August 29, 2013

No magic words required

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 thinks 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.

A New Jersey trial court disagreed, and the appellate division affirmed, holding that the language was perfectly clear and no magic words were required to show agreement to resolve disputes in arbitration.  The New Jersey Supreme Court granted review in the case, however, so Pacific Legal Foundation 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.”  For example, the United States Supreme Court held that tribes can waive tribal sovereign immunity without invoking particular magic words.  And criminal defendants can waive their rights after receiving Miranda warnings — even though one national study recognized that among federal, state, and local police districts there were over 500 various Miranda rights formulations, varying between 49 words to 547 words!  The bottom line is:  So long as the meaning is clear, courts will not elevate form over substance and demand particular language in an arbitration contract.

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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