Arbitration Provisions in Consumer Contracts Must Unambiguously Waive Right to Judicial Relief: NJ Supreme Court | Practical Law

Arbitration Provisions in Consumer Contracts Must Unambiguously Waive Right to Judicial Relief: NJ Supreme Court | Practical Law

In Atalese v. US Legal Services Group, L.P., the Supreme Court of New Jersey held that for an arbitration provision to be enforceable, it must clearly and unambiguously notify a consumer that she is waiving the right to seek relief in a judicial forum. The court reasoned that an arbitration provision should be treated like any other contractual provision that surrenders constitutional or statutory rights and must be phrased in plain language that is understandable to the reasonable consumer.

Arbitration Provisions in Consumer Contracts Must Unambiguously Waive Right to Judicial Relief: NJ Supreme Court

by Practical Law Litigation
Published on 02 Oct 2014 • New Jersey
In Atalese v. US Legal Services Group, L.P., the Supreme Court of New Jersey held that for an arbitration provision to be enforceable, it must clearly and unambiguously notify a consumer that she is waiving the right to seek relief in a judicial forum. The court reasoned that an arbitration provision should be treated like any other contractual provision that surrenders constitutional or statutory rights and must be phrased in plain language that is understandable to the reasonable consumer.
On September 23, 2014, in Atalese v. US Legal Services Group, L.P., the Supreme Court of New Jersey held that for an arbitration provision to be enforceable, it must clearly and unambiguously notify a consumer that she is waiving the right to seek relief in a judicial forum. The court reasoned that an arbitration provision should be treated like any other contractual provision that surrenders constitutional or statutory rights and must be phrased in plain language that is understandable to the reasonable consumer (99 A.3d 306 (N.J. 2014), cert. denied, 135 S.Ct. 2804 (2015)).
The plaintiff, Patricia Atalese, entered into a contract with the defendant, US Legal Services Group (USLSG), for debt adjustment services. The 23-page service contract between Atalese and USLSG contained an arbitration provision that stated, in relevant part:
"In the event of any claim or dispute between Client and the USLSG related to this Agreement or related to any performance of any services related to this Agreement, the claim or dispute shall be submitted to binding arbitration upon the request of either party upon the service of that request on the other party . . . . Any decision of the arbitrator shall be final and may be entered into any judgment in any court of competent jurisdiction."
The plaintiff sued USLSG under two state consumer protection statutes, both of which explicitly provide remedies in a court of law. The complaint alleged that USLSG did not deliver the services it promised, misrepresented that attorneys were working on the plaintiff's case and failed to disclose that USLSG is not a licensed debt adjuster in New Jersey.
USLSG moved to compel arbitration. The trial court granted the defendant's motion and dismissed the complaint. The Appellate Division affirmed, finding the arbitration provision sufficient to put the plaintiff on notice that arbitration is the sole means of resolving any disputes under the contract. The Supreme Court granted the plaintiff's petition for certification.
The Supreme Court reversed, holding that the arbitration provision in the service agreement is unenforceable because it did not clearly and unambiguously inform the plaintiff that she was surrendering her right to pursue her claims in a judicial forum. The court relied on precedent in the employment context holding that waivers of statutory rights must be made in unambiguous terms. Regarding the arbitration clause in this case, the court pointed out that the contract failed to explain in plain language that is clear and understandable to an average consumer:
  • What arbitration is and how it differs from a court proceeding.
  • That the plaintiff was waiving her statutory right to bring her claims in court.

Practical Implications

When drafting arbitration provisions in consumer or employment contracts governed by New Jersey law, practitioners must use plain language that clearly and unambiguously states that by signing the agreement, the party is waiving its right to have its claims heard in a court of law.