Tort Claims From New Jersey Law Firm Breakup Must Be Arbitrated
Public policy benefit of arbitration trumps any vagueness in clause
New Jersey Law Journal
December 4, 2001
A New Jersey appeals panel Thursday ordered the feuding former partners of defunct Ravin, Sarasohn, Cook, Baumgarten, Fisch to arbitrate their battle over the breakup, reversing a trial judge who said the multimillion-dollar fight belonged in court.
Essex County Superior Court Judge F. Michael Caruso had ruled last year that the arbitration clause in the Roseland, N.J., firm's 1998 partnership agreement was inconclusive and didn't cover allegations in a suit sparked by the firm's 2000 collapse. The allegations included tort claims against lawyers outside the firm.
Judges Stephen Skillman, Barbara Wecker and Erminie Conley said that the arbitration agreement was clear enough to take precedence over the litigation because of the public-policy benefits of arbitration.
The chief beneficiary of the per curiam ruling in Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen v. Rosen, A-2106-00T2, is Roseland's Lowenstein Sandler, to which a large group of Ravin, Sarasohn partners defected in February 2000. Along with the defectors, Lowenstein Sandler is a defendant accused of committing fraud and tortious interference with Ravin Sarasohn when it wooed the new partners.
Lowenstein Sandler denied the charges, and last week's ruling means that all proceedings against that firm will be stayed while the former Ravin Sarasohn partners duel it out before an arbitrator.
At its height in the early 1990s, Ravin Sarasohn was a thriving, 45-lawyer operation led by a bankruptcy group whose best-known partner was Peter Sarasohn.
Disputes over payments to former members buffeted the firm in the mid-1990s, and after Sarasohn's death in October 1999, partners were ripe for cherry-picking by headhunters.
The firm finally broke up when bankruptcy partner Kenneth Rosen led a 14-lawyer exodus to Lowenstein Sandler.
The equity partners left behind in the soon-to-be-disbanded firm brought suit, alleging that defection violated the notice provisions of the partnership agreement and was abetted by Lowenstein Sandler's interference.
By winning a stay, Lowenstein Sandler avoids the public airing that would have accompanied a court proceeding. The firm already had taken steps to limit publicity by seeking a protective order over documents it produced in discovery.
The stay ends a row over that request, which Caruso was to hear this week.
Lowenstein Sandler partner John Schupper said Friday, "The case was appropriately decided. This is really a dispute among ex-partners, and the matter should be arbitrated."
Under the 1998 agreement, the arbitrator will be a former judge to be agreed upon by the former Ravin Sarasohn litigants. A skillful arbitrator, presumably, would try to fashion an agreement that would include a settlement of all issues, including the tort claims against Lowenstein Sandler.
Dennis Drasco of Roseland's Lum, Danzis, Drasco, Positan & Kleinberg argued against arbitration at the appellate hearing in April. But the plaintiffs' new lawyer, David Mazie of Livingston's Nagel Rice Dreifuss & Mazie, says he has no plans to appeal.
Mazie says arbitration may have some benefits, including expedited discovery, access to the wisdom of the former judge or justice the parties select and a possible quick decision. He also says there are strategic benefits to his side, but he won't say what they are.
Under the opinion, Lowenstein Sandler's role can be explored in the discovery.
Joseph LaSala, defense lawyer for the individual former Ravin Sarasohn partners now at Lowenstein Sandler, is greeting the pro-arbitration ruling warmly.
"I think it's good. It's what the partners wanted when they drew up the agreement," says LaSala, a partner with Morristown, N.J.'s McElroy, Deutsch & Mulvaney.
The decision issued Thursday is in line with two New Jersey Supreme Court decisions that called for liberal interpretation of arbitration clauses in law firm agreements.
In Weiss v. Carpenter, Bennett & Morrissey, 143 N.J. 420 (1996), quoted in Thursday's decision, the state's high court said, "Such conflicts are best resolved quickly and efficiently, and the parties' best interests are likely to be served by a dispute-resolution process that limits notoriety about the underlying issues."
The judges also cited Heher v. Smith, Stratton, Wise, Heher & Brennan, 143 N.J. 448 (1996), for the proposition that ambiguity in the scope of the arbitration agreement must be resolved in favor of arbitration. A reincarnation of that case was argued to the high court last Oct. 23, testing whether a firm's requirement of arbitration of a defecting partner's payout violates RPC 5.6's prohibition on restricting a lawyer's right to practice.
Drasco had argued before the appeals panel that the clause, which called for arbitration of disputes "arising out of the negotiation, making or implementation" of the partnership pact, didn't cover the wide-ranging litigation that ensued.
Indeed, Skillman commented during the hearing, "I could sit down and write a broader arbitration agreement in three minutes." In the end, though, it didn't matter.