KNOW BEFORE YOU SIGN - ENFORCEMENT OF ARBITRATION CLAUSES REQUIRES CLEAR LANGUAGE: NEW JERSEY APPELLATE DIVISION UPHOLDS RULING THAT AMBIGUOUS ARBITRATION CLAUSE IS UNENFORCEABLE

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 Bais Din will decide the dispute.

Such arbitration provisions are now commonplace in consumer contracts at large, but especially in the frum community.

While there is no set, express language required to uphold an arbitration agreement, in order for these provisions to be enforceable in court, a 2014 New Jersey Supreme Court case decision known as Atalese v. Legal Services Group specifically requires the agreement to expressly waive their right to sue in court.

A recent case ruling by the New Jersey Appellate Division reinforces that it is imperative for parties to commercial contracts or to divorce proceedings to closely review precise terms of arbitration clauses with experienced Toanim and Lawyers to ensure; a) that there are no confusions as to what is being agreed to; and b) that the agreement will be enforceable in court if necessary.

The Village Courtyard Condominium residential development is managed by an association.

72 Franklin Place, LLC (Franklin Place), is a New Jersey real estate development company that served as the "sponsor" of the development.

The Association's bylaws include a purported "Arbitration Provision" which states:

In the event of internal disputes arising from the operation of the condominium among unit owners, associations, agents, and assigns, there shall be voluntary, binding arbitration conducted under New Jersey law. The decision of the arbitrator shall be final.

Subsequent to moving into their condominiums many unit owners alleged faulty construction defects.

On January 27, 2023, the Association filed a lawsuit in New Jersey Superior Court in Union County against Franklin Place as well as numerous design and construction firms seeking to recoup their losses.

Franklin Place argued that the matter should be compelled to arbitration pursuant to the arbitration clause.

The court denied the motion, making several findings. Among them, the court found a plain reading of the arbitration clause showed it only applied to what it described as "internal disputes" regarding the operation of the condominium - and not due to faulty construction allegations.

Additionally, in interpreting the contract, the court also concluded presence of the word "voluntary" in the arbitration clause showed "the [clause] would not prevent a party from bringing their claims in a court of law rather than pursuing binding arbitration." 

The trial court also found the arbitration clause to be "unenforceable due to a lack of mutual assent by all parties as is required by Atalese."

Franklin Place appealed, arguing that the court erred by not compelling arbitration as it failed to properly interpret the arbitration clause in the by-laws.

In a written decision upholding the Superior Court’s ruling, Appellate Division Judges Smith and Perez Friscia were completely unfazed.

"An agreement to arbitrate . . . must be the product of mutual assent, and requires a meeting of the minds. To be enforceable, the terms of an arbitration agreement must be clear, and the contract needs to explain that the agreement waives a person's right to have their claim tried in a judicial forum." Atalese v. U.S. Legal Services Group, L.P.

The arbitration clause is unenforceable according to the principles espoused by Atalese. The clause at issue is relatively short, consisting of only two sentences identifying the parties covered and the scope of the claims to be arbitrated. The clause does not inform the parties they are waiving their right to seek relief in court. Additionally, as evidenced by the parties' dispute over whether arbitration is voluntary, the clause does not "state[s] its purpose clearly and unambiguously," as required by Atalese.

Because the clause lacks clear and unambiguous language notifying the parties they waived their right to sue as required by Atalese, it is unenforceable. We conclude the court's order denying defendant's motion to compel arbitration was proper. 

The winning attorneys are Lawrence P. Powers and Peter K. Oliver Esq. of Hoagland, Lungo, Moran, Dunst & Doukas, LLP, who represented The Biber Partnership, PC; and Michael J. Leegan and John W. Meyer Esq. of Goldberg Segalla, LLP, who represented Bella Contracting Corp.

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