Supreme Court Must Reverse Appellate Division's Rogue Ruling on Arbitration Clauses
The Appellate Division has introduced a new element for an arbitration contract that will require parties to rewrite their pre-dispute arbitration clauses—for no reason. Our Supreme Court should review the matter and reverse before further mischief upsets the federal and state statutory scheme in place for decades.
November 19, 2018 at 11:00 AM
5 minute read
In finding that an arbitration agreement must do more than say merely that all disputes must be arbitrated—without specifying the arbitrator, his or her qualifications, an arbitration provider (such as the American Arbitration Association, ICC or JAMS), or the means for selecting the arbitrator—the Appellate Division has introduced a new element for an arbitration contract that will require parties to rewrite their pre-dispute arbitration clauses in employment, consumer and commercial contexts—all for no reason. Our Supreme Court should review the matter and reverse before it upsets the federal and state statutory scheme in place for decades.
In Flanzman v. Jenny Craig, Inc., __ N.J. Super. __, 2018 N.J. Super. LEXIS 156 (N.J. Super. Ct. App. Div. Nov. 13, 2018), a long-time Paramus employee, 82 years old, sued her employer in Bergen County Superior Court for wrongful termination under the New Jersey Law Against Discrimination. The employer moved to dismiss the litigation, based on a contract the employee personally signed in 2011 requiring arbitration. Importantly, the clause explained that arbitration was “in lieu of a jury or other civil trial” as would be required by the New Jersey Supreme Court three years later in Atalese v. United States Legal Services Group, L.P., 219 N.J. 430 (2014), and explicitly covered statutory claims of discrimination. The standardized clause called for plaintiff to pay only the fees that would be required if she were to sue in California, no doubt because that is the location of the employer's headquarters and HR Department, but the clause contained no further specificity as to the forum or arbitration rules to be applied.
Among other arguments, plaintiff opposed arbitration because the clause did not designate the provider or procedures for conducting the arbitration. The trial court noted that the absence of a designated provider or rules did not render the agreement unenforceable, but “in the interest of fairness” required that plaintiff could herself select the AAA or other provider. According to the trial court, defendants offered to conduct the arbitration at a “place closer to New Jersey.” Plaintiff appealed, and the Appellate Division reversed in an initial opinion dated Oct. 17, 2018, that did not mention section five of the Federal Arbitration Act. Without explanation, the opinion was withdrawn a few days later. The revised, November opinion discussed the FAA and the Revised Uniform New Jersey Arbitration Act, but it came to the same conclusion.
The “for publication” November opinion included standard language regarding the importance of arbitration. It then moved into uncharted territory by discussing the importance of knowing what arbitration procedures and other rights would supplant the procedures being given up by plaintiff's waiving a court trial or jury determination of her claims. Atalese and other cases have emphasized that no “magic language” is necessary to waive the right to a court or jury determination. Nevertheless, the Flanzman panel picked up on dictum in Klein v. Emeritus at Emerson, 446 N.J. Super. 545, 552-53 (App. Div. 2016), that a party to a nursing home contract “must be able to understand – from clear and unambiguous language – both the rights that have been waived and the rights that have taken their place,” and found that the differences in the rules by arbitration providers are not “insignificant aspects of the arbitration process.” Not identifying the process in the Jenny Craig contract was said in Flanzman to negate mutual assent and a “meeting of the minds” as to the details of the newly selected arbitration process. It concluded by stating, in general terms seemingly applicable to all arbitration agreements: “Without … knowledge [of the alternate forum], they are unable to understand the ramifications of the agreement.”
Before Flanzman, many courts had held that the Federal Arbitration Act provided a means to carry forward the parties' expressed intent to arbitrate their disputes, even when they had not designated an arbitrator or when the selected arbitrator or provider was not available. Section 5 authorizes a court to make such an appointment. N.J.S.A. 2A:23B-11(a) is to similar effect. Here, though, the court undertook a contorted analysis to introduce a new definition of arbitral “forum” in order to find the statutes inapplicable.
The November opinion noted that N.J.S.A. 2A:23B-11(a) authorizes a court to appoint an “arbitrator” rather than a “forum,” and then described both an administered arbitration and a non-administered arbitration as an arbitral “forum”. Having made a distinction between “forum” and “arbitrator,” the court held that this section only applies where the parties have agreed to an administered or non-administered arbitration—the “forum” in the court's parlance—but cannot agree on the particular arbitrator. Section 5 of the FAA was said to be similar. Since neither party had even asked the Law Division (or the Appellate Division) to appoint an arbitrator, or referenced either section 11(a) or section 5, it held that neither statute applied to the case; the court declined to provide relief neither had requested. Presumably, had the contract said that a judge or lawyer of particular qualifications should be selected as arbitrator, then the dilemma posed would not arise so long as the employer had filed a motion to appoint an individual.
Because this opinion is precedential and binds lower courts, and is couched in broad terms not limited to the employment case or context at issue, it may well be used even in cases involving commercial contracts. Contract clauses, bills of sale or standard terms and conditions should be checked to be sure they do not raise an issue, at least until our Supreme Court can consider the facts, cases and statutes in the panel decision, either in a case already before it (such as the recently argued Kernahan v. Home Warranty case) or on certification.
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