by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)
In recent years, and certainly ever since the New Jersey Supreme Court decided Atalese v. U.S. Legal Services Group, L.P., there is a perception that arbitration provisions have been more difficult to enforce in New Jersey. In Scamardella v. Legal Helpers Debt Resolution, LLC, defendants tried to get around the notice requirements set forth in Atalese — namely that an arbitration provision contain a clear waiver of a party's right to a jury trial — by arguing that those requirements were against public policy. They did not succeed, partly because the Appellate Division held that there was no evidence supporting the anecdotal belief that arbitration provisions were being struck down more frequently since Atalese.
In Scamardella, plaintiff entered into an agreement with defendants to negotiate a settlement of his debts with his creditors. As part of this agreement, plaintiff was required to establish a special purpose bank account with one of the defendants. The account agreement for the account contained an arbitration provision that included the following language:
In the event of a dispute or claim relating in any way to this Agreement or our services, you agree that such a dispute shall be resolved by binding arbitration in Tulsa, Oklahoma utilizing a qualified independent arbitrator of [defendant's] choosing. The decision of an arbitrator will be final and subject to enforcement in a court of competent jurisdiction.
Plaintiff alleged that one of the defendants did not perform as agreed and sued all of them, alleging violations of the RICO, Consumer Fraud, and Debt Adjustment and Credit Counseling Acts, along with various common-law claims. The trial court concluded that these claims were not subject to arbitration because the arbitration provision did not, as required under Atalese, "at least in some general and sufficiently broad way, [ ] explain that the plaintiff [was] giving up [his] right to bring [his] claims in court or have a jury resolve the dispute." In other words, the arbitration provision did not clearly indicate that plaintiff was waiving his right to a jury trial.
Defendants appealed. They acknowledged that the arbitration provision did not mention waiver of a jury trial, but argued that it should still be enforced because it "unambiguously provide[d] [that] disputes be addressed in arbitration, not the courts." Defendants further argued that the "unintended effect" of Atalese was to "reverse[] the presumption in favor of arbitration into a presumption against arbitration," which they argued was contrary to "clearly established principles in the FAA and federal jurisprudence."
The Appellate Division rejected these arguments, holding that arbitration was grounded in contract principles and that federal courts rely on state law when addressing issues of contract validity and enforceability. To this end, Atalese did not prohibit the arbitration of a particular type of claim or otherwise contain any presumption against arbitration. According to the Appellate Division, it merely required that waiver of a jury trial in an arbitration provision, like the waiver of any other right in any other contract, be clearly and unmistakably established. Stated differently: "Atalese merely requires notice: an arbitration clause must inform both parties of the scope of agreement to be legally enforceable and thus demonstrate that there was 'a meeting of the minds.'" Because the arbitration provision in Scamardella did not "identify a clear and unmistakable waiver of the right to have disputes heard in a judicial form," it did not satisfy this basic contractual principle and was not enforceable.
The Appellate Division further "reject[ed] as unfounded the policy-laden contentions offered by defendants suggesting Atalese imposes 'a doctrine . . . applied in a fashion that disfavors arbitration' inconsistent with the FAA because its application results in 'a disproportionate impact on arbitration agreements.'" The Appellate Division noted that "[n]o evidential support [was] provided showing arbitration provisions [had] been invalidated at a higher rate than other contract provisions following Atalese."
Pete's Take 