Court Opinion

ID: 1037071
Source: CourtListenerOpinion
Date Created: 2013-08-12 14:57:10.048126+00
Date Added: 2024-06-11T12:46:19.353134
License: Public Domain

SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)

                     Michael E. Hirsch v. Amper Financial Services, LLC (A-9-12) (070751)

Argued May 13, 2013 -- Decided August 7, 2013

LaVECCHIA, J., writing for a unanimous Court.

         The issue in this appeal is whether it was proper to compel arbitration between a non-signatory and a
signatory to a contract containing an arbitration clause on the basis that the parties and claims were sufficiently
intertwined to warrant application of equitable estoppel.

          This action involves claims by plaintiffs Michael Hirsch, Robyn Hirsch, and Hirsch, LLP, that they lost
money invested in securities that were part of a “Ponzi” scheme. In 2002, plaintiffs’ accountant, EisnerAmper LLP,
referred them to Marc Scudillo, a financial advisor employed by Amper Financial Services, LLC (AFS), for
investment planning. Scudillo also served as a representative for Securities America, Inc. (SAI), a separate
corporation that served as a broker-dealer handling securities transactions. Plaintiffs hired Scudillo and invested in a
portfolio with a conservative investment strategy. Their relationship was not formalized by a written contract. Later,
on Scudillo’s recommendation, plaintiffs purchase securitized notes from Medical Provider Financial Corporation
(Med Cap) totaling $550,000. Plaintiffs signed two applications with SAI for the purchase of the Med Cap notes.
Scudillo signed each of these agreements as the “registered representative” of SAI. Each SAI application contained
an arbitration clause requiring disputes to be arbitrated by the Financial Industry Regulatory Authority (FINRA).

          In 2008, one of the notes defaulted. Scudillo assured plaintiffs that the Med Cap investments were still safe.
In 2009, the United States Securities and Exchange Commission launched an investigation and charged Med Cap
senior officers with securities fraud. Plaintiffs eventually lost their investment in the Med Cap notes and filed two
separate actions. First, they instituted FINRA arbitration proceedings against SAI and Scudillo, alleging breach of
contract, fraud, breach of fiduciary duties, negligence, violations of federal and state securities laws, and conspiracy.
Second, plaintiffs filed a complaint in the Law Division against EisnerAmper and AFS, alleging breach of contract,
violations of the New Jersey Consumer Fraud Act, breach of fiduciary duties, negligent supervision,
misrepresentation, violations of the New Jersey Uniform Securities Law, and malpractice.

          In the Law Division action, AFS and EisnerAmper denied plaintiffs’ allegations and filed a third-party
complaint against SAI for indemnification and contribution. SAI moved to compel arbitration, arguing that (1) the
language of the arbitration clause is sufficiently broad to cover the disputes with AFS and EisnerAmper; (2) AFS is
a party to the arbitration clause because Scudillo, who served as a representative for both SAI and AFS, signed the
arbitration agreement; (3) AFS and EisnerAmper are subject to the arbitration agreement under agency principles;
and (4) AFS and EisnerAmper are subject to the arbitration agreement under the doctrine of equitable estoppel. AFS
and EisnerAmper joined in SAI’s motion. The trial court granted the motion, finding that plaintiffs were attempting
to circumvent the policy favoring arbitration by not naming SAI as a defendant in the Law Division action.

         The Appellate Division affirmed for different reasons. Relying on EPIX Holdings Corp. v. Marsh &
McLennan Cos., Inc., 410 N.J. Super. 453 (App. Div. 2009), the panel concluded that the “complex and intertwined
relationship” between the parties provides “sufficient basis to invoke estoppel” to compel arbitration. The Court
granted plaintiffs’ petition for certification. 212 N.J. 288 (2012).

HELD: Although traditional contract principles may in certain cases warrant compelling arbitration absent an
arbitration clause, the intertwinement of the parties and claims in a dispute, viewed in isolation, is insufficient to
warrant application of equitable estoppel to compel arbitration.

1. The strong preference to enforce arbitration agreements is not without limits. The preliminary question is whether,
under state contract-law principles, there is a valid agreement to arbitrate. This arbitrability analysis underscores the
fundamental principle that a party must agree to submit to arbitration. In the absence of an express arbitration clause,
courts can compel parties to arbitrate by applying principles of contract law, such as equitable estoppel. (pp. 13-16)
2. In EPIX Holdings, the appellate panel held that a non-signatory to an arbitration agreement, which was the parent
company of a signatory, may compel the other signatory to arbitrate because the claims and parties were
“substantially connected” and the claims fell within the scope of the arbitration clause. Another case, Angrisani v.
Financial Technology Ventures, L.P., 402 N.J. Super. 138 (App. Div. 2008), involved claims against Nexxar Group,
Inc., with whom the plaintiff had an employment contract containing an arbitration clause, and claims against
Financial Technology Ventures, L.P. (FTV), from whom the plaintiff had purchased Nexxar stock pursuant to an
agreement that did not include an arbitration clause. The panel concluded that the plaintiff could not be compelled to
arbitrate his claims against FTV because he did not engage in any conduct that could support a finding of equitable
estoppel. The panel noted that other cases applying equitable estoppel to compel arbitration generally involved
claims against a non-signatory to the contract that was closely aligned to a contracting party, such as a parent or
successor corporation. In this appeal, the panel’s decision further reflects an emerging “intertwinement” theory--
described as an extension of equitable estoppel--that the Court now addresses and limits. (pp. 17-21)

3. Courts properly have recognized that arbitration may be compelled by a non-signatory on the basis of agency
principles. That said, use of equitable estoppel as a basis to compel arbitration has limited applicability. Application
of estoppel to compel arbitration based solely on the connection between the parties and claims overlooks that the
parties are giving up their right to sue in court when they agree to use arbitration to resolve their disputes. The
decision to compel arbitration in EPIX Holdings was appropriate given the agency relationship between the parent
and subsidiary corporations in the litigation, not because of a theory of intertwinement. Equitable estoppel is
invoked in the interests of justice and fairness. It does not apply absent proof that a party detrimentally relied on
another party’s conduct. (pp. 21-24)

4. In this case, the only arbitration clause is in the contract between plaintiffs and SAI. The clause mentions no other
parties aside from Scudillo, who served as SAI’s representative when executing the agreement. There is no express
arbitration obligation with respect to AFS or EisnerAmper. Also, AFS and EisnerAmper did not have standing to
compel arbitration under an agency relationship. Scudillo signed the contract as an agent of SAI, not as an agent of
AFS or EisnerAmper. SAI shares no corporate ownership with AFS or EisnerAmper. Though plaintiffs’ claims
against defendants all arose out of the same alleged Ponzi scheme and the parties had some form of relationship with
each other, that intertwinement of claims and parties alone is insufficient to warrant application of equitable
estoppel. There is no evidence in the record that AFS or EisnerAmper expected to arbitrate their disputes in
detrimental reliance on plaintiffs’ conduct. The motion to compel arbitration should have been denied. (pp. 24-28)

         The judgment of the Appellate Division is REVERSED, and the matter is REMANDED to the Law
Division for further proceedings.

     CHIEF JUSTICE RABNER; JUSTICES ALBIN, HOENS, and PATTERSON; and JUDGES
RODRÍGUEZ and CUFF (both temporarily assigned) join in JUSTICE LaVECCHIA’s opinion.

                                                           2
                                     SUPREME COURT OF NEW JERSEY
                                        A-9 September Term 2012
                                                070751

MICHAEL E. HIRSCH, ROBYN J.
HIRSCH, and HIRSCH, LLP,

    Plaintiffs-Appellants,

         v.

AMPER FINANCIAL SERVICES,
LLC, and EISNERAMPER, LLP
(f/k/a AMPER, POLITIZNER &
MATTIA, LLP),

    Defendants/Third-Party
    Plaintiffs-Respondents,

         v.

SECURITIES AMERICA, INC.,

    Third-Party Defendant-
    Respondent.

         Argued May 13, 2013 – Decided August 7, 2013

         On certification to the Superior Court,
         Appellate Division.

         Joel N. Kreizman argued the cause for
         appellants (Scarinci & Hollenbeck,
         attorneys).

         Denis C. Dice, a member of the Pennsylvania
         bar, argued the cause for respondent
         (Marshall, Dennehey, Warner, Coleman &
         Goggin, attorneys; Joel M. Wertman, on the
         brief).

         Craig S. Hilliard on behalf of respondents
         Amper Financial Services, LLC and
         EisnerAmper, LLP join in the brief by
            respondent Securities America, Inc. (Stark &
            Stark, attorneys).

    JUSTICE LaVECCHIA delivered the opinion of the Court.

    Commercial arbitration has developed as a popular method of

dispute resolution for complex business relationships.     Parties

to a contract can customize an arbitration to handle particular

types of business transactions, including adopting their own

procedural rules, selecting the substantive law applicable to

the dispute, and appointing arbitrators with specialized

expertise.   Additionally, parties can take solace in knowing

that the arbitral award likely will be confirmed and enforced in

light of the deference for arbitration’s finality.    For those

reasons, arbitration can be a cost-effective and speedy method

of resolving litigation.

    However, because parties must waive their right to pursue

claims in state or federal court, there ordinarily must be an

agreement to arbitrate.    Typically, parties reach an agreement

by including an arbitration clause in a contract, which provides

evidence to a court that the parties agreed to arbitrate

disputes.    A court then can determine whether a particular claim

falls within the scope of the arbitration clause.

    In this case, the trial court granted a motion to compel

arbitration between a non-signatory and a signatory to a

contract containing an arbitration clause.   Even though the

                                  2
signatory had not expressly agreed to arbitrate any disputes

with the non-signatory, the court found that the parties and

claims were sufficiently intertwined to warrant application of

equitable estoppel.     The Appellate Division affirmed.

    We now reverse and hold that the trial court should have

denied the motion to compel arbitration.     Commercial arbitration

is a creature of contract.     Although traditional principles of

contract may in certain cases warrant compelling arbitration

absent an arbitration clause, the intertwinement of the parties

and claims in a dispute, viewed in isolation, is insufficient to

warrant application of equitable estoppel.

    Equitable estoppel should be used sparingly to compel

arbitration.   It is a theory “designed to prevent injustice by

not permitting a party to repudiate a course of action on which

another party has relied to his detriment.”     Knorr v. Smeal, 178

N.J. 169, 178 (2003).     Equitable estoppel is more properly

viewed as a shield to prevent injustice rather than a sword to

compel arbitration.

                                  I.

                                  A.

    Michael Hirsch, Robyn Hirsch, and Hirsch, LLP (collectively

plaintiffs) lost a significant sum of money invested in

                                   3
securities that allegedly were part of a “Ponzi” scheme.1

Plaintiffs filed suit against various parties involved in the

purchase of the securities:     Securities America, Inc. (SAI),

Marc Scudillo, Amper Financial Services, LLC (AFS), and

EisnerAmper, LLP.

     Scudillo was employed as a financial advisor by AFS, a

financial services firm associated with EisnerAmper, an

accounting firm.2   EisnerAmper often referred clients to AFS for

wealth planning services.     Scudillo, who maintained brokerage

licenses, was responsible for advising clients on issues such as

asset allocation, retirement planning, and insurance.

     Meanwhile, Scudillo also served as a representative for

SAI, a separate corporation that served as a broker-dealer

handling securities transactions.      According to plaintiffs,

Scudillo was compensated by SAI as a salesperson for promoting

certain financial products.

     In the middle of 2002, EisnerAmper referred plaintiffs, who

had been using EisnerAmper as their accountant, to Scudillo and

1
  A “Ponzi” scheme is “a classic, pyramid-style investment
fraud,” in which “no investment is ever made.” In re
Application of Matthews, 94 N.J. 59, 64 (1983). Rather, “the
promised returns for the first set of investors are paid from
the proceeds garnered from a second set of investors. The
second set of investors is then paid off with the funds
deposited by a third set of investors, and so on.” Ibid.
2
 Scudillo was the managing partner and fifty percent owner of
AFS. The other fifty percent ownership interest in AFS was held
by EisnerAmper.
                                   4
AFS for investment planning.     Plaintiffs hired Scudillo and

agreed to invest approximately $3.4 million in an initial

portfolio.   Plaintiffs agreed to a conservative investment

strategy, which Scudillo described in several documents dated

November 2002 as “[w]ealth building through a prudent and

conservative allocation of investments” and “[w]illing to

sacrifice a higher return for principal stability.”

    Scudillo’s compensation was calculated as a percentage of

plaintiffs’ total asset value under his management.     As part of

the arrangement, Scudillo met with plaintiffs several times per

year to discuss any changes in investment strategies.     However,

plaintiffs’ relationship with Scudillo was never formalized by a

written contract.

    In 2004, Scudillo recommended that plaintiffs purchase

securitized notes in the amount of $550,000.     On Scudillo’s

recommendation, plaintiffs purchased two notes from Medical

Provider Financial Corporation (Med Cap):     $300,000 in a Class

‘A’ Note on July 13, 2004; and $250,000 in a Class ‘A’ Note on

April 10, 2006.     Plaintiffs reinvested -- again on Scudillo’s

advice -- the principal from these two investments into another

two Med Cap notes: $300,000 in a Class ‘A’ Note on July 11,

2007; and $250,000 in a Class ‘B’ Note on May 6, 2008.

    Notably, plaintiffs signed two applications with SAI for

the purchase of the Med Cap notes:     one on June 29, 2004, in the

                                   5
name of Hirsch, LLP, and the other on June 7, 2006, in the names

of Michael and Robyn Hirsch.   Scudillo signed each of these

agreements as the “registered representative” and the

“principal” of SAI.   Each of the SAI applications incorporated

an arbitration clause:

         This   agreement   contains    a   predispute
         arbitration   clause.       By   signing   an
         arbitration agreement the parties agree as
         follows:

            A) All parties to this agreement are giving
               up the right to sue each other in court,
               including the right to a trial by jury,
               except as provided by the rules of the
               arbitration forum in which a claim is
               filed.

            B) Arbitration awards are generally final
               and binding, a party’s ability to have a
               court reverse or modify an arbitration
               award is very limited.

            C) The ability of the parties to obtain
               documents, witness statements and other
               discovery is generally more limited in
               arbitration than in court proceedings.

            D) The arbitrators do not have to explain
               the reason(s) for their award.

            E) The panel of arbitrators will typically
               include a minority of arbitrators who
               were   or   are   affiliated with   the
               securities industry.

            F) The rules of some arbitration forums may
               impose time limits for bringing a claim
               in arbitration. In some cases, a claim
               that is ineligible for arbitration may
               be brought in court.

                                 6
            G) The rules of the arbitration forum in
               which the claim is filed, and any
               amendments     thereto,     shall  be
               incorporated into this agreement.

          All controversies that may arise between us
          (including, but not limited to controversies
          concerning     any    account,     order    or
          transaction,      or     the     continuation,
          performance, interpretation or breach of
          this or any other agreement between us,
          whether entered into or arising before, on
          or after the date this account is opened)
          shall   be   determined   by  arbitration   in
          accordance with the rules then prevailing of
          the New York Stock Exchange, Inc., or the
          [National Association of Securities Dealers
          (NASD)] as I may designate.      If I do not
          notify you in writing of my designation
          within five (5) days after I receive from
          you a written demand for arbitration, then I
          authorize you to make such designation on my
          behalf. I understand that judgment upon any
          arbitration award may be entered in any
          court of competent jurisdiction.

Based on that contractual language, arbitration was to be

handled by the Financial Industry Regulatory Authority (FINRA),3

3
 In many ways, FINRA arbitration procedures are similar to those
used in other institutional arbitrations, such as the American
Arbitration Association. The claimant initiates the proceedings
by filing a statement of claim, the respondent files an answer,
and the parties together appoint three arbitrators. FINRA Code
of Arbitration Procedure for Customer Disputes §§ 12302-12303,
12400-12403 [hereinafter FINRA Code]. Prehearing conferences
are scheduled to resolve preliminary issues, and discovery
proceeds according to the Codes of Arbitration Procedure. Id.
§§ 12500-12501, 12505-12514. At the conclusion of discovery, a
hearing is held to allow the parties to present evidence and
arguments in support of their claims. Id. § 12600. After the
hearing, the arbitrators consider the issues and render an
award. Id. § 12904.
     An award rendered at the conclusion of FINRA arbitration is
subject to limited review in court. The Federal Arbitration Act
                                7
an organization “created through the consolidation of NASD and

the member regulation, enforcement and arbitration operations of

the New York Stock Exchange” in July 2007.       FINRA, NASD and NYSE

Member Regulation Combine to Form the Financial Industry

Regulatory Authority - FINRA, available at

http://www.finra.org/Newsroom/NewsReleases/2007/p036329 (last

visited July 25, 2013).

                                     B.

    In 2008, the Class ‘A’ Med Cap Note for $300,000 defaulted.

According to plaintiffs, Scudillo reassured them that the

investment was still safe, and, at all relevant times,

maintained that the Med Cap notes were low-risk securities

consistent with plaintiffs’ investment goals.

    The following year, plaintiffs’ investments in the Med Cap

notes suffered additional setbacks.       The United States

Securities and Exchange Commission (SEC) launched an

investigation into Med Cap and placed all interest payments on

hold.   In July 2009, the SEC charged Med Cap senior officers

with securities fraud and placed the corporation in

receivership.   Then, in January 2010, the Commonwealth of

Massachusetts launched its own investigation into Med Cap and

provides that a court only may vacate an award in limited
circumstances. 9 U.S.C.A. § 10. If the award is not ultimately
vacated, the court can confirm or modify the award. 9 U.S.C.A.
§§ 9, 11.
                                 8
reached similar conclusions.    Taken together, these

investigations indicated that the Med Cap notes were being

operated as a Ponzi scheme.

    Plaintiffs eventually lost the entirety of their investment

in the Med Cap notes and filed two separate actions in October

and November 2010.    First, plaintiffs instituted arbitration

proceedings with FINRA against SAI and Scudillo in October 2010.

Plaintiffs alleged breach of contract, fraud, breach of

fiduciary duties, negligence, gross negligence, unjust

enrichment, violations of federal and state securities laws, and

conspiracy.   Second, plaintiffs filed a complaint in the Law

Division, including a demand for trial by jury, against AFS and

EisnerAmper in November 2010.    Plaintiffs alleged breach of

contract, violations of the New Jersey Consumer Fraud Act,

breach of fiduciary duties, negligent supervision, negligent

misrepresentation, violations of the New Jersey Uniform

Securities Law, and professional malpractice.

    In January 2011, AFS and EisnerAmper filed an answer

denying the entirety of the allegations, and they filed a third-

party complaint against SAI.    In their third-party complaint,

AFS and EisnerAmper sought indemnification and contribution,

arguing that should they be found liable to plaintiffs, SAI was

a joint tortfeasor.

                                  9
    Several months later, SAI filed in the Law Division a

Motion to Compel Arbitration and Stay Proceedings Pending

Arbitration.   In its motion, SAI argued that (1) the language of

the arbitration clause is sufficiently broad to cover the

disputes with AFS and EisnerAmper; (2) AFS is a party to the

arbitration clause because Scudillo, who served as a

representative for SAI and AFS, signed the arbitration

agreement; (3) AFS and EisnerAmper are subject to the

arbitration agreement under agency principles; and (4) AFS and

EisnerAmper are subject to the arbitration agreement under the

doctrine of equitable estoppel.    AFS and EisnerAmper joined in

SAI’s Motion to Compel Arbitration, and plaintiffs opposed the

motion.

    After hearing oral argument on the motion, the trial court

granted SAI’s motion.   The court relied on Alfano v. BDO

Seidman, LLP, 393 N.J. Super. 560 (App. Div. 2007), in

concluding that plaintiffs were “attempting to circumvent the

policy favoring arbitration” by failing to name SAI as a

defendant in the civil action filed in the Law Division.

    The Appellate Division affirmed the trial court’s judgment

but relied on a different rationale.    First, the panel

acknowledged this state’s “long-standing policy favoring

arbitration as a speedy and efficient approach to dispute

resolution,” as well as the Federal Arbitration Act’s preference

                                  10
to resolve contractual ambiguities in favor of arbitration.

Second, the panel broadly interpreted the arbitration clause in

light of the preference for arbitration.   Third, the panel

applied equitable estoppel -- predominantly using the analysis

from EPIX Holdings Corp. v. Marsh & McLennan Cos., Inc., 410

N.J. Super. 453, 463-68 (App. Div. 2009) -- to conclude that

compelling arbitration was the appropriate course of action.    In

its view, “[t]he complex and intertwined relationship between

and among plaintiffs, Scudillo, EisnerAmper and AFS is an

‘integral’ one which provides ‘sufficient basis to invoke

estoppel,’” (quoting id. at 466).

    We granted plaintiffs’ petition for certification.      Hirsch

v. Amper Fin. Servs., LLC, 212 N.J. 288 (2012).

                                II.

    Plaintiffs argue that the Appellate Division erred in

affirming the order compelling arbitration.   They maintain that

arbitration can only be compelled when parties agree to

arbitrate their disputes by inserting an arbitration clause into

a contract.   Because the arbitration clause here only applied to

disputes arising between plaintiffs and SAI, the arbitration

should exclude AFS and EisnerAmper.

    Plaintiffs contend that the Appellate Division’s

application of equitable estoppel to compel arbitration should

be rejected because such a decision negates the contractual

                                11
requirement for arbitration.   Alternatively, even should

equitable estoppel be appropriate, plaintiffs argue that its

application here contravenes language found in the arbitration

clause.

    Further, plaintiffs call on this Court to establish the

parameters of the theory of intertwinement applied by the

Appellate Division.   Finally, plaintiffs argue that the

appropriate forum, if all the claims must indeed be resolved

together, is the Law Division rather than FINRA because the bulk

of their claims primarily arise out of interactions and dealings

with AFS and EisnerAmper, not with SAI.

    In response, SAI argues that the Appellate Division

properly applied the well-recognized doctrine of equitable

estoppel to compel arbitration.    SAI contends that the plain

language of the arbitration clause is sufficiently broad to

encompass the claims against AFS and EisnerAmper.    In its view,

all of the claims arose out of the transactions contemplated by

the contract between plaintiffs and SAI.    Specifically, the

claims focus on the purchase of the Med Cap notes, which were

the focus of the contract.

    Moreover, SAI cites the strong presumption in favor of

arbitration in both state and federal courts.    For that reason,

SAI contends that the Superior Court is not the appropriate

                                  12
forum for resolving the claims; instead, the claims should be

resolved through the FINRA arbitration.

    AFS and EisnerAmper adopted SAI’s arguments without

submitting additional briefs.

                                III.

                                  A.

    Orders compelling arbitration are deemed final for purposes

of appeal.   R. 2:2-3(a); GMAC v. Pittella, 205 N.J. 572, 587

(2011).   We review those legal determinations de novo.    See

Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366,

378 (1995) (“A trial court’s interpretation of the law and the

legal consequences that flow from established facts are not

entitled to any special deference.”).     In reviewing such orders,

we are mindful of the strong preference to enforce arbitration

agreements, both at the state and federal level.    See Hojnowski

v. Vans Skate Park, 187 N.J. 323, 341-42 (2006) (noting federal

and state preference for enforcing arbitration agreements);

Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A.,

168 N.J. 124, 131 (2001) (recognizing “arbitration as a favored

method of resolving disputes”).

    The Federal Arbitration Act (FAA), 9 U.S.C.A. §§ 1 to 16,

was enacted “to abrogate the then-existing common law rule

disfavoring arbitration agreements ‘and to place arbitration

agreements upon the same footing as other contracts.’”

                                  13
Martindale v. Sandvick, Inc., 173 N.J. 76, 84 (2002) (quoting

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.

Ct. 1647, 1651, 114 L. Ed. 2d 26, 36 (1991)).     Section 2 of the

FAA provides:

           A written provision in any . . . contract
           evidencing a transaction involving commerce
           to settle by arbitration a controversy
           thereafter arising out of such contract or
           transaction, or the refusal to perform the
           whole or any part thereof, or an agreement
           in writing to submit to arbitration an
           existing controversy arising out of such a
           contract, transaction, or refusal, shall be
           valid, irrevocable, and enforceable, save
           upon such grounds as exist at law or in
           equity for the revocation of any contract.

           [9 U.S.C.A. § 2.]

    The New Jersey Arbitration Act (Arbitration Act), N.J.S.A.

2A:23B-1 to -32, is similar in nature to the FAA.     The

Arbitration Act, in part, provides “[a]n agreement contained in

a record to submit to arbitration any existing or subsequent

controversy arising between the parties to the agreement is

valid, enforceable, and irrevocable except upon a ground that

exists at law or in equity for the revocation of a contract.”

N.J.S.A. 2A:23B-6(a).

    However, the preference for arbitration “is not without

limits.”   Garfinkel, supra, 168 N.J. at 132.   A court must first

apply “state contract-law principles . . . [to determine]

whether a valid agreement to arbitrate exists.”     Hojnowski,

                                14
supra, 187 N.J. at 342.     This preliminary question, commonly

referred to as arbitrability, underscores the fundamental

principle that a party must agree to submit to arbitration.

Garfinkel, supra, 168 N.J. at 132 (“The point is to assure that

the parties know that in electing arbitration as the exclusive

remedy, they are waiving their time-honored right to sue.”

(internal quotation marks omitted)); Guidotti v. Legal Helpers

Debt Resolution, L.L.C., 716 F.3d 764, ___ (3d Cir. 2013) (slip

op. at 13) (explaining that “a judicial mandate to arbitrate

must be predicated upon the parties’ consent” (citation

omitted)).     Notably, the arbitrability analysis is expressly

included in the Arbitration Act.       See N.J.S.A. 2A:23B-6(b) (“The

court shall decide whether an agreement to arbitrate exists . .

. .”).

    We have explained that “‘a state cannot subject an

arbitration agreement to more burdensome requirements than those

governing the formation of other contracts.’”      Hojnowski, supra,

187 N.J. at 342 (quoting Leodori v. CIGNA Corp., 175 N.J. 293,

302, cert. denied, 540 U.S. 938, 124 S. Ct. 74, 157 L. Ed. 2d

250 (2003)).    In evaluating the existence of an agreement to

arbitrate, a court “consider[s] the contractual terms, the

surrounding circumstances, and the purpose of the contract.”

Marchak v. Claridge Commons, Inc., 134 N.J. 275, 282 (1993)

(citation omitted).

                                  15
    After finding the existence of an arbitration clause, a

court then must evaluate whether the particular claims at issue

fall within the clause’s scope.    A court must look to the

language of the arbitration clause to establish its boundaries.

See Garfinkel, supra, 168 N.J. at 132.    Importantly, “a court

may not rewrite a contract to broaden the scope of arbitration.”

Ibid. (internal quotation marks omitted).

                                  B.

    At issue in this appeal is the application of equitable

estoppel to compel arbitration.    The United States Supreme Court

has recognized that, in the context of arbitration,

“‘traditional principles’ of state law allow a contract to be

enforced by or against nonparties to the contract through

‘assumption, piercing the corporate veil, alter ego,

incorporation by reference, third party beneficiary theories,

waiver and estoppel.’”   Arthur Andersen LLP v. Carlisle, 556

U.S. 624, 631, 129 S. Ct. 1896, 1902, 173 L. Ed. 2d 832, 840

(2009) (emphasis added) (quoting 21 Williston on Contracts §

57:19, at 183 (4th ed. 2001)).    In other words, in assessing

whether parties can be compelled to arbitrate, courts can use

principles of contract law even in the absence of an express

arbitration clause.   See ibid.

    As previously explained by this Court,

         [e]quitable estoppel has been defined as

                                  16
              the   effect   of   the   voluntary
              conduct of a party whereby he is
              absolutely precluded, both at law
              and in equity,      from asserting
              rights which might perhaps have
              otherwise existed . . . as against
              another person, who has in good
              faith relied upon such conduct,
              and has been led thereby to change
              his position for the worse . . . .

         The doctrine is designed to prevent a
         party’s disavowal of previous conduct if
         such repudiation would not be responsive to
         the demands of justice and good conscience.

         [Heuer v. Heuer, 152 N.J. 226, 237 (1998)
         (internal quotation marks and citations
         omitted).]

Equitable estoppel “is invoked in the interests of justice,

morality and common fairness.”   Knorr, supra, 178 N.J. at 178

(internal quotation marks omitted); see also Summer Cottagers’

Assoc. of Cape May v. City of Cape May, 19 N.J. 493, 503-04

(1955) (noting that doctrine prevents party “from taking a

course of action that would work injustice and wrong to one who

with good reason and in good faith has relied upon such conduct”

(citations omitted)).

    To establish equitable estoppel, parties must prove that an

opposing party “engaged in conduct, either intentionally or

under circumstances that induced reliance, and that [they] acted

or changed their position to their detriment.”   Knorr, supra,

178 N.J. at 178 (citation omitted).   In other words, equitable

                                 17
estoppel, unlike waiver, requires detrimental reliance.          Ibid.

With that in mind, two Appellate Division decisions warrant our

review.

      In EPIX Holdings, supra, the Appellate Division recognized

that “a non-signatory to an arbitration agreement may compel a

signatory to arbitrate.”     410 N.J. Super. at 463.    EPIX Holdings

Corp., a professional employer organization, entered into a

workers’ compensation insurance agreement with National Union

Fire Insurance Company (National Union), a subsidiary of

American International Group, Inc. (AIG).       Id. at 459-60.    The

Payment Agreement between EPIX and National Union “expressly set

forth in detail the terms and conditions of EPIX’s payment

obligation.”   Id. at 460.    “The Payment Agreement also contained

an arbitration clause” which provided that disputes other than

payment issues “must be submitted to arbitration.”         Id. at 460-

61.   EPIX ultimately filed suit against National Union, AIG, and

several other related companies.       Id. at 461.   The claims arose

out of “an alleged elaborate conspiracy . . . to manipulate the

market for insurance.”     Ibid. (internal quotation marks

omitted).   AIG, in response, moved to compel arbitration, but

the trial court denied the motion because AIG was not a party to

the Payment Agreement containing the arbitration clause even

though its subsidiary was a signatory.       Id. at 462.

                                  18
     The Appellate Division reversed, reasoning that (1) “AIG

ha[d] standing as a non-signatory to compel arbitration” because

the claims and parties were “substantially interconnected,” id.

at 467-68, and (2) EPIX’s claims fell within the scope of the

arbitration clause, id. at 475.    The panel noted that “the

principle of equitable estoppel has been invoked, under

appropriate circumstances, to force an objecting signatory to

arbitrate the same claims against a non-signatory as alleged

against the other party to the contract.”    Id. at 465-66.

“[E]ven where the inextricable connectivity was not considered

itself dispositive of the issue, the combination of the

requisite nexus of the claim to the contract together with the

integral relationship between the non-signatory and the other

contracting party [has been] recognized as a sufficient basis to

invoke estoppel.”   Id. at 466 (emphasis removed).

     The conclusion in EPIX Holdings stands in contrast to the

result of an earlier decision in Angrisani v. Financial

Technology Ventures, L.P., 402 N.J. Super. 138 (App. Div. 2008).

There, the plaintiff, Frank Angrisani, entered into two

contracts: an employment contract with Nexxar Group, Inc.

(Nexxar)4 and a stock purchase agreement with Financial

Technology Ventures, L.P. (FT Ventures) to purchase shares in

4
  The plaintiff actually entered into a contract with Nexxar’s
predecessor; however, that distinction is not relevant for
purposes of this discussion. See id. at 143-44.
                                  19
Nexxar.   Id. at 143-44.    The employment contract with Nexxar

included an arbitration clause that required the plaintiff and

Nexxar to “arbitrate any and all controversies, claims or

disputes arising out of” the contract or employment relationship

before the American Arbitration Association.        Id. at 149.

However, the stock purchase agreement with FT Ventures did not

contain an agreement to arbitrate disputes.        Id. at 145.

    Angrisani filed claims against Nexxar and FT Ventures after

his agreements with the two companies took a turn for the worse.

Id. at 145-46.   Angrisani asserted multiple claims against FT

Ventures and Nexxar.   Id. at 146.       In response, Nexxar and FT

Ventures jointly filed a motion to compel arbitration.           Ibid.

The trial court granted the motion, ibid., but the Appellate

Division reversed in part, id. at 147.       The panel concluded

that, although Angrisani’s “claims against Nexxar [fell] within

the arbitration provision of his employment agreement,” the

“claims against FT Ventures [were] not covered by the

arbitration provision.”     Ibid.     In other words, Angrisani could

“not be compelled to arbitrate those claims [against FT

Ventures] because the stock purchase agreement . . . [did] not

provide for arbitration.”     Ibid.

    The Appellate Division specifically rejected FT Ventures’s

argument that Angrisani was “equitably estopped from refusing to

arbitrate those claims because they [were] intertwined with and

                                    20
dependent upon the employment agreement.”      Id. at 153 (internal

quotation marks omitted).     The panel reasoned that Angrisani

“did not engage in any course of conduct that could support a

finding of equitable estoppel.”     Ibid.   The panel also

distinguished several federal cases that applied equitable

estoppel to compel arbitration, finding that “those cases

generally involve[d] situations where a party to a contract

containing an arbitration clause [sought] to bring an action . .

. against a non-signatory to the contract that [was] closely

aligned to a contracting party, such as a parent or successor

corporation.”   Id. at 154.

    These two Appellate Division decisions are not in

synchronicity in their rationales concerning the application of

equitable estoppel to compel arbitration.      The panel’s decision

in this appeal further reflects an emerging “intertwinement”

theory -- described as an extension of equitable estoppel --

that has never been addressed by this Court.      We now address

that doctrine and limit its application.

                                  IV.

                                  A.

    At the outset, it must be acknowledged that, as a matter of

New Jersey law, courts properly have recognized that arbitration

may be compelled by a non-signatory against a signatory to a

contract on the basis of agency principles.      See, e.g., Alfano,

                                  21
supra, 393 N.J. Super. at 569-70 (compelling arbitration after

finding agency relationship existed between non-signatory and

signatory to contract).     That said, although equitable estoppel

may be used in certain circumstances as a basis to compel

arbitration, its use has limited applicability.    Application of

estoppel to compel arbitration, when the rationale rests solely

on the connection between the parties and claims, overlooks our

case law emphasizing that parties are giving up their right to

sue in court when they agree to use the alternative dispute

resolution technique of arbitration.     See Garfinkel, supra, 168

N.J. at 132.

    Stated simply, we reject intertwinement as a theory for

compelling arbitration when its application is untethered to any

written arbitration clause between the parties, evidence of

detrimental reliance, or at a minimum an oral agreement to

submit to arbitration.     As explained earlier, equitable estoppel

“is invoked in the interests of justice, morality and common

fairness.”     Knorr, supra, 178 N.J. at 178 (internal quotation

marks omitted).    Estoppel cannot be applied solely because the

parties and claims are intertwined, and, to the extent that EPIX

Holdings suggests otherwise in its rationale, it extends

equitable estoppel beyond its proper scope.

    We have not yet had the occasion to review the underlying

rationale used in EPIX Holdings to compel arbitration.     The

                                  22
decision to compel arbitration in EPIX Holdings was appropriate

given the agency relationship between the parent and subsidiary

insurance corporations in the litigation.    See 410 N.J. Super.

at 458-59.    However, we reject that panel’s reliance on a theory

of intertwinement under the guise of equitable estoppel.       The

Appellate Division was mistaken in concluding that the

intertwinement of claims and parties in the litigation -- in and

of itself -- was sufficient to give a non-signatory corporation

standing to compel arbitration.    See id. at 467-68.   The

appropriate analysis would have focused on the agency

relationship between the parent and subsidiary corporations in

relation to their intertwinement with the plaintiff’s claims and

the relevant contractual language.

    Further, the doctrine of equitable estoppel does not apply

absent proof that a party detrimentally rely on another party’s

conduct.    See Knorr, supra, 178 N.J. at 178.   Reliance is

critical when a party seeks to compel arbitration using that

doctrine.    It underlies the rationale for applying equitable

estoppel in the first place, namely, “[t]he doctrine is designed

to prevent a party’s disavowal of previous conduct if such

repudiation would not be responsive to the demands of justice

and good conscience.”    Heuer, supra, 152 N.J. at 237 (internal

quotation marks omitted); see also Angrisani, supra, 402 N.J.

Super. at 153 (holding that doctrine of equitable estoppel was

                                  23
inapplicable to compel arbitration because doctrine operates to

“prevent injustice by not permitting a party to repudiate a

course of action on which another party has relied to his

detriment” (internal quotation marks omitted)).

                                 B.

    Turning to this appeal, we note initially that many of the

claims in plaintiffs’ complaint -- including those rooted in

negligence and breach of contract -- implicate the right to a

jury trial.    See Jersey Cent. Power & Light Co. v. Melcar Util.

Co., 212 N.J. 576, 593-94 (2013) (reiterating constitutional

right to jury trial for “common-law cause of action in

negligence”); Wood v. N.J. Mfrs. Ins. Co., 206 N.J. 562, 578

(2011) (emphasizing that “breach of contract claim was at common

law and remains today an action triable to a jury”).     That

recognition informs our analysis given the importance of

ensuring that a party has actually waived its right to initiate

a claim in court in favor of submitting to binding arbitration.

See Garfinkel, supra, 168 N.J. at 132 (noting “[i]n the absence

of a consensual understanding, neither party is entitled to

force the other to arbitrate their dispute” (alteration in

original and internal quotation marks omitted)).   Nevertheless,

we must review the relevant contractual relationships to

determine whether plaintiffs agreed to arbitrate with AFS and

EisnerAmper.

                                 24
    No party disputes that the only applicable arbitration

clause is the one contained in the contract between plaintiffs

and SAI, which provides in relevant part:

         All controversies that may arise between us
         (including, but not limited to controversies
         concerning     any    account,     order    or
         transaction,      or     the     continuation,
         performance, interpretation or breach of
         this or any other agreement between us,
         whether entered into or arising before, on
         or after the date this account is opened)
         shall   be   determined   by  arbitration   in
         according with the rules then prevailing of
         the New York Stock Exchange, Inc., or the
         NASD as I may designate.

Importantly, this arbitration clause makes no mention of other

parties aside from Scudillo, who served as SAI’s representative

when executing the agreement containing the arbitration clause.

Though the language in the arbitration clause is sufficiently

broad to cover any and all disputes related to the business

transactions between plaintiffs and SAI, it does not embrace any

express inclusion of claims involving other parties.      See

Garfinkel, supra, 168 N.J. at 132.   Thus, we conclude that there

is no express contractual arbitration obligation with respect to

the other defendants, AFS or EisnerAmper.

    Moreover, we disagree with SAI’s argument that AFS or

EisnerAmper had standing to compel arbitration under an agency

relationship.   Although Scudillo did sign the contract

containing the arbitration clause, he did so as an agent of SAI,

                                25
not as an agent of AFS or EisnerAmper.      SAI shares no corporate

ownership with AFS or EisnerAmper.      And, notably, AFS and

EisnerAmper conceded before the Law Division that they “are

separate and distinct corporate entities.”       As a result, in this

case, an agency relationship cannot serve as the basis for

compelling arbitration.     Contra Alfano, supra, 393 N.J. Super.

at 569-70 (finding agency relationship between signatory and

non-signatory); EPIX Holdings, supra, 410 N.J. Super. at 458-59

(explaining relationship between defendants as parent and

subsidiary corporations).

       Though plaintiffs’ claims against SAI, AFS, and EisnerAmper

all arose out of the same alleged Ponzi scheme involving the Med

Cap notes, and each of the parties had some form of relationship

with each other, that intertwinement of claims and parties, by

itself, is insufficient to warrant application of equitable

estoppel.    We see no evidence in the record that AFS or

EisnerAmper expected to arbitrate their disputes in detrimental

reliance on plaintiffs’ conduct.       See Heuer, supra, 152 N.J. at

237.    We also find nothing in the record to suggest that AFS or

EisnerAmper knew about the arbitration clause in plaintiffs’

agreement with SAI, let alone expected to reap the benefits that

accompany arbitration, prior to SAI raising it as an issue in

the Law Division.    The responsive pleadings filed by AFS and

EisnerAmper made no request for arbitration, nor did they even

                                  26
mention the existence of an arbitration clause.    See Angrisani,

supra, 402 N.J. Super. at 153-54.

       Finally, although we are sensitive to the preference for

resolving ambiguities in arbitration clauses in favor of

compelling arbitration, see Hojnowski, supra, 187 N.J. at 341-

42, that preference only applies when an agreement exists

between the parties to arbitrate their disputes.     In other

words, absent express contractual language signaling an

agreement to arbitrate, a court has little to interpret in favor

of compelling arbitration.    See Garfinkel, supra, 168 N.J. at

132.   Instead, when parties have not expressly agreed to

arbitrate their disputes -- as is the case here between

plaintiffs, AFS, and EisnerAmper -- careful scrutiny is

necessary to determine whether arbitration is nonetheless

appropriate.

       To conclude, because the record here does not support that

AFS or EisnerAmper detrimentally relied on plaintiffs’ conduct,

application of equitable estoppel was unwarranted.    Plaintiffs

never sought to arbitrate their disputes with AFS or

EisnerAmper, and compelling them to do so would result in an

injustice contrary to the doctrine’s intent.    SAI’s motion to

compel arbitration should have been denied.5

5
  On remand, the Law Division has a number of procedural tools at
its disposal to manage the proceedings, including staying the
                                 27
                               V.

    For the reasons expressed above, we reverse the Appellate

Division’s judgment affirming the order compelling arbitration,

and we remand for additional proceedings.

     CHIEF JUSTICE RABNER; JUSTICES ALBIN, HOENS, and PATTERSON;
and JUDGES RODRÍGUEZ and CUFF (both temporarily assigned) join
in JUSTICE LaVECCHIA’s opinion.

litigation during the pendency of the FINRA arbitration. See
N.J.S.A. 2A:23B-7(e). Additionally, if any claim is severable
from the claims proceeding to arbitration between plaintiffs and
SAI, the Law Division may limit the stay to certain claims. See
N.J.S.A. 2A:23B-9(f), (g); GMAC, supra, 205 N.J. at 583 n.7
(explaining trial court “may limit the stay to the arbitrable
claim if the claims are severable”).
                               28
                 SUPREME COURT OF NEW JERSEY

NO.       A-9                                  SEPTEMBER TERM 2012

ON CERTIFICATION TO              Appellate Division, Superior Court

MICHAEL E. HIRSCH, ROBYN J.
HIRSCH, and HIRSCH, LLP,

      Plaintiffs-Appellants,

                v.

AMPER FINANCIAL SERVICES,
LLC, and EISNERAMPER, LLP
(f/k/a AMPER, POLITIZNER &
MATTIA, LLP),

      Defendants/Third-Party
      Plaintiffs-Respondents,

                v.

SECURITIES AMERICA, INC.,

      Third-Party Defendant-Respondent.

DECIDED              August 7, 2013
                 Chief Justice Rabner                        PRESIDING
OPINION BY           Justice LaVecchia
CONCURRING/DISSENTING OPINIONS BY
DISSENTING OPINION BY

                                   REVERSE AND
CHECKLIST
                                     REMAND
CHIEF JUSTICE RABNER                    X
JUSTICE LaVECCHIA                       X
JUSTICE ALBIN                           X
JUSTICE HOENS                           X
JUSTICE PATTERSON                       X
JUDGE RODRÍGUEZ (t/a)                   X
JUDGE CUFF (t/a)                        X
TOTALS                                  7