A New Jersey appellate court determined that when a private arbitration agreement conflicts with New Jersey state law, the duty to arbitrate and the scope of the arbitration are dependent solely upon the parties' agreement.

In Island Realty v. Van Dyk Group, Inc., No. L-3289-05, 2008 WL 918432 (N.J. Super. Ct. App. Div. Apr. 7, 2008), realtor Van Dyk showed Gaske a home listed for $629,999. Gaske and Van Dyk attempted to negotiate a lower price with the seller. However, negotiations ended when the seller refused to reduce the price below $615,000, and Gaske refused to offer more than $585,000.

Subsequently, Gaske met with Island Realty, and made an offer of $615,000 for the home. This was the same price that Van Dyk had negotiated. Gaske entered into a contract of sale, which provided for the payment of commission to Island Realty.

Van Dyk filed a complaint with the Ocean County Board of Realtors (Board) and claimed entitlement to Island Realty's commission. Van Dyk and Island Realty executed an agreement to resolve their dispute utilizing the Board's arbitration process, the Code of Ethics.

The Board appointed three disinterested arbitrators to conduct the arbitration and determine which realtor was the "procuring cause" of the sale. The arbitrators determined that Van Dyk was the procuring cause of the sale, and ordered Island Realty to pay Van Dyk the commission.

Island Realty sought to vacate the award, arguing that the arbitrator's definition of procuring cause was contrary to New Jersey law. The lower court agreed, noting a provision in the Code of Ethics that applied New Jersey law when there was a conflict between the two.

On appeal, Van Dyk argued that the lower court erred in applying New Jersey law. The Court noted that state contract law principles generally govern a determination of whether a valid arbitration agreement exits. However, the scope of the arbitration agreement is dependent solely on the parties' agreement to arbitrate.

The Court determined that the Code of Ethics required the arbitrators to follow New Jersey law only as to the procedures by which arbitration proceedings are conducted. The Court noted that the Code of Ethics governs the substantive matter in this case, the definition of procuring cause.

Under the Code of Ethics, procuring cause can be understood as what caused the successful transaction to come about. Further, the Code of Ethics lists numerous factors that arbitrators may consider in reaching a fair, equitable, and reasoned decision. Based on these factors, the arbitrators determined that Van Dyk caused the successful transaction to come about.

The Court noted that the scope of judicial review of an arbitration award is limited. An arbitrator's factual determinations concerning the merits of a dispute are not reviewable by the court. Absent fraud, corruption or similar wrongdoing, arbitration awards are final.

The Court applied these principles and the Code of Ethics, and determined that the lower court erred in vacating the arbitration award based upon a mistake of law. The Court reversed the determination and remanded the case for confirmation of the arbitration award.