Court Finds Arbitrator Did Not Exceed Powers Because She Applied New Jersey Law as Required by the Arbitration Agreement

Affirming confirmation of an arbitration award in a dispute over a non-compete agreement, a New Jersey appellate court found that the arbitrator applied the law and did not exceed her authority because the arbitrator articulated and applied New Jersey’s standard for determining whether a non-compete agreement is enforceable. 

In Kadi v. Massotto, No. A-2555-07T2, 2008 WL 4830951 (N.J. Super. Ct. App. Div. Nov. 10, 2008), Kadi and Massotto owned a dental consulting business. After their business relationship soured, Kadi sold his one-half share to Massotto. The sales contract contained non-compete and non-solicitation agreements that limited Kadi’s involvement in the dental consulting business. Further, the sales contract contained an arbitration agreement requiring the parties to arbitrate disputes and mandating that the arbitrator apply New Jersey law. 

Later, Kadi moved to Arizona and formed his own dental consulting company. In connection with that endeavor, Kadi attended a New York Dental meeting and solicited business by distributing two copies of his book and business cards. Additionally, Kadi had contacted some of Massotto’s clients. 

Consequently, Massotto demanded arbitration and sought $25,000 in damages, an injunction against Kadi’s further violation of the restrictive covenants, and disgorgement of $200,000 Kadi had made by violating the agreement. The arbitrator found Kadi had violated the agreement and enjoined him from providing competing services. Kadi sought to vacate the award, arguing the arbitrator failed to apply New Jersey law as the agreement required. The trial court rejected the argument for vacatur and confirmed the award. Kadi appealed. 

Affirming the trial court ruling, the Court held that the arbitrator applied New Jersey law and did not exceed her authority. Under New Jersey law, a court will enforce an non-compete agreement in an employment contract if it is reasonable under the Solari/Whitmeyer test. An agreement is reasonable when it (1) protects legitimate interests of the employer, (2) does not impose an undue hardship on the employee, and (3) is not injurious to the public.

The Court found the arbitrator addressed all three prongs of the Solari/Whitmeyer test. Massotto had a legitimate interest in protecting the goodwill of the company. Additionally, the Court found that the non-compete agreement did not impose an undue hardship on Kadi because he could continue to provide dental consulting services in Arizona and non-dental consulting services throughout the country. Finally, the Court found the arbitrator addressed the third prong when she found the agreement did not impair the public interest. Because the arbitrator applied New Jersey’s standard for determining whether a non-compete agreement is reasonable, the Court found the arbitrator applied the law and did not exceed her authority.