Unclear Arbitration Clauses Will Not be Enforced

Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430 (2014).  Plaintiff entered into a contract with defendant for debt-adjustment services.  The contract contained an arbitration clause that did not state that plaintiff was waiving the right to sue in court.  Plaintiff sued defendant under the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., and the Truth in Consumer Contract Warranty and Notice Act, N.J.S.A. 56:12-14 et seq.  Defendant moved to compel arbitration instead, and the Law Division and the Appellate Division both ruled that arbitration was required.  On further appeal, and applying the de novo standard of review to the interpretation of the contract, the Supreme Court today reversed in a unanimous opinion by Justice Albin.

The Supreme Court recognized that both the Federal Arbitration Act, 9 U.S.C. §1 et seq., and the “nearly identical” New Jersey Arbitration Act, N.J.S.A. 2A:23B-1 et seq., enunciate “policies favoring arbitration.”  But that policy “does not mean that every arbitration clause, however phrased, will be enforceable.”  Agreements to arbitrate, like any other contract, must be the product of mutual assent, and “[a]n effective waiver requires a party to have full knowledge of his legal rights and intent to surrender those rights.”  This is so not only of agreements to arbitrate, but of any clause in which a party gives up constitutional or statutory rights, as Justice Albin demonstrated with numerous citations.  Thus, New Jersey law does not improperly discriminate against arbitration clauses, a problem against which the Supreme Court of the United States warned in AT&T Mobility, LLC v. Concepcion, 563 U.S. ___,  131 S.Ct. 1740 (2011), discussed here.

The basis for the Supreme Court’s ruling was that “[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.”  Justice Albin cited numerous cases that had held arbitration provisions, worded in various ways without the need for a “prescribed set of words,” enforceable “when those clauses have explained that arbitration is a waiver of the right to bring suit in a judicial forum.”  This agreement, however, did not do that.

This ruling should come as no surprise.  The Court cited with approval the Appellate Division’s decision in NAACP of Camden Cty. East v. Foulke Mgmt., 421 N.J. Super. 424 (App. Div. 2011), discussed here, where the Appellate Division was confronted with multiple, conflicting arbitration clauses and declined to enforce any of them since they were so confusing as to deprive the other party of any understanding as to what the terms of any arbitration agreement were.  That was a sound decision, and so is today’s ruling by the Supreme Court.