Family Law Arbitration Statute – Its Time Has Come

By: Charles F. Vuotto, Jr., Esq.

Chair, NJSBA Family Law Section              

            It is axiomatic that alternative dispute resolution in divorce is encouraged by the courts of New Jersey.  Such judicial encouragement is highlighted by the Rule Amendments that became effective September 1, 2006, wherein the Supreme Court adopted a new paragraph in Rule 5:4-2 (“Complaint”).  The new paragraph  requires the first pleading of each party in a divorce action to include an Affidavit of Certification “that the litigant has been informed of the availability of Complementary Dispute Resolution (“CDR”) alternatives to conventional litigation, including but not limited to mediation or arbitration, and that the litigant has received descriptive literature regarding such CDR alternatives”.[i]  Although mediation is prohibited in any matter in which a temporary or final restraining order has been entered pursuant to the Prevention of Domestic Violence Act, there is no question that there is strong public policy supporting CDR in divorce litigation, including, but not limited to, the use of  arbitration.[ii] 

As early as 1984, in what has become a landmark decision throughout the country, the New Jersey Supreme Court recognized the enforceability of arbitration agreements in matrimonial litigation in the case of Faherty v. Faherty.[iii] Recently, in the long awaited Supreme Court decision of Fawzy v. Fawzy[iv], the Court answered the critical question of whether custody matters could be submitted to binding arbitration with a resounding ‘yes’.  Clearly, the green light has been given for litigants and advocates to take advantage of arbitration as to all aspects of divorce.  The problem, however, is that there has been little guidance as to the rules to be followed when engaging in arbitration of matrimonial disputes, leading many lawyers and litigants to reject arbitration as a viable option. 

            Despite the strong judicial approval of arbitration and mediation in divorce, the procedures for implementing these alternative dispute resolution approaches are not clear and do not address the unique nature of matrimonial disputes.  This is especially true with regard to arbitration.  Interestingly, there are actually three arbitration statues, although the third is actually an alternative dispute resolution statute rather than a pure arbitration statute.  The fact that there are at least three statutes, as well as special considerations concerning divorce in general (specifically with regard to children) when attempting to arbitrate divorce matters, highlights the need for a specific family law arbitration statute to eliminate confusion and provide a mechanism conducive to the special circumstances involved in family law.   

            The three arbitration statutes that exist in New Jersey are as follows:

1.      N.J.S.A. 2A:24-1 et seq. (hereinafter the “Collective Bargaining Arbitration Act”);

2.      N.J.S.A. 2A:23A-1 et seq.  This statute is known as the “New Jersey Alternative Procedure for Dispute Resolution Act” (hereinafter “APDRA”); and

3.      N.J.S.A. 2A:23B-1 et seq. (hereinafter referred to the as the “Arbitration Act”).

            As history reveals, arbitration has been used extensively in connection with labor and contract disputes, where litigants are generally disputing limited financial issues and need a relatively quick decision:  How much do I owe?  To how much am I entitled?  What needs to be done to complete this project?  As a result, most of these limited issue arbitrations have historically been subjected to extremely limited rights of review, and have been conducted under the Collective Bargaining Arbitration Act.  The Collective Bargaining Arbitration Act traces its legislative roots to laws of 1923.  However, in 1987, the legislature enacted the APDRA, which has distinctly different provisions and rights of review.  Finally, in June of 2003, Governor McGreevy signed into law the Uniform Arbitration Act (“Arbitration Act”), which took effect immediately and applies to most commercial arbitrations.  After January 1, 2005, all commercial arbitration agreements, regardless of when they were made, would fall under the Arbitration Act.  The only exception to the coverage of the Arbitration Act is arbitration of issues between an employer and a collective bargaining unit, which remain arbitrated under the Collective Bargaining Arbitration Act.

            There is nothing in either the Arbitration Act or the APDRA that precludes their application to matrimonial disputes.  However, this column will suggest that the subjective and sensitive issues associated with arbitrating family law matters are not adequately addressed in either of the aforementioned statutes.  Therefore, a statute is needed to specifically address arbitration of family law disputes. 

            Although Fawzy, detailed below, has fast become the definitive law on arbitration of matrimonial disputes, a brief history of the law leading up to the seminal Supreme Court decision is provided.  Arbitration of matrimonial issues was first discussed in New Jersey in the case ofWertlake v. Wertlake,[v] wherein the trial court held that arbitration agreements concerning alimony and child support were not enforceable due to the state’s exclusive parens patriae obligations.[vi]  The Appellate Division reversed, holding that since the parties had actually submitted their dispute to the court and had not resorted to arbitration, the Chancery Division’s statements regarding the enforceability of arbitration agreements were dicta.[vii]

            The enforceability of arbitrated matrimonial disputes was resolved by our Supreme Court in Faherty v. Faherty.[viii]  There, the Court addressed the enforceability of an arbitration clause in a separation agreement that required the parties to submit any financial disputes arising out of the agreement to arbitration, to be conducted under the rules of the American Arbitration Act.  Supporting the use of arbitration in matrimonial disputes, the Court established:

It is fair and reasonable that parties who have agreed to be bound by arbitration in a formal, written separation agreement should be so bound.  Rather than frowning on arbitration of alimony disputes, public policy supports it.  We recognize that in many cases arbitration of matrimonial disputes may offer an effective alternative method of dispute resolution…We accordingly hold today that under the laws of New Jersey, parties may bind themselves in separation agreements to arbitrate disputes over alimony.  As is the case with other arbitration awards, an award determining spousal support would be subject to the review provided in N.J.S.A. 2A:24-8.[ix]

            Having established support for arbitration in matrimonial disputes, the Faherty Court next addressed the potential conflict between arbitration and the courts’ parens patriae responsibilities unique to matrimonial matters. Surveying out of state decisions and commentators, the Court concluded that     

Detractors notwithstanding, there has been a growing tendency to recognize arbitration in child support clauses.  We do not agree with those who fear that by allowing parents to agree to arbitrate child support, we are interfering with the judicial protection of the best interests of the child.  We see no valid reason why the arbitration process should not be available in the area of child support; the advantages of arbitration and domestic disputes outweigh any disadvantages.[x]   

            Notwithstanding the Court’s willingness to allow arbitration of child support disputes, the Court emphasized the “non-delegable, special supervisory function in the area of child support that may be exercised upon review of an arbitrator’s award.”[xi] Thus, to maintain itsparens patriae responsibility, the Faherty Court held that when the validity of an arbitration award affecting child support is questioned on the grounds that it does not provide adequate protection for the child, the trial court should conduct a heightened review of the award.  This review would consist of a two step analysis.

            Initially, as with all arbitration awards, the courts should review a child support award to determine whether the award should be vacated under N.J.S.A. 2A:24-8.  Assuming the award passed muster on those accounts, the court should then conduct a de novo review of the child support award unless it is clear on the face of the award that the award “could not adversely affect the substantial best interests of the child.”[xii]   (It is suggested that these procedures are now moot in light of Fawzy, as detailed below)  

            Although expressly declining to decide the question of whether arbitration of child custody and visitation issues is permissible, theFaherty Court hinted:

[W]e note that the development of a fair and workable mediation or arbitration process to resolve these issues may be more beneficial to the children of this state than the present system of courtroom confrontation.  (citations omitted)  Accordingly, the policy reasons for our holding today with respect to child support may be equally applicable to child custody and visitation cases.[xiii]

            Pursuant to Faherty, arbitration of child support disputes is permissible, and there is judicial support, although in dicta, for the arbitration of custody disputes. As detailed below, it was not until Fawzy that the Court officially condoned, and even encouraged, arbitration of custody disputes.[xiv]              

            Since Faherty, child support guidelines have been adopted in New Jersey that  presumptively meet the best interest of children whose parents’ incomes fall within the guidelines.  Presumably, then, an arbitrator’s child support award that is within the guidelines will not be subject to review by the court.

            As time passes, our collective experiences with alternative dispute resolution are enhanced.  A flexible approach is needed.  Indeed,Faherty recognized the need for flexibility when it suggested that a de novo review “may” be needed.  What did the court mean by its use of the word “may?  The answer was suggested by the Court:

As we gain experience in the arbitration of child support and custody disputes, it may become evident that a child’s best interests are as well protected by an arbitrator as by a judge.  If so, there will be no necessity for our de novo review.   However, because of the Court’s parens patriae tradition, at this time we prefer to err in favor of the child’s best interest.[xv]

            The ambiguity surrounding review of an arbitrator’s award in matrimonial disputes is reflected in Lopresti v. Lopresti.[xvi]  In that case, defendant filed a cross-motion opposing an arbitration award of alimony  on grounds that the arbitrator failed to supply specific findings of fact. The issue before the court was “…whether or not the arbitrators as a matter of law must set forth findings for their decision to award an amount of alimony.”[xvii]  

            The Lopresti court determined that the law of Faherty did not require written findings of fact. However, since the arbitrator had already made findings of fact with regard to the needs of the plaintiff, the court directed that the arbitrator had a duty to also make findings of fact with regard to the defendant’s ability to pay.[xviii]  As to custody and timesharing at least, this ruling is reversed by Fawzy, which requires written findings of fact , as discussed below.  The Lopresti court further opined that it might also be necessary to “take testimony on the issues of retroactivity and counsel fees at the final hearing date when the divorce is to be entered.”[xix]  The issue of non-reviewability of arbitration decisions appears, once again, clouded.

            On July, 1, 2009, the Supreme Court decided Fawzy v. Fawzy.  Answering the unanswered question raised in Faherty, the Court unequivocally approved of arbitration of custody disputes, holding “that within the constitutionally protected sphere of parental autonomy is the right of parents to choose the form in which their disputes over child custody and rearing will be resolved, including arbitration”. [xx]  The Court explained, “just as parents ‘choose’ to decide issues of custody and parenting time among themselves without court intervention, they may opt to sidestep the judicial process and submit their dispute to an arbitrator whom they have chosen.”[xxi]  The Court provided the following directive as to the procedure that must be followed:

(1)   All agreements to arbitrate must be in writing or recorded in accordance with the requirements of N.J.S.A. 2A:23B-1.[xxii]

(2)   All agreements to arbitrate must state “in clear and unmistakable language: (i) that the parties understand their entitlement to a judicial adjudication of their dispute and are willing to waive that right; (ii) that the parties are aware of the limited circumstances under which a challenge to the arbitration award may be advanced and agree to those limitations; (iii) that the parties have had sufficient time to consider the implications of their decision to arbitrate; and (iv) that the parties have entered into the arbitration agreement freely and voluntarily, after due consideration of the consequences of doing so.”[xxiii]

(3)    “In the absence of a consensual understanding, neither party is entitled to force the other to arbitrate their dispute.  Subsumed in this principal is the proposition that only those issues may be arbitrated which the parties have agreed shall be.”[xxiv]

(4)   “A child custody or parenting time arbitration should be conducted in accordance with the principles established in the Uniform Arbitration Act (“Arbitration Act”), N.J.S.A. 2A:23B-1 to -32.” [xxv]

(5)   The parties may “choose to submit discrete issues to the arbitrator.  However, “[t]he arbitration agreement should reflect, with specificity, which issues are subject to an arbitrator’s decision.”[xxvi]  (Notably, the Court “commend[ed] the Supreme Court Committee on Family Practice [for] the development of form agreements and scripts for use by lawyers and judges in cases in which the parties seek to bind themselves to arbitration in family law matters.”)[xxvii]

(6)   There shall be a departure from the Arbitration Act in so far as the Arbitration Act does not require the recording of testimony or a statement of findings and conclusions by the arbitrator.  It is “mandat[ed] that a record of all documentary evidence adduced during the arbitration proceedings be kept; that testimony be recorded; and that the arbitrator issue findings of fact and conclusions of law in respect of the award of custody and parenting time.”[xxviii]  Such a requirement is necessary since “[w]ithout [such a record], courts will be in no position to evaluate a challenge to the award.”[xxix] 

(7)    “Once arbitrated, the matter is subject to review under the narrow provisions of New Jersey’s version of the Uniform Arbitration Act (“Arbitration Act”), N.J.S.A. 2A:23B-1 to -32.”[xxx]

(8)   The only exception to strict review under the Arbitration Act “is the case in which a party establishes that the arbitrator’s award threatens harm to the child.”[xxxi]  Since the “right of parents to the care and custody of their children is not absolute[.],”[xxxii] the state “has an obligation, under the parens patriae doctrine, to intervene where it is necessary to prevent harm to a child.”[xxxiii]  Therefore, “interference with parental autonomy will be tolerated only to avoid harm to the health or welfare of a child”.[xxxiv]

(9)    “[W]here no harm to the child is threatened, there is no justification for infringement on the parents’ choice to be bound by the arbitrator’s decision.  In the absence of a claim of harm, the parties are limited to the remedies provided in the Arbitration Act.”[xxxv] 

            Explaining the sole exception to strict review under the Arbitration Act, the Fawzy Court directed that the courts must undergo the following two-step process:

(1)   It must first be determined whether there has been a prima facie demonstration of harm.  As explained by the Court, “where harm is claimed and a prima facie case advanced, the court must determine the harm issue.”[xxxvi] 

(2)   If the court finds “no finding of harm”, then “the award will only be subject to review under the Arbitration Act.”[xxxvii]  “The threat of harm is a significantly higher burden than a best-interests analysis.”[xxxviii]  However, “[i]f there is a finding of harm, the presumption in favor of the parents’ choice of arbitration will be overcome and it will fall to the court to decide what is in the child’s best interests.”[xxxix]   

            Although Fawzy has gone a long way towards providing insight regarding arbitration of family law disputes, there can be little doubt that judicial interpretation of arbitration remains murky, as the Arbitration Act adopted as the appropriate method of arbitration of family law disputes by the Fawzy Court is ill prepared to handle the sensitive and subjective disputes raised in the matrimonial context.  Matrimonial arbitration awards cannot be analyzed in the same manner as commercial litigation.  Matrimonial litigation rarely involves the type of limited and objective financial disputes found in the commercial litigation that is historically arbitrated under the Arbitration Act.  Strict adherence to the Arbitration Act in family law disputes may lead to confusion, inequitable outcomes and unhappy litigants.  As a result, arbitration of family disputes will once again fall to the wayside in favor of the court system.  A specific Arbitration Statute tailored to the unique nature of family law is necessary to ensure that both matrimonial litigants and advocates are able to truly reap the awards of effective arbitration. 

            It is suggested that a Family Law Arbitration Statute be enacted that is sensitive to all family matters, including custody and time-sharing disputes.  However, such a statute must provide certain safeguards, as suggested by the court in Faherty, and as required by the Supreme Court in Fawzy.   Parents should have the ability to decide how to address issues concerning their children, subject to the parens patria jurisdiction of the court.  Further, there may be privacy interests that need to be protected.  In addition to the requirements dictated by Fawzy, statutory safeguards can include, but may not be limited to, the following:

1. 1. The arbitrator (or umpire) shall be an experienced matrimonial attorney or retired judge with at least 10-15 years of experience with his/her primary practice in matrimonial law;
   2. The arbitrator (or umpire) shall be required to apply the law;
   3. The Rules of Evidence shall apply; and
   4. Mental Health and other experts shall be employed as they would were the case before the superior court.

Needless to say, all other requirements set forth by the Supreme Court in Fawzy should be followed.

CONCLUSION

            There are a plethora of reasons for family law litigants to select arbitration in place of the standard litigation approach to the resolution of disputes.  These reasons include, but are not limited to, the following:

1.      Arbitration allows the parties to select their decision maker or decision makers;

2.      Arbitration is usually less costly then litigation, even though the parties must pay for their arbitrator/umpire;

3.      Arbitration allows the parties to protect private information;

4.      Arbitration allows the parties to control the impact of the litigation on their children due to various factors, including exposure of private matters in a public forum;

5.      Arbitration allows the litigants, at times, to avoid the court’s obligation to report certain behavior to appropriate authorities (although some may differ on this point);

6.      Arbitration allows time sensitive issues to be addressed on the parties’ timetable rather than the court’s timetable, and further permits the parties to control the scheduling and continuity of the proceedings at their convenience; and

7.      Arbitration assures the parties finality and closure to their dispute by allowing them to define and limit the basis for review of an arbitrator/umpire’s decision.

An arbitration statute drafted specifically for resolving family law matters will not only have the advantages stated above, but will also allow parties to resolve their matters within a framework that addresses the special circumstances associated with family law disputes, while also protecting children in the process.  It is proposed that a Family Law Arbitration Statute, in addition to the standard provisions found within the APDRA or The Uniform Arbitration Act, will also contain various sections specifically designed to address issues arising out of the dissolution of a marriage or family type arrangement including, but not limited to:

1.      Special concerns regarding custody, timesharing and other issues associated with children (see special provisions listed earlier in this column);

2.      The ability to award and/or monitor pendente lite relief during the arbitration proceedings;

3.      Procedures specifically designed to accommodate requests for modification of awards concerning alimony, child support, or child custody based on a substantial change of circumstances;

4.      Provisions designed to expedite the arbitration proceedings and protect the privacy of the matters being arbitrated;

5.      Provisions designed to ensure that the death of one of the parties to the arbitration agreement does not impair the rights of the other party to the contract; and

6.      An overall framework that can be easily referred to by counsel and/or litigants for the arbitration of family law disputes without concern that critical provisions are not adequately addressed.

It is not proposed that the provisions of the Family Law Arbitration Statute be mandatory.  Rather, they may be discretionary and viewed as default rules that, with the exception of the provisions of the statute concerning adjudication and review of issues related to children, can be modified or waived by agreement of the parties.           

The subjective and unique issues raised in matrimonial disputes do not fit into the strict parameters of the existing civil arbitration statutes, which themselves provide little guidance to the family law practitioner.  Based upon the foregoing, it is proposed that a specific Family Law Arbitration Statute be enacted that incorporates the dictates of the Supreme Court and the recommendations of the NJSBA Family Law Section as to the procedures and requirements for arbitrating family law disputes and protects children involved in the process.