US Supreme Court Allows New Jersey Decision Restricting Arbitration Clauses to Stand

US Supreme Court Allows New Jersey Decision Restricting Arbitration Clauses to Stand

      Yesterday, the United States Supreme Court decided it would not review a case from New Jersey with respect to required wording of arbitration clauses.  U.S. Legal Group, L.P. v. Atalese.

       This case arose out of a dispute between a law firm that specializes in debt counseling and one of its clients. When that dispute arose, the firm sought to refer it to binding arbitration.  The client objected on the basis that the arbitration clause did not expressly advise her that by agreeing to arbitrate she was giving up the right to litigate the dispute in court.  At both the trial court and the New Jersey Court of Appeals, it was held that the arbitration clause was binding and effective, and there exists no rule requiring that an arbitration clause expressly explain that The right to a court trial is waived.

      Perhaps surprisingly, the New Jersey Supreme Court did not agree with that rule. Rather, it held that the arbitration clause was itself insufficient in that it did not explain that, by agreeing to arbitrate any dispute, The parties to the agreement are waiving the right to a court trial.  Specifically:

[n]owhere in the arbitration clause is there any explanation that plaintiff is waiving her right to seek relief in court for a breach of her statutory rights….

The provision does not explain what arbitration is, nor does it indicate how arbitration is different from a proceeding in a court of law. Nor is it written in plain language that would be clear and understandable to the average consumer that she is waiving statutory rights.

On that basis it was held that there was no agreement to arbitrate. Atalese v. U.S. Legal Services Group, L.P., 99 A.3d 306 (N.J. 2014)

     An appeal was filed with the Supreme Court on the basis that the New Jersey Supreme Court had inappropriately imposed an additional condition upon arbitration clauses in violation of the rule that agreements to arbitrate should be enforced just as are any other agreements.  As there is no legal requirement to explain the legal impact of other provisions of the agreement, it was argued, there cannot be a separate requirement to explain the implications of an agreement to arbitrate.

      The Supreme Court, however, determined that it would not review the ruling of the New Jersey Supreme Court. Hence, that remains the law in New Jersey, and it may, at least for now, be argued it is what the law should be in other jurisdictions.