NEWS

New Jersey Supreme Court Saves An Incomplete Arbitration Clause - Beware the Not So Safe Harbor

October 16, 2020

BARRY A. KOZYRA reports that the New Jersey Supreme Court has decided that an arbitration clause in a contract which does not contain any direction as to who the arbitrator or arbitration entity will be or how to select that arbitrator and does not explain how the arbitration is to be conducted is still valid. 

In Flanzman v. Jenny Craig, Inc., --- N.J.---- (decided September 11, 2020) the Court reviewed an extensive factual history over the question of whether an 82-year-old plaintiff in an employment rights case against her employer was subject to an incomplete but broadly worded arbitration clause in her contract. The arbitration clause did cover a lot of what can be found in such clauses (e.g., waiver of trial by jury, inclusive of tort, contract and statutory claims, decision final and no appeal, prevailing party to be paid counsel fees).

What the clause left out was arbitrator selection. Disagreeing with the Appellate Division (which said “no” to enforcement) the Court stated that the New Jersey Arbitration Act allows a court on application to designate an arbitrator, N.J.S.A. 2A:23B-1(a), if not done by the contracting parties. That court-appointed arbitrator is given broad discretion in how the arbitration will proceed specifically allowing the arbitrator “to conduct an arbitration in such manner as the arbitrator considers appropriate for a fair and expeditious disposition of the proceeding." See N.J.S.A. 2A:23B-15(a). The statute addresses the arbitrator's authority as to conferences, evidential determinations, summary disposition of a claim or issue, and hearings. The Flanzman Court supported its decision with references to the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq., citing cases broadly upholding “curing” a negotiated arbitration provision over traditional courtroom litigation.

Mr. Kozyra observes, “The Flanzman decision is hardly surprising given the trend in the law to favor arbitration over litigation - a policy that may be even more favored and sensible facing the uncertainty and challenge of traditional litigation in the face of the COVID-19 Pandemic.” 

Mr. Kozyra asks, “Does being told “go forth and arbitrate” end the inquiry? Not really. Who is the arbitrator going to be? How much will the arbitrator charge? Who pays for the arbitrator’s retainer? What kind of discovery - and how much discovery - will be allowed? How fast must the parties (and their counsel if they have one) be ready to start and complete the arbitration? Can the arbitrator issue interim awards of fees and costs prior to a hearing? What about interim awards of partial relief (including damages)?”

Mr. Kozyra feels that while not all of these questions may need to be asked in the Flanzman case or in every case, they are relevant to many arbitrations. Mr. Kozyra believes the best way to avoid uncertainty for the party drafting the arbitration clause (here the employer) is to designate the arbitrator in the clause and how the arbitrator is to be selected (as well as an alternate arbitrator) in addition to providing some outline as to how the arbitration is to be conducted. Mr. Kozyra concludes, “While the responding party may have little negotiation capacity, at least there can be clear ground rules as to who the arbitrator will be and how the arbitration process will be conducted, including the speed of the process.”

For any questions you have concerning this article or the subject of arbitration clauses, please contact Barry A. Kozyra at BarryKozyra@KozyraHartz.com or by calling 973-740-1550.