September 26, 2014

A new, and unconstitutional, approach to contract law

By Deborah J. La Fetra Senior Attorney

Patricia Atalese signed a contract with a financial services firm, in which she agreed that “any claim or dispute” between herself and the firm, related to the services provided, “shall be submitted to binding arbitration upon the request of either party” and “[a]ny decision of the arbitrator shall be final and may be entered into judgment in any court of competent jurisdiction.”  This standard language is easily understood to mean that disputes will be resolved in arbitration.  But Ms. Atalese argued to the New Jersey Supreme Court, in Atalese v. U.S. Legal Services Group, that because the contract does not say that she “waived” her right to go to court, the language is ambiguous and she therefore should be allowed to sue.

This week, the New Jersey high court agreed, rendering the contract useless.  Pacific Legal Foundation had filed an amicus brief, specifically addressing the role of “magic words” in the law.  Rights can be waived in many contexts, without using the word “waiver.”  The court’s decision specifically called out PLF’s brief, and agreed, in theory, that no specific language is required.  However, the court then turned right around and ruled that, although it would not dictate the particular words contracting parties must use, the contract must include language specifically stating that the parties understand that “arbitration” is a different dispute resolution forum than state or federal courts.

The court has a rather dim view of the state’s consumers, as it explains that they cannot be expected to understand the meaning and import of the words “binding” or “arbitration,” but that the contractual language must include legal advice as to the benefits and trade-offs in choosing to resolve disputes in arbitration instead of in court.  The court’s view of an ignorant public is unjustified given that anyone who has purchased a car, applied for a credit card or a job, has a cell phone, or rented an apartment has seen those black-boxed bolded arbitration provisions highlighted in their contracts.  Everyone has the right and ability to investigate and consider the terms of their agreements – and they should do so.  By demanding that arbitration contracts, and only arbitration contracts, must contain these advisory provisions, intended to discourage consumers from agreeing to contracts that call for arbitration if a dispute should arise, the New Jersey Supreme Court runs afoul of the Federal Arbitration Act and the federal substantive common law of arbitration contracts, time and again upheld by the United States Supreme Court.

U.S. Legal Services Group should petition the Supreme Court to hear this case.  If it does, PLF will certainly provide amicus support.

Special thanks to Jed Marcus and Emily Bordens at Bressler, Amery & Ross in Florham Park, New Jersey, for providing tremendous assistance as local counsel.

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