Supreme Court of New Jersey Issues Landmark Decision on Arbitration Clauses

10.02.14

The Supreme Court of New Jersey in, Atalese v. U.S. Legal Servs. Grp., L.P., held that an arbitration clause contained in a consumer contract was unenforceable because it failed to clearly and unambiguously state that a consumer signing the contract is waiving the right to seek relief in a court of law. The ruling was issued September 23, 2014.

This matter arose from a transaction involving a service agreement contract.  The plaintiff contracted with a debt-adjustment service in exchange for monetary fees.   The plaintiff then instituted a lawsuit in the Superior Court of New Jersey, based upon a dispute arising from the service agreement contract.  In response, the defendant filed a motion to compel arbitration in trial court based upon an arbitration clause in the service agreement contract.  The trial court granted the defendant’s motion to compel arbitration and dismissed the plaintiff’s complaint without prejudice.

The plaintiff appealed the trial court’s ruling on the basis that the arbitration clause failed to indicate that she relinquished her right to sue or that arbitration is the parties’ exclusive remedy. The Appellate Division affirmed the trial court’s ruling holding that “the lack of express reference to a waiver of the right to sue in court” did not bar enforcement of the arbitration clause.  The plaintiff petitioned the Supreme Court of New Jersey for certification, which was granted.

The Supreme Court of New Jersey reversed the Appellate Division. It held that there are no prescribed set of words that must be included in arbitration clauses to accomplish a waiver of rights. However, those words that are used to compose an arbitration clause must be clear and unambiguous that a consumer is choosing to arbitrate disputes rather than having them resolved in a court of law.  As a result, the Supreme Court held that the arbitration clause was unenforceable.

The Supreme Court decision in Atalese mandates that an arbitration clause must contain language that the signing consumer is agreeing to waive his or her right to bring an action in a court of law. This decision affects a wide variety of contracts that contain arbitration clauses. As a result, companies must ensure that their contractual language clearly addresses the signatory’s waiver of rights to ensure a matter proceeds to arbitration. If this language is not included, then an arbitration clause will not be enforceable.

For more information, please contact Laurence T. Bennett at lbennett@wglaw.com or 856.667.0376 or Adam Zebryk at azebryk@wglaw.com or 856.382.3063.

Media Contacts

Lexi Burchmore
267.295.3377
lburchmore@wglaw.com

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