Companies that do business in New Jersey should carefully review arbitration provisions in their contracts after a unanimous decision by the New Jersey Supreme Court that marks a departure from recent federal opinions. In Atalese v. U.S. Legal Services Group, the Court held that “[t]he absence of any language” in an arbitration provision that a consumer is waiving his or her “statutory right to seek relief in a court of law renders the provision unenforceable.”
In Atalese, the plaintiff contracted with defendant U.S. Legal Services Group, L.P (USLSG) for debt-adjustment services. When Atalese brought claims against USLSG for violations of the Consumer Fraud Act and the Truth-in-Consumer Contract, Warranty and Notice Act, USLSG moved to compel arbitration. The arbitration clause in question appeared on the ninth page of the twenty-three page contract, and stated “[i]n the event of any claim or dispute between Client and the USLSG . . . the claim or dispute shall be submitted to binding arbitration upon the request of either party upon the service of that request on the other party. . . .” The trial court granted USLSG’s motion to compel arbitration and dismissed the complaint without prejudice, finding that the arbitration clause was “minimally, barely . . . sufficient.” The Appellate Division affirmed, on the grounds that the clause “clearly and unambiguously states that . . . any dispute relating to the underlying agreement shall be submitted to arbitration and the resolution of that forum shall be binding and final.”
The Supreme Court reversed, reasoning that “when a contract contains a waiver of rights — whether in an arbitration or other clause — the waiver must be clearly and unmistakably established.” While “[n]o particular form of words is necessary[,] . . . the clause, at least in some general and sufficiently broad way, must explain that the plaintiff is giving up her right to bring her claims in court or have a jury resolve the dispute.” The Court offered several examples of clauses that were sufficiently clear to place a consumer on notice that he or she is waiving a constitutional or statutory right:
- The plaintiff agrees “to waive her right to a jury trial” and that “all disputes relating to [her] employment … shall be decided by an arbitrator.”
- By “agreeing to arbitration, the parties understand and agree that they are waiving their rights to maintain other available resolution processes, such as a court action or administrative proceeding, to settle their disputes.”
- “Instead of suing in court, we each agree to settle disputes … only by arbitration.”
Ultimately, an arbitration clause should be “written in plain language that would be clear and understandable to the average consumer that she is waiving statutory rights.” Now, such clauses in consumer contracts must state both that the parties are required to submit their disputes to arbitration, and that they are waiving their right to pursue their claims in a judicial forum. Moreover, while the Court’s opinion seems limited to the consumer context, a business would be wise to make sure that all of its arbitration provisions, not just those in consumer contracts, meet the Atalese standard. As such, companies should be mindful of the effect of this decision on business and commercial litigation in New Jersey state courts and should also consider reviewing their contracts which contain agreements or clauses compelling arbitration.