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New Jersey Supreme Court Rules Unanimously on Language for Mandatory Arbitration Clauses

Thomas W. Hartmann

The Hartmann Law Firm LLC

Tom.Hartmann@gmail.com; 908 769 6888; TheHartmannLawFirm.com

Arbitration Clauses Favored in New Jersey.  In New Jersey, contract provisions that mandate arbitration and deny a right to trial are enforceable if they are “sufficiently clear, unambiguously worded, satisfactorily distinguished from the other [a]greement terms, and . . . provide a consumer with reasonable notice of the requirement to arbitrate.” Curtis v. Cellco Partnership, 413 N.J. Super. 26, 33-37 (App. Div.), certif. denied, 203 N.J. 94 (2010).

Clauses Must be Unambiguous.  On September 23, 2014, however, the New Jersey Supreme Court unanimously clarified that general standard and ruled that a clause in a consumer contract that seeks to require arbitration is not enforceable unless it clearly indicates that the party is giving up the right to go to court.  While the Court noted that arbitration is favored under both federal and state law that "does not mean that every arbitration clause, however phrased, will be enforceable," Justice Barry Albin wrote in Atalese v. U.S. Legal Services Group.

To be enforceable, a mandatory arbitration clause in a consumer contract must “at least in some general and sufficiently broad way… explain that the [party] is giving up her right to bring her claims in court or have a jury resolve the dispute.”  In this case, the arbitration clause in a contract with an unlicensed debt settlement company was unenforceable because the “agreement did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court.”

The arbitration agreement in the Atalese case stated that either party may submit any dispute to “binding arbitration,” that “[t]he parties shall agree on a single arbitrator to resolve the dispute,” and that the arbitrator’s decision “shall be final and may be entered into judgment in any court of competent jurisdiction.” The arbitration provision did not, however, explain that the plaintiff was waiving her right to seek relief in court, what arbitration is, or how arbitration is different from a proceeding in a court of law.

Clauses Must Tell Parties They are Waiving Court Rights.  The court noted that although an arbitration clause does not have to identify the specific constitutional or statutory right guaranteeing a citizen access to the courts that is being waived, the clause must explain that the party is giving up her right to bring claims in court or have a jury resolve the dispute.  The Court noted that “[a]n effective waiver requires a [consumer] to have full knowledge of [her] legal rights” before she relinquishes them.

Careful drafting and review of contracts, whether dealing with mandatory arbitration clauses or any other matter, requires attention to detail.  It is wise to seek counsel in advance, especially for standard business contracts that are used repeatedly.

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