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New Jersey Supreme Court Passes Stringent Requirements for Arbitration

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New Jersey Supreme Court passes more stringent requirements for arbitration clauses in all contracts governed by New Jersey law.

On September 23, 2014, the New Jersey Supreme Court released a decision which will have a broad ranging effect on the enforce-ability of arbitration clauses contained in contracts across New Jersey. In Patricia Atalese v. U.S. Legal Servers. Group., L.P., the Court set new, more stringent requirements for the contents of arbitration clauses in order for them to be binding upon the parties to a contract and force them into arbitration.

This new decision provides that an arbitration clause which does not expressly state that a party is waiving their right to bring the case in Court is likely unenforceable.  The Court stated that any such provision must “at least in some general and sufficiently broad way… explain that the plaintiff is giving up her right to bring her claims in court or have a jury resolve the dispute.” The Court further provided, “[m]utual assent to an agreement requires mutual understanding of its terms.  After all, ‘an effective waiver requires a [consumer] to have full knowledge of [her] legal rights’ before she relinquishes them.”

Arbitration clauses are ubiquitous across the country, and can be found in formal arrangements as varied as consumer credit card contracts, distribution and licensing agreements, and construction contracts. These clauses purportedly require the parties to a contract to agree they are legally bound to submit any and all disputes to arbitration rather than filing a law suit in a local court. Arbitration clauses are generally intended to keep litigation costs down, but also have the added benefit (or detriment) of allowing a single party to choose the forum in which the dispute will be heard. Many, if not most, of today’s arbitration clauses do not explain that arbitration takes the place of the right of the party to initiate a lawsuit, and are thus unenforceable under New Jersey law.

While the court did not specifically mention whether this new standard will be applied retroactively to contracts already in effect, clients and practitioners alike should be aware of these new requirements for arbitration clauses and have them incorporated into their contracts.

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