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New Jersey Supreme Court Rules that Consumer Arbitration Pact Is Invalid

The court found that the arbitration agreement failed to clearly and unambiguously advise that the plaintiff was giving up the right to pursue statutory claims in court.

The New Jersey Supreme Court unanimously held in Atalese v. U.S. Legal Services Group, L.P. that the absence of language in a consumer arbitration provision that clearly and unambiguously stated that the signer was waiving his or her right to seek relief in court rendered the agreement unenforceable.[1] The decision, made on September 23, represents a departure from federal precedent in this area and arises in the consumer context. Nonetheless, in an abundance of caution, companies drafting arbitration agreements applicable to New Jersey consumers and employees should consider preparing agreements that will pass muster under this decision, and companies with existing arbitration agreements applicable to New Jersey consumers and employees should review their agreements to determine whether any revisions are necessary or appropriate.

Atalese Case

Plaintiff Patricia Atalese contracted with a debt-resolution service to help manage her financial difficulties. The contract between Atalese and U.S. Legal Services Group (USLSG) contained the following arbitration provision:

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. The parties shall agree on a single arbitrator to resolve the dispute. The matter may be arbitrated either by the Judicial Arbitration Mediation Service or American Arbitration Association, as mutually agreed upon by the parties or selected by the party filing the claim. The arbitration shall be conducted in either the county in which Client resides, or the closest metropolitan county. Any decision of the arbitrator shall be final and may be entered into any judgment in any court of competent jurisdiction.

After Atalese sued USLSG, alleging a variety of statutory claims, USLSG successfully moved to compel arbitration. On appeal, the New Jersey Superior Court, Appellate Division, affirmed, finding that the contract adequately advised the plaintiff that arbitration was the sole means of resolving the parties’ disputes.

The New Jersey Supreme Court granted Atalese’s petition for certification and reversed, holding that the arbitration provision was unenforceable because it did not “clearly and unambiguously” notify her that she was waiving the right to seek relief in court. More specifically, although the provision described arbitration as “mandatory” and “binding,” it did not expressly state that, by entering into the agreement, Atalese was surrendering her right to seek relief in a judicial forum. In so holding, the court observed that a waiver of the right to pursue claims in court could not be presumed based on the agreement’s language because “an average member of the public may not know—without some explanatory comment—that arbitration is a substitute for the right to have one’s claim adjudicated in a court of law.”[2]

The court emphasized that there are no “magic words” necessary for a waiver of rights to be enforceable—what is required is that the language be clear and unequivocal. In this regard, the court highlighted the following examples of provisions that satisfied this standard:

  • “Instead of suing in court, we each agree to settle disputes (except certain small claims) only by arbitration. The rules in arbitration are different. There’s no judge or jury, and review is limited, but an arbitrator can award the same damages and relief, and must honor the same limitations stated in the agreement as a court would.”[3]

  • “I understand that I am waiving my right to a jury trial voluntarily and knowingly and free from duress or coercion . . . I agree that all disputes relating to my employment or the termination thereof shall be decided by an arbitrator . . . .”[4]

  • “The parties to this agreement agree to arbitrate any claim, dispute or controversy that may arise out of or relating to the [transaction]. By agreeing to arbitration, the parties understand and agree that they are waiving their rights to maintain other available resolution processes, such as a court action or administrative proceeding, to settle their disputes.”[5]

On the other hand, in addition to finding the provision at issue in this case invalid, the court observed that the following provision would also be unenforceable:

  • “Any other unresolved dispute arising out of this Agreement must be submitted to arbitration . . . . [T]he arbitrators shall have exclusive jurisdiction over the entire matter in dispute, including any question as to arbitrability.”[6]

Implications 

Atalese leaves arbitration agreements that lack express waivers of the right to proceed in a judicial forum open to challenge in New Jersey. Plaintiffs may attempt to apply the decision to arbitration agreements in a variety of contexts, including employment, even though (i) the decision may be subject to further challenge because it conflicts with federal law, (ii) the decision arises in the context of a consumer contract, and (iii) the court relied heavily on consumer statutes and consumer contract interpretation principles. As a consequence, companies drafting arbitration agreements applicable to New Jersey consumers and employees should consider this decision when drafting such agreements, and companies with existing arbitration agreements that cover New Jersey consumers and employees should review their agreements to determine whether any revisions are necessary or appropriate. 


[1]. No. A-64-12, 2014 WL 4689318 (N.J. Sept. 23, 2014), available here.

[2]. The court also stated that “[o]ur opinion should not be read to approve that part of the arbitration clause that states: ‘The costs of arbitration, excluding legal fees, will be split equally or be born by the losing party, as determined by the arbitrator. The parties shall bear their own legal fees.’” Id. at *8, fn. 3.

[3]. Id. at *6–7 (citing Curtis v. Cellco P’ship, 413 N.J. Super. 26, 31 (N.J. Super. Ct. App. Div.), certif. denied, 203 N.J. 94 (N.J. 2010)).

[4]. Id. at *6 (citing Martindale v. Sandvik, Inc., 173 N.J. 76, 81–82 (N.J. 2002)).

[5]. Id. at *6 (citing Griffin v. Burlington Volkswagen, Inc., 411 N.J. Super. 515, 518 (N.J. Super. Ct. App. Div. 2010)).

[6]. Id. at *8, fn. 2 (citing EPIX Holdings Corp. v. Marsh & McLennan Cos., 410 N.J. Super. 453 (N.J. Super. Ct. App. Div. 2009)).

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume IV, Number 267
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About this Author

Thomas Linthorst, Morgan Lewis, labor and employment attorney
Partner

Thomas A. Linthorst represents employers in preventing and defending against wage and hour class and collective actions, whistleblower claims, and wrongful termination, sexual harassment, discrimination, and retaliation claims. Tom leads the labor and employment practice in Princeton and is co-leader of the wage and hour practice, the whistleblowing and retaliation task force, and the life sciences industry initiative.​​

609-919-6642
Sean Lynch, Labor and employment attorney, Morgan Lewis
Of Counsel

As part of Morgan Lewis’s labor and employment practice, Sean P. Lynch defends employers against wage and hour class actions, collective actions, and discrimination, harassment, and retaliation claims. He has appeared on behalf of clients in US federal and state trial and appellate courts, various arbitration forums, and before administrative agencies. Sean also handles disputes involving breach of contract, wrongful discharge, misappropriation of trade secrets, and breaches of restrictive covenant agreements.

609-919-6611
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