The court found that the arbitration agreement failed to clearly and unambiguously advise that the plaintiff was giving up the right to pursue statutory claims in court.
The New Jersey Supreme Court unanimously held in Atalese v. U.S. Legal Services Group, L.P. that the absence of language in a consumer arbitration provision that clearly and unambiguously stated that the signer was waiving his or her right to seek relief in court rendered the agreement unenforceable. The decision, made on September 23, represents a departure from federal precedent in this area and arises in the consumer context. Nonetheless, in an abundance of caution, companies drafting arbitration agreements applicable to New Jersey consumers and employees should consider preparing agreements that will pass muster under this decision, and companies with existing arbitration agreements applicable to New Jersey consumers and employees should review their agreements to determine whether any revisions are necessary or appropriate.
Plaintiff Patricia Atalese contracted with a debt-resolution service to help manage her financial difficulties. The contract between Atalese and U.S. Legal Services Group (USLSG) contained the following arbitration provision:
In the event of any claim or dispute between Client and the USLSG related to this Agreement or related to any performance of any services related to this Agreement, 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 parties shall agree on a single arbitrator to resolve the dispute. The matter may be arbitrated either by the Judicial Arbitration Mediation Service or American Arbitration Association, as mutually agreed upon by the parties or selected by the party filing the claim. The arbitration shall be conducted in either the county in which Client resides, or the closest metropolitan county. Any decision of the arbitrator shall be final and may be entered into any judgment in any court of competent jurisdiction.
After Atalese sued USLSG, alleging a variety of statutory claims, USLSG successfully moved to compel arbitration. On appeal, the New Jersey Superior Court, Appellate Division, affirmed, finding that the contract adequately advised the plaintiff that arbitration was the sole means of resolving the parties’ disputes.
The New Jersey Supreme Court granted Atalese’s petition for certification and reversed, holding that the arbitration provision was unenforceable because it did not “clearly and unambiguously” notify her that she was waiving the right to seek relief in court. More specifically, although the provision described arbitration as “mandatory” and “binding,” it did not expressly state that, by entering into the agreement, Atalese was surrendering her right to seek relief in a judicial forum. In so holding, the court observed that a waiver of the right to pursue claims in court could not be presumed based on the agreement’s language because “an average member of the public may not know—without some explanatory comment—that arbitration is a substitute for the right to have one’s claim adjudicated in a court of law.”
The court emphasized that there are no “magic words” necessary for a waiver of rights to be enforceable—what is required is that the language be clear and unequivocal. In this regard, the court highlighted the following examples of provisions that satisfied this standard:
- “Instead of suing in court, we each agree to settle disputes (except certain small claims) only by arbitration. The rules in arbitration are different. There’s no judge or jury, and review is limited, but an arbitrator can award the same damages and relief, and must honor the same limitations stated in the agreement as a court would.”
- “I understand that I am waiving my right to a jury trial voluntarily and knowingly and free from duress or coercion . . . I agree that all disputes relating to my employment or the termination thereof shall be decided by an arbitrator . . . .”
- “The parties to this agreement agree to arbitrate any claim, dispute or controversy that may arise out of or relating to the [transaction]. 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.”
On the other hand, in addition to finding the provision at issue in this case invalid, the court observed that the following provision would also be unenforceable:
- “Any other unresolved dispute arising out of this Agreement must be submitted to arbitration . . . . [T]he arbitrators shall have exclusive jurisdiction over the entire matter in dispute, including any question as to arbitrability.”
Atalese leaves arbitration agreements that lack express waivers of the right to proceed in a judicial forum open to challenge in New Jersey. Plaintiffs may attempt to apply the decision to arbitration agreements in a variety of contexts, including employment, even though (i) the decision may be subject to further challenge because it conflicts with federal law, (ii) the decision arises in the context of a consumer contract, and (iii) the court relied heavily on consumer statutes and consumer contract interpretation principles. As a consequence, companies drafting arbitration agreements applicable to New Jersey consumers and employees should consider this decision when drafting such agreements, and companies with existing arbitration agreements that cover New Jersey consumers and employees should review their agreements to determine whether any revisions are necessary or appropriate.