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The Legal Arbitration Clause in New Jersey Revisited

May 10, 2016

Michael J. Rankin reports a recent case where New Jersey’s Appellate Division knocked down a litigant’s attempt to scale back a New Jersey Supreme Court decision that deemed arbitration agreements unenforceable if they do not clearly and unmistakably warn the signor about surrendering his/her litigation rights. 

The plaintiff in the case entered into a debt adjustment contract with defendant to negotiate a settlement with and satisfy the outstanding debts due to plaintiff’s creditors.  The contract included an arbitration clause directing that any dispute or claim relating to the agreement or defendant’s services would be resolved by binding arbitration.  Plaintiff initiated an action alleging, amongst other things, that defendant did not perform as agreed under the agreement and defendant filed a motion to compel arbitration.  Despite what appears as clear language in the contract, the trial court held the arbitration clause to be unlawful because it did not state that plaintiff was waiving his right to seek relief in court.  The trial court was following the aforementioned New Jersey Supreme Court decision when making its decision.   

On appeal, the defendant asked the court to do away with the subject New Jersey Supreme Court decision because the decision conflicted with federal law.  Specifically, the decision’s unintended effect inadvertently reverses the presumption in favor of arbitration into a presumption against arbitration, contrary to the clearly established principles included in the Federal Arbitration Act and federal jurisprudence.  However, the court declined the invitation.  The court explained that as a matter of both federal and state law, arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he/she has not agreed so to submit.  The court also acknowledged no evidential support showing arbitration provisions have been invalidated at a higher rate than other contract provisions as a result of the subject New Jersey Supreme Court decision. 

Anyone faced with a contract with an arbitration clause and waiver of trial should have their contract evaluated by an attorney to confirm whether it is legal.

Please contact Michael J. Rankin if you have any questions or need any assistance in connection to this subject.