New Jersey Supreme Court Calls for More Specific Language in Arbitration Agreements: Atalese and Beyond

By Christopher A. BarbarisiLoly G. Tor, and Christopher J. Archer, K&L Gates, Newark

Introduction:

A recent decision by the New Jersey Supreme Court in Atalese v. U.S. Legal Servs. Grp., and subsequent opinions by New Jersey’s state and federal courts applying Atalese, strongly suggest that arbitration provisions contained in contracts relating to construction and engineering projects and services will not be enforceable under New Jersey law unless they contain clear and unambiguous language signaling that the parties are surrendering their rights to pursue their claims in court.

The Atalese Decision

In its September 2014 opinion in Atalese, the New Jersey Supreme Court reversed the rulings of the lower courts and held that an arbitration provision in a consumer contract was unenforceable because it “did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court.”  Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 99 A.3d 306 (2014).  A detailed discussion of the Supreme Court’s holding in Atalese can be found in our October 2014 Commercial Disputes Alert.

Recent Decisions Applying Atalese

In the months since Atalese, New Jersey’s state and federal courts have already cited the Supreme Court’s opinion on several occasions and, in doing so, have rejected arguments that Atalese is limited to consumer contracts and that it does not apply to contracts involving sophisticated business parties and/or parties that are represented by counsel in connection with execution of the contract.  To the contrary, New Jersey’s Courts have expanded the Atalese requirement for arbitration provisions to apply to a broad variety of contracts types:

  • Asset Purchase Agreements: In Rosenthal v. Rosenblatt, the Appellate Division of the New Jersey Superior Court applied Atalese to an arbitration provision contained in an asset purchase agreement for the sale of a dentistry practice.  See A-3753-12T2, 2014 WL 5393243, at *4 (App. Div. Oct. 24, 2014).  The court held that the arbitration provision was unenforceable because it did not contain “clear and unambiguous language that plaintiff is giving up his right to bring his claims in court or have a jury resolve the dispute,” as required by the Atalese decision, despite stating that all disputes between the parties “shall be exclusively resolved as provided herein through mediation and arbitration.”  The court specifically stated that the Atalese requirement for arbitration applied even between parties engaged in sophisticated business transactions.
  • Condominium Purchase Agreements: In Dispenziere v. Kushner Cos. (the first published opinion to apply Atalese), the Appellate Division held that an arbitration provision contained in purchase agreements between a condominium developer and condominium unit purchasers was not enforceable because, like the provision involved in Atalese, it was “devoid of any language that would inform unit buyers such as plaintiffs that they were waiving their right to seek relief in a court of law.”  438 N.J. Super. 11, 18 (App. Div. 2014).  The Appellate Division expressly rejected the position that Atalese—which only involved causes of action pursuant to the New Jersey Consumer Fraud Act and the New Jersey Truth-in-Consumer Contract Warranty and Notice Act—is limited to claims for statutory violations and, instead, held that Atalese applies equally to common-law causes of action.  The Appellate Division also rejected the argument that Atalese should not apply when the parties are represented by counsel in connection with the execution of the contract.
  • Collective Bargaining Agreement: In the Appellate Division’s unpublished opinion in Kelly v. Beverage Works N.Y. Inc., the court applied Atalese to an employment discrimination case and held that an arbitration provision contained in a union employee’s collective bargain agreement (CBA) was unenforceable because the provision did not “put plaintiff on notice that he was waiving his right to try his claims in court.”  L-1285-13, 2014 WL 6675261 (App. Div. Nov. 26, 2014).  The Appellate Division specifically rejected the argument that Atalese applied only to “consumer service agreement[s],” explaining that it “discern[s] no reason to conclude that employees bound by a CBA should be charged with greater understanding of their rights than the average consumer.”

New Jersey’s federal courts have also applied Atalese on at least two occasions.  In Guidotti v. Legal Helpers Debt Resolution, the District Court of New Jersey held that an arbitration provision contained in an agreement to provide debt-adjustment services was unenforceable because it failed to advise the plaintiff of the provision’s effect and significance, “namely, that it bars [plaintiff] from seeking court relief.”  No. 11-1219, 2014 WL 6863183, *1 (D.N.J. Dec. 3, 2014).  In Ricci v. Sears Hldg. Corp., the District Court cited Atalese and held that an arbitration provision in an employment agreement containing the following language was enforceable: “[This agreement to arbitrate] constitutes a waiver of [the employee’s] right to bring the current action in a court of law and, instead, requires arbitration of [the employee’s] claims.”  No. 14-3136-RMB-JS, 2015 WL 333312, at *1, 5 (D.N.J. Jan. 23, 2015).

Moving Forward

On January 21, 2015, the defendant in Atalese filed a Petition for Writ of Certiorari with the United States Supreme Court, arguing that the New Jersey Supreme Court’s decision contradicts the plain language of the Federal Arbitration Act and conflicts with the decisions of other federal and state courts.  Whether the Court will grant the Petition in Atalese is questionable.  The New Jersey Supreme Court framed the question in Atalese as one of purely New Jersey contract law, and the United States Supreme Court receives approximately 10,000 petitions for a writ of certiorari each year but grants only 75–80.  For now, Atalese is binding precedent, and companies doing business in New Jersey should review their contracts to evaluate whether they comply with Atalese.  Companies should be mindful that they may face uphill battles enforcing arbitration provisions that were routinely enforced prior to Atalese.  Moreover, the opinions in Rosenthal, Dispenziere, Kelly, Guidotti, and Ricci demonstrate that courts will not limit Atalese to statutory claims, and may extend Atalese beyond consumer contracts.  Companies should also be mindful that Atalese will apply in federal court when the contract is governed by New Jersey law.

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