New Jersey Supreme Court Limits Emerging “Intertwinement” Theory of Compelling Arbitration

The New Jersey Supreme Court, in Hirsch v. Amper Financial Services, LLC ruled that “intertwined” parties and claims alone are insufficient to compel arbitration on grounds of equitable estoppel. The plaintiffs in Hirsch purchased two securitized Med Cap notes worth $550,000 through a financial advisor representing broker-dealer Securities America, Inc. (“SAI”). They ultimately lost their investment after an SEC investigation indicated that Med Cap was a Ponzi scheme. Pursuant to an arbitration clause in their purchase applications, plaintiffs initiated FINRA arbitration proceedings against SAI and the financial advisor. In tandem with their arbitration claims, plaintiffs filed a civil action against their accountant EisnerAmper, LLP—who had recommended the financial advisor—and Amper Financial Services, LLC (“AFS”) of which the financial advisor was managing partner and 50% shareholder. EisnerAmper and AFS impleaded SAI for indemnification and contribution. In response, SAI moved to compel arbitration, despite the fact that plaintiffs had not agreed to arbitrate claims with either EisnerAmper or AFS. EisnerAmper and AFS joined in SAI’s motion to compel arbitration, which the trial court granted.