
Plaintiffs' reliance upon Garfinkel is misplaced. That case dealt with
statutory remedies under the LAD. The Court pointed out that "the rights [the
LAD] confers on aggrieved employees are essential to eradicating
discrimination in the workplace." Id. at 135.
Thus, the Court refused "to assume that employees intended to waive
those rights unless their agreements so provide in unambiguous terms." Ibid.
Therefore, the agreement "should at least provide that the employee agrees to
arbitrate all statutory claims arising out of the employment relations hip or its
termination." Ibid. This case does not involve claims under the LAD or a
heightened concern regarding remedies designed to address and eradicate
unlawful discrimination.
Plaintiffs' reliance upon Atalese also is misplaced. In that case, the
plaintiff asserted claims under the CFA and the Truth-in-Consumer Contract,
Warranty and Notice Act (TCCWNA), N.J.S.A. 56:12-14 to -18. Atalese, 219
N.J. at 436. The plaintiff entered into a contract for debt-adjustment services,
which stated that "any claim or dispute . . . related to th[e a]greement or related
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to any performance of any services" shall be submitted to binding arbitration.
Id. at 436-37.
"An effective waiver requires a party to have full knowledge of his legal
rights and intent to surrender those rights." Id. at 442 (quoting Knorr v. Smeal,
178 N.J. 169, 177 (2003)). The Court stated that "under New Jersey law, any
contractual 'waiver-of-rights provision must reflect that [the party] has agreed
clearly and unambiguously' to its terms." Id. at 443 (alteration in original)
(quoting Leodori v. Cigna Corp., 175 N.J. 293, 302 (2003)).
In Atalese, the Court expressed the concern that "an average member of
the public may not know — without some explanatory comment — that
arbitration is a substitute for the right to have one's claim adjudicated in a court
of law." Id. at 442. The Court held that an arbitration clause, "in some general
and sufficiently broad way, must explain that the plaintiff is giving up her right
to bring her claims in court or have a jury resolve the dispute." Id. at 447. The
Court noted, however, that "[n]o particular form of words is necessary to
accomplish a clear and unambiguous waiver of rights." Id. at 444.
The Atalese Court found the arbitration agreement at issue was
unenforceable because there was no "explanation that plaintiff [wa]s waiving
her right to seek relief in court for a breach of her statutory rights." Id. at 446.
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The Court noted that the clause stated the parties would submit their disputes to
arbitration, but "[t]he provision d[id] not explain what arbitration [wa]s, nor
d[id] it indicate how arbitration is different from a proceeding in a court of law."
Ibid. The Court added that the clause was not written in plain language. Ibid.
Thus, under Atalese, there must be mutual assent by the parties to submit
their dispute to arbitration. Id. at 442. Since arbitration involves the waiver of
the right to pursue the claims in court, the arbitration clause must show that t he
party waiving the right did so clearly and unambiguously. Id. at 443.
As previously stated, "[n]o particular form of words is necessary to
accomplish a clear and unambiguous waiver of rights." Id. at 444. However,
"the clause, at least in some general and sufficiently broad way, must explain
that the plaintiff is giving up her right to bring her claims in court or have a jury
resolve the dispute." Id. at 447.
Unlike Atalese, this case does not involve claims by the average member
of the public, who may not understand that arbitration is a substitute for
proceedings in court. Rather, this case involves claims by persons who
apparently have considerable involvement in business and would understand the
concept of arbitration and the waiver of the right to pursue statutory claims in
court.
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As the record shows, the parties are engaged in the ownership and
operation of motels, hotels and other properties. In his certification, Sailesh
states the parties have engaged in business for over forty years and have
established no less than twenty companies to own and operate their properties.
Moreover, the meaning of the subject arbitration clauses is readily
apparent from the plain language of the clauses, which encompasses all claims
that arise from or relate to the subject operating agreements. Here, as in Caruso,
the claims under NJRICO are based upon the same facts and arise from the
operating agreements. The clauses clearly and unambiguously require
arbitration of all claims arising from and related to the subject agreements.
We therefore conclude that if the trial court finds that plaintiffs executed
the operating agreements for Vinayak, Vinayak Hospitality, Emmons
Hospitality, and Emmons Hospitality Management and finds that the arbitration
clauses in these agreements are enforceable, the court should order plaintiffs to
arbitrate the claims in the complaint regarding these companies, including the
claims asserted under NJRICO. The language of the subject arbitration
agreements is sufficiently clear to include all claims arising under the
agreements, including statutory claims like those under NJRICO.
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Reversed and remanded to the trial court for further proceedings in
conformity with this opinion. We do not retain jurisdiction.
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