Joshua J. Borger
Partner, Berliner Cohen LLP
Email: Joshua.Borger@berliner.com
Boston College Law School; Newton MA
Josh practices commercial and civil litigation in a variety of areas, including unfair business practices, breach of contract, trademarks, trade secrets, fraud, employment, insurance coverage and litigation, Proposition 65, and general business litigation. In addition to his litigation work, Josh represents companies in nonlitigation matters, including employment matters and licensing agreements.
Subject to certain exceptions, Orthodox Jews, as with the orthodox of many religions, are required by their laws to submit their financial disputes to a religious court, known as a beit din (which translates to "House of Judgment"). The purpose of the beit din is to use a panel that understands the litigants' laws, rules, and traditions and, as such, will apply Jewish law (known as Halacha) to resolve the dispute in arbitration.
The potential problem arises when a party seeks to confirm or vacate the award. The civil courts cannot rule on theology. The free exercise clause and the establishment clause of the First Amendment prevent civil courts from adjudicating purely religious disputes. Otherwise, the religious institutions would become an arm of the civil courts. An exception to this rule deals with some forms of economic competition since it impacts persons who are not parties to the arbitration.
The issue of this article is whether rulings of the batte din applying Jewish law can be confirmed without violating modern laws on economic competition, namely antitrust laws.
Unfair Competition in Jewish Law
The Jewish law on economic competition, known as Hasagat Gevul, stems from a passage in the Bible that prevents a person from removing another's landmarks to encroach on their real property. The principle was later extended to include unfair business practices. Trespassing on land became trespassing on another's business interests; that is, infringing on another's right to make a living. One of the purposes of Hasagat Gevul is to allow the owner of the preexisting business to reap the benefits of his investment and effort. However, the breath of the extension has been the subject of much rabbinical dispute with varying outcomes.
In "Hasagat Gevul: Economic Competition in Jewish Law," Rabbi Chaim Jachter, a rabbinical court judge, offers an outstanding history of this dispute in which he traces the differing interpretations from the Gemara (which is part of the Talmud, the primary source of Jewish theology and religious law) throughout the ages. Rabbi Jachter correctly concludes that there is no consensus on this dispute. The interpretations range from allowing unrestricted competition to preventing competition within geographic areas.
Rabbi Jachter cites to a Talmudic debate regarding whether a preexisting business can prevent a newcomer from setting up the same business. Rabbi Jachter interprets the Gemara to allow a new competitor from the same neighborhood because both businessowners are entitled to make a living. Yet, there is a dispute as to whether a person from another neighborhood or city may set up a competing business.
Another debate surrounds whether a person may open a store at the beginning of a dead-end alley if a competitor is at the end of the alley. The rabbis interpreting unfair competition broadly forbid the new store because customers will purchase from the new store and, thus, drive the preexisting store out of business.
Public Policy Grounds for Vacating an Arbitral Award
The civil courts are limited in their review of beit din arbitral awards since civil courts may not interpret or rule on religious doctrines. See Presbyterian Church in United States v. Mary Elizabeth Blue Hull Memorial Presbyterian Church, 393 U.S. 440 (1969); Elmora Hebrew Ctr., Inc. v. Fishman, 593 A.2d 725, 729-32 (N.J. 1991) (discussing at length the limitations of civil courts in reviewing beit din proceedings). But, both federal and state law provide that an arbitration award may be vacated for exceeding an arbitrator's power. An award may exceed the arbitrator's power if it violates a well-defined and dominant public policy as "ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests." United States Paperworkers Int'l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 43-44 (1987). One of the purposes of the public policy grounds is to vacate awards that unlawfully impact the general public.
Antitrust laws, which promote competition, are considered to be for the betterment of the general public. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 635 (1985) ("A claim under antitrust laws is not merely a private matter. The Sherman Act is designed to promote the national interest in a competitive economy; thus, the plaintiff asserting his rights under the Act has been likened to a private attorney-general who protects the public's interest."). The courts have applied this public policy exception to vacate arbitration awards that violate antitrust laws. See Kristian v. Comcast Corp., 446 F.3d 25, 47-48 (1st Cir. 2006) (severing as unenforceable a provision of an arbitration agreement limiting the availability of treble damages under an antitrust statute); George Fischer Foundry Sys., Inc. v. Adolph H. Hottinger Maschinenbau, 55 F.3d 1206, 1210 (6th Cir. 1995) (holding that an arbitration award that violates antitrust statutory rights violates public policy); DeGaetano v. Smith Barney, Inc., 983 F. Supp. 459, 467 (S.D.N.Y. 1997).
Whether Jewish Law Violates Modern Laws on Economic Competition
Under California and federal law (and in a capitalist system), economic competition is deemed to benefit all. Competition will result in the greatest choice of products at the lowest price:
"The [Cartwright] act's principal goal is the preservation of consumer welfare. The act, like antitrust law in general, rest[s] on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions. At its heart is a prohibition against agreements that prevent the growth of healthy, competitive markets for goods and services and the establishment of prices through market forces." In re Cipro Cases I & II, 61 Cal. 4th 116, 136 (2015).
The Jewish tradition does not oppose economic competition. It recognizes its value. However, religious ethics gives way to other concerns, including protecting the livelihood of the community. In sum, capitalism is not first and foremost. Jewish law will restrict competition to protect the merchants, allow them to earn a living, and reward them for their investment. In some instances, namely intellectual property, State and federal law allow people to recoup their investments and make a profit without competition. Jewish law may draw a different line in the sand.
As noted, if and how these theories apply today remains unclear. Applying the Torah and Talmud to modern times is no different than applying an originalist interpretation of the Constitution versus reading it as a living document. Preserving a living for a small village or shtetl is admirable and probably necessary for such a community. But, the rabbis offering the original Talmudic interpretations were not addressing modern day cities or advertising and purchases via the Internet.
Recent batte din (plural) decisions have applied modern corporate law when necessary. In fact, Jewish law often takes local law into account. Jewish law may apply commercial laws and practices of the parties' locale provided that it does not conflict with Jewish law. See United Savings, LLC v. Dunkirk Center for Health, Inc. and Royal Rehabilitation (Beth Din of America Reported Decision 8 Feb. 13, 2014); Goldberg v. Schwartz (Beth Din of America Reported Decision 4 Dec. 29, 2011). Batte din have applied locale corporate law to business disputes, recognizing that corporations did not exist during Talmudic debates. See id.
Thus, the real issue becomes whether the individual beit din decision applies modern antitrust laws, in which case it can be confirmed, or applies the more conservative theory of Hasagat Gevul, in which case it may risk being vacated. There is a litany of state and federal laws that would, for example, prohibit an award that prevented a business from opening at the beginning of an alley just because a preexisting business operated at the end of the alley. In modern times, we call this a monopoly. 15 U.S.C. Section 1 (Sherman Antitrust Act) ("Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."). The Cartwright Act, California's equivalent of the federal Sherman Antitrust Act, generally prohibits agreements to restrain trade or competition. Pacific Gas & Elec Co. v. County of Stanislaus, 16 Cal. 4th 1143, 1147 (1997). The Federal Trade Commission Act similarly provides that "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful." 15 U.S.C. Section 45(a)(1). Violations of these federal acts also constitute violations of California's Unfair Competition Law. See People's Choice Wireless, Inc. v. Verizon Wireless, 131 Cal. App. 4th 656 (2005); Cel-Tech Commc'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999).
Any award that divides the market geographically to allow both merchants to operate within their cities or villages would constitute a per se violation of both the Cartwright Act and the Sherman Act. U.S. v. Topco Associates, Inc., 405 U.S. 596, 608 (1972) ("One of the classic examples of a per se violation of § 1 [of the Sherman Act] is an agreement between competitors at the same level of the market structure to allocate territories in order to minimize competition."); In re Cipro Cases I & II, 61 Cal. 4th at 148 ("Pursuant to this rule, businesses may not engage in a horizontal allocation of markets, with would-be competitors dividing up territories or customers. Such allocations afford each participant an 'enclave ..., free from the danger of outside incursions,' in which to exercise monopoly power and extract monopoly premiums.").
In sum, any award that results in a conflict between Jewish and secular law that would undermine economic competition would likely be vacated. While well-intentioned (and perhaps for the best), a conservative application of Hasagat Gevul could not be confirmed.