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The New Jersey Supreme Court has just recently granted certification (i.e. agreed to review) a case which affects arbitration provisions, FAA News has learned.

Such provisions are very relevant to the frum community.

The specific case at hand grapples with whether arbitration provisions require an explicit waiver of the right to seek relief in a court of law in order to be enforced, and whether there are exceptions to this established case law.

Prior to entering into a business deal, a rental lease, or a divorce proceeding, many members of our community enter into agreements which set forth the terms of their transactions and contain arbitration clauses that in case of a dispute a Beis Din will decide the dispute.

Such arbitration provisions are now commonplace in consumer contracts at large, but especially in our community as well.

Often, these provisions state only that in case of a dispute, the parties will adjudicate their claims in arbitration, without expressly clarifying that in choosing arbitration, consumers waive their right to sue in court.

The issue that New Jersey trial courts have grappled with for years is that in choosing arbitration, consumers must have a basic understanding that they are giving up their right to seek relief in a judicial forum, and therefore, an arbitration clause, like any contractual clause providing for the waiver of a constitutional or statutory right, must state its purpose clearly and unambiguously. I.e. Consumers can choose to pursue arbitration and waive their right to sue in court, but should know that they are making that choice.

Up until now, trial courts have relied heavily on a 2014 New Jersey Supreme Court case decision known as Atalese v. Legal Services Group to determine whether or not to an arbitration agreement is enforceable.

In that matter, plaintiff, Patricia Atalese, contracted with defendant, U.S. Legal Services Group, L.P. (USLSG), for debt-adjustment services. The contract contained an arbitration provision for the resolution of any dispute between the parties, but the provision made no mention that plaintiff waived her right to seek relief in court.

(The wording of the arbitration provision stated: 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.)

Plaintiff brought a lawsuit against USLSG alleging violations of two consumer-protection statutes.

The trial court granted USLSG's motion to compel arbitration pursuant to the service contract and dismissed the complaint without prejudice. The court found the arbitration clause to be “minimally, barely sufficient to put the [plaintiff] on notice that if [the parties] have any sort of dispute arising out of [the] agreement, it's going to be heard in arbitration.” The court also believed that the arbitration clause met the criteria outlined in a 2010 case known as Curtis v. Cellco Partners.

There, the Appellate Division held that an arbitration provision will be enforced so long as it is “sufficiently clear, unambiguously worded, satisfactorily distinguished from the other agreement terms, and provides a consumer with reasonable notice of the requirement to arbitrate.” The trial court concluded that although upholding the arbitration provision was not “a slam dunk,” the policy favoring arbitration compelled the outcome.

Back to the Atalese case, the Appellate Division affirmed the trial court's ruling ruling, finding that “the lack of express reference to a waiver of the right to sue in court” did not bar enforcement of the arbitration clause.

However, the State's highest court reversed this decision, finding that the absence of any language in the arbitration provision that plaintiff was waiving her statutory right to seek relief in a court of law renders the provision unenforceable. An arbitration provision - like any comparable contractual provision that provides for the surrendering of a constitutional or statutory right - must be sufficiently clear to a reasonable consumer. The provision here does not pass that test.

In February 2023, in the first published decision by the Appellate Division to address this issue head on, the court ruled “that an express waiver of the right to seek relief in a court of law to the degree required by Atalese is unnecessary" between sophisticated entities.

This case is County of Passaic v. Horizon Healthcare Services.

In that matter, starting in 2002, the County of Passaic contracted with defendant Horizon Healthcare Services, Inc. to manage the County's self-funded health benefit plan. Their agreement included a binding arbitration provision. This relationship, in one form or another, lasted until December 31, 2019.

In 2021, the County filed a lawsuit against Horizon claiming, among other things, that Horizon breached their contract by failing to implement certain modified reimbursement rates.

The trial judge enforced the arbitration provision and granted Horizon’s motion to compel arbitration.

The County appealed, arguing that the arbitration provision was unenforceable because it lacked the explicit waiver of access to the courts as set forth in the Supreme Court’s landmark decision in Atalese which requires consumer arbitration provisions to clearly and unambiguously warn plaintiffs that they are giving up their right to pursue their claims in court.

In a published decision released in February 2023, the Appellate Division rejected the County's argument and affirmed the trial court's decision, finding that Atalese does not apply to arbitration provisions in contracts between sophisticated parties.

Indeed, Atalese found that consumer arbitration provisions are only enforceable “when phrased in plain language that is understandable to the reasonable consumer," and it is undisputed that Horizon's arbitration provision does lack such an explicit waiver, however, the court differentiated in that Atalese focused on the protection of consumers from an “unequal relationship between contracting parties,” whereas here, the County is a "sophisticated contracting party" and is not – as in Atalese and other authorities – an employee or consumer lacking sufficient bargaining power to resist the extraction of an agreement to arbitrate.

The court concluded that when dealing with sophisticated contracting parties, any concern for protecting unwary consumers “vanishes when considering individually-negotiated contracts between sophisticated parties – often represented by counsel at the formation stage – possessing relatively similar bargaining power.”

Thus, the Appellate Division agreed with the trial judge that the arbitration provision was enforceable, notwithstanding its lack of an express waiver of the County’s right to seek relief in a court of law.

This ruling is a specific disaster for Passaic County, which alleges $8 million in damages from Horizon - and they really want to adjudicate their claims in civil court, not an arbitration panel.

More broadly, this published decision fundamentally reshapes the interpretation of arbitration clauses in commercial contracts.

The ruling carves out an exception to the New Jersey Supreme Court's landmark ruling in Atalese, which required parties to explicitly waive their ability to seek relief in court.

In its practical application, legal commentators have pointed out that the ruling will result in the inconsistent enforcement of arbitration provisions in different contexts, with the standard for enforceability now dependent on the nature of both the contract and the parties involved in the dispute.

Due to the impacts of this ruling specifically towards them, the County has petitioned the New Jersey Supreme Court - the Garden State's highest court - to review this decision.

The Supreme Court only accepts less than 10 cases per month, so it's a really big deal that the Court has now accepted the County's petition.

In their petition for Certification, represented by Secaucus Attorney Kenneth D.  McPherson, Jr., Esq., the County noted that an internet search will show that this particular case has garnered a lot of interest among various legal commentators, not because the ruling created clarity but rather because the ruling created havoc and lack of unity.

Horizon’s final contract form, from which the underlying County claim arises, did not mention either arbitration or waiver of access to the Court.

Instead, Horizon’s last contract only cross-referenced another 2009 Horizon form, a decade back in time, that had buried within it, a clause referencing American Arbitration Association Rules.

Especially in an age where contract forms, including electronic forms, proliferate, there is a policy need for the Court to protect the fundamental right of all parties, especially a public entity, of access to a jury, by issuing an opinion making it clear that any contract, with any party, must directly waive access to the court and to  jury  in order to be enforceable.

In the alternative, if the Court is not going  to require an express waiver, then, another fair standard needs to be articulated, for all classes of  litigants, requiring something more than what Horizon did.

The County submits in its submissions that the  Supreme Court should rule that such an obscure and remote reference is an insufficient basis to deprive any party, either consumer or sophisticated business entity (which the County is not), of the fundamental right to  a jury.

First, an express waiver should fairly  be required for all parties pursuant to Atalese, and second, if  literal  words of “waiver” of Court access and Jury  are  now  required only  for consumers or employees (as the Appellate Division said in this case), then, the Supreme Court should still provide guidance as to what is required in order to prove  that the fundamental right to a jury trial has been intentionally  given up - - something more than what Horizon relies on  should be generally required.

In other words, under the circumstances presented, was the arbitration clause unenforceable under Atalese, because it lacked an explicit waiver of the right to seek relief in a court of law?

The acceptance to hear a case is just the first step. The parties will now have to submit briefs. Friends of The Court will likely also be invited to submit briefs. The hearing will not be scheduled until sometime next year.

As previously reported here on FAA News, the Appellate Division recently ruled in a matter regarding an agreement to go to Beis Din to adjudicate a matter.

In that matter, prior to actually going to Beis Din, one party cancelled the session and filed a suit in civil court.

Using the ruling in Atalese, the Appellate Division affirmed the trial court's ruling denying the motion to compel, ruling that even if the emails between the parties setting the Beis Din session can be considered "a record of an arbitration agreement," that record was silent about whether the parties intended to waive their right to sue in a court of law or whether they intended that arbitration would be the exclusive means of adjudicating their disputes, and therefore any agreement that might be gleaned from the parties' emails can be understood as suggesting nothing more than arbitration in the bais din was an option that, by filing suit, plaintiff declined to pursue.

These court rulings highlight how imperative it is to seek out professional help from experienced Toanim and Lawyers prior to entering into any agreements so they can ensure that arbitration clauses include clear waiver language saying that the parties waive their rights to court rules and procedures and exclusively choose arbitration as the only means of remedy.

More specifically, moving forward, parties to commercial contracts must closely review with experienced Toanim and Lawyers not only the precise terms of arbitration clauses, but also the relationship between the parties, when interpreting the enforceability of arbitration provisions.

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