Arbitrator Can't Wear Two Hats Says NJ Courts

In a recent decision, the Appellate Division of the New Jersey Superior Court ruled that an arbitrator, having first mediated a dispute, could not subsequently resume the role of arbitrator.

Assuming such a dual role would require the written consent of all parties involved.

The Facts of the Case

The case, Minkowitz v. Israeli, involved the arbitration of financial and child custody issues as part of a New Jersey couple’s divorce proceedings. Barbara Minkowitz and Ron Israeli agreed to forgo judicial determination of all financial issues in favor of binding arbitration and agreed all custody and parenting time issues would be reviewed in non-binding arbitration. However, prior to the commencement of arbitration proceedings, the parties decided to engage in settlement discussions and mediation to narrow the issues for final determination. The parties ultimately executed four settlement agreements on a range of issues, including alimony, tax issues, and child support.

After a majority of the issues were resolved, Minkowitz retained new counsel who sought the release of the forensic accountant’s reports, which served as the basis for many of the agreements. When the accountant refused, Minkowitz moved for the release of the documents before the arbitrator. The Family Part judge denied the motions and ultimately confirmed the “arbitration awards” as final judgments. Among several arguments raised in appeal, Minkowitz maintained that the arbitrator’s orders must be set aside because the arbitrator exceeded his powers.

The Court’s Decision

The Appellate Division ultimately concluded that the settlement agreements were valid. However, all decisions entered by the arbitrator after he served as a mediator were not enforceable. As explained by the panel:

Mediation, although a form of Alternative Dispute Resolution, differs from binding arbitration…We conclude the differences in the roles of these two types of dispute resolution professionals necessitate that a mediator, who may become privy to party confidence in guiding disputants to a mediated resolution, cannot thereafter retain the appearance of a neutral fact finder necessary to conduct a binding arbitration proceeding.  Consequently, absent the parties’ agreement, an arbitrator appointed under the [Uniform Arbitration Act] may not assume the role of mediator and, thereafter, resume the role of arbitrator.

The court also highlighted that once litigants elect to resolve their dispute through binding arbitration, they are locked into their decision. “If binding arbitration is selected as the forum for resolution disputes, a litigant cannot jump back and forth between the court and the arbitral forum. By its very nature, arbitration does not permit such a hybrid system….”

As this case highlights, the decision to engage in arbitration or mediation should not be taken lightly. The parties must fully understand how their decision may impact their legal rights and remedies going forward.