How vital are the rules to an arbitration agreement?

The Supreme Court is deciding whether an agreement's failure to lay out those rules, including the setting or arbitration method, must invalidate an arbitration agreement signed by a longtime Jenny Craig employee because there was no "meeting of the minds."

In a precedent-setting opinion, the Appellate Division in late 2018 invalidated the agreement between Marilyn Flanzman and Jenny Craig because of the agreement's failure to designate an arbitration forum or process. That "deprived the parties from knowing what rights replaced their right to judicial adjudication," the court said in Flanzman v. Jenny Craig, though it noted that "we do not impose any special language that parties must use in an arbitration agreement," which "would violate Kindred Nursing [v. Clark], Atalese [v. U.S. Legal Services Group], and the other cases that preclude subjecting arbitration agreements to more burdensome requirements than other contractual agreements."

The case was granted certification last March 27. The National Employment Lawyers Association's New Jersey chapter, which represents employees' interests, and the New Jersey Association for Justice, the state's main plaintiffs bar association, appeared as amici at Tuesday's arguments.

In her opening argument, Jenny Craig attorney Sharon Margello of Ogletree, Deakins, Nash, Smoak & Stewart in Morristown said the arbitration agreement between the company and Flanzman should be enforced, and the decision by the Appellate Division reversed.

"The key material issue is [that] the parties agreed to an arbitration agreement—that they would go to arbitration," Margello said.

Chief Justice Stuart Rabner quickly jumped in. "I just suggest you focus on what was the mistake in the decision by the Appellate Division," he told Margello.

"The appellate court overreached and extended Atalese to a level it shouldn't have," Margello said. "The Arbitration Act of New Jersey provides a mechanism in the absence of parties submitting [details]. The act steps in.

"This arbitration agreement is enforceable. It meets all the concerns that this court has set when a person agrees to waive his or her right to a jury trial," added Margello. "The contract signed by the parties was enforceable. The Appellate Division imposed requirements for the first time on … agreements that are not found anywhere in the New Jersey Arbitration or Federal Arbitration Act."

To which Justice Faustino Fernandez-Vina interjected: "You need to know the rules of the game or you'll never win. There are four downs for 10 yards in football. You need to know the rules."

Justice Barry Albin asked, "In this case, the plaintiff was at liberty to pick AAA. So the plaintiff was given the opportunity to set the rules she thought most favorable to her?"

Flanzman contends that as she aged, Jenny Craig gradually—and discriminatorily—reduced her full-time hours at a Paramus location to just three hours per week. Then it allegedly fired her when she was 82, after she'd been employed as a Jenny Craig weight-loss counselor for 26 years, according to the Appellate Division opinion.

The company brought a motion to compel arbitration in the lawsuit. The panel agreed with Flanzman's argument that the arbitration agreement the weight-loss counselor had signed in 2011—after some 20 years as a Jenny Craig employee—lacked mutual assent and was therefore invalid as a matter of contract law. "In general, a forum is the mechanism—or setting—that parties use to arbitrate their dispute," Appellate Division Judge Douglas Fasciale wrote for the unanimous panel last year, adding that the parties "could have designated an arbitral institution … or they could have communicated a general method for selecting a different arbitration setting.

"The process is important because the rights associated with arbitration forums differ depending on which is chosen, or how the arbitral process is defined. Here, the agreement ignored the subject altogether," Fasciale added, though he said no "magic words" are required in arbitration agreements.

Flanzman's attorney, David Zatuchni of Zatuchni & Associates in Lambertville, argued on Tuesday that the Appellate Division correctly ruled that Jenny Craig's arbitration document was not enforceable because there was no "meeting of the minds" on what rights replaced Flanzman's statutory right to a jury trial.

"The arbitration agreement should be invalidated," Zatuchni told the court. "The Appellate Division never said rules of arbitration had to be given in great detail. I think it got it right in that it does not obviate the need for mutual assent. It provides a safeguard if the parties have an enforceable contract. You don't get around basic provisions of New Jersey law. We just need basic information. Not specific details, but just quantum of information."

In the 2014 decision in Atalese, the New Jersey Supreme Court voided an arbitration clause for lacking an explanation that the plaintiff was waiving his or her right to seek relief in court; an explanation of what arbitration is or how it differs from litigation; and plain language necessary to convey to the average consumer that he or she is waiving the right to sue in court.

"Atalese is about what you're giving up," Justice Anne Patterson said on Tuesday.

"But what are you agreeing to if you have absolutely no information?" asked Zatuchni.

Zatuchni said the arbitration agreement between his client and Jenny Craig lacks a standard of mutual assent; contains language that is confusing, contradictory and ambiguous; and fails to provide any quantum of information regarding a mechanism and setting of how arbitration is to be used.

"You don't know what you are doing, or what replaces the courts," Zatuchni told the justices.

Albin said: "Arbitration means you're not going to court. Your issue is you want more information, such as the name of the arbitrator."

Zatuchni responded: "It says that the parties will agree to choose an arbitrator. Meaning, plaintiff will have input. Ms. Flanzman never had that. … I am saying there has to be a certain level of information. A mechanism to make that decision."

Justice Jaynee LaVecchia asked: "The question is, what is essential? You are making quite a list of details of specification."

"No, I am not asking for that," Zatuchni said. "Just either a mechanism or setting, or some method of how the matter will be decided. How can you waive your right to a jury trial if you have absolutely zero information?"

Patterson said: "An arbitration agreement is binding, even though an arbitrator is not named because the Legislature is saying, 'If you don't agree on that, we fill in those details.' Where is this arbitration going to be? Do you read the Legislature as saying that it does not mean there was no meeting of the minds if they don't agree on these things? It seems to me you need AAA or anyone to set those rules. Otherwise, it is not a binding agreement."

"You either have a contract here or you don't. It's that simple," said Albin. "How will knowing the name of the arbitrator assist your client in knowing the rules of the game?"

"At the very least, if an arbitrator is named, my client can do some research to see what John Smith is about," Zatuchni said.

In wrapping up, Rabner said, "I think we understand your position. Is there anything else you would like to add?"

"Just one thing," Zatuchni said. "If Jenny Craig never raised that provision at trial court or at the Appellate Division about my client having to go to California Superior Court, then the argument that New Jersey law provides a method for picking an arbitrator would not have been waived, and [that was] why we had to go and file in California."

William Wright for the New Jersey Association for Justice raised the same issue. Wright said the arbitration agreement between Flanzman and Jenny Craig contained a provision that states the "employee will pay the then current Superior Court of California filing fees towards the cost of the arbitration," which he said added to the confusion.

"On the one hand, the agreement purports to tell Ms. Flanzman that she won't go to court, but then outlined fees by California Superior Court," Wright said. "It is extremely confounding to the trial court. It is confusing as to how it was determined that California Superior Court was deemed the arbitration forum."

"I think the Appellate Division's ruling is laudable," Wright said. "Let the person know what they're getting. There has to be mutual assent. Something for the signer to know what they are getting. In this case, the plaintiff is getting a sliver of rules from one jurisdiction and some from another jurisdiction."

Patterson asked, "So you want us to write an opinion that states there must be a location for the arbitration, processes have to be described, etc.?"

"No, what I am saying [is], if none of those are specified, they should be in the arbitration agreement," Wright said. "Either these are the rules, or this contract has no rules."

Andrew Dwyer of Dwyer & Barrett, arguing for NELA's New Jersey chapter, said, "The standard of review is what makes arbitration very different. What is integral is for the parties to understand what they are doing. [The agreement] needs to explain to the parities that either, there are no rules and it's the Wild West, or these are the rules."