Contracts That Provide For Arbitration Also Require An Explicit “Waiver Of Right To Jury Trial”

All contracting parties, whether in the consumer or commercial context, are familiar with agreements which contain a section that provides, in substance, that “any dispute arising out of this Agreement shall be resolved by arbitration.” This provision is intended to guarantee, among other things, that the parties will not be required to bear the perceived additional time, effort and expense of adjudicating their differences in court, or, if a trial is necessary, have the dispute decided by a jury of laypeople. Does such a provision, even if written in plain English, ensure that the right to jury trial has been effectively waived?

The Supreme Court of New Jersey has recently decided that it does not. In Atalese v. U.S. Legal Services Group, L.P., (A-64-12) (072314) September 23, 2014, the plaintiff entered into a contract whereby defendant would provide her with debt-reduction services. Plaintiff paid defendant significant fees, and thereafter brought claims for misrepresentation. Defendant moved to compel arbitration based upon a paragraph contained in the 23 page contract which provided that [i]n the event of any claim or dispute between Client and [Defendant] . . . the dispute shall be submitted to binding arbitration upon the request of either party upon the service of that request on the other party.” Although the Trial Court granted the motion to compel arbitration and the Appellate Division affirmed, the Supreme Court reversed the decision.

While it acknowledged both the federal and state policies favoring arbitration as a dispute-resolution mechanism, the Supreme Court concluded that those policies do not justify enforcement of every contractual arbitration provision. Rather, stated the Court, an agreement to arbitrate also requires an effective waiver of one’s constitutional right to have one’s dispute adjudicated by a court. Such a waiver, the Court explained, must demonstrate the party’s clear and unambiguous intention to proceed only with arbitration. Thus, where the contract does not contain an express statement confirming that the party knowingly and intentionally is giving up his or her right to have all claims litigated in court favor of arbitration, the provision requiring mandatory arbitration is unenforceable. And while the Atalese case involved a consumer contract, it appears from the cases which were relied upon by the Supreme Court in reaching its conclusion that the Court would likely find this requirement applicable to commercial or business contracts as well.

The moral of the story: if you wish to insure that any and all disputes arising out of a contract will be arbitrated, and not decided by a court, the agreement should provide not only that all such disputes are to be arbitrated rather than litigated, but, in addition, contain a clear statement that the signatories to the contract are aware that by resorting to arbitration they are expressly waiving their rights to have their claims and defenses decided by a court and/or a jury.