Emails Between Counsel Create Agreement To Arbitrate, Even Where Contractual Arbitration Provision Would Have Been Unenforceable

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Arbitration (pd)Generally, when you end an email to your adversary with "we'll be awaiting your motion," something has gone wrong. This was certainly true in So v. Everbeauty, Inc.

In So, plaintiff sued defendant, his former employer, alleging that defendant had violated his rights under the New Jersey Law Against Discrimination and the Workers' Compensation Law. Shortly after the lawsuit was filed, defendant's counsel suggested to plaintiff's counsel that the matter should be arbitrated under the arbitration provision in plaintiff's employment contract. Plaintiff's counsel initially responded that his client was "leaning towards . . . going to arb," but that counsel still needed to speak with plaintiff, who was away on vacation. Later, plaintiff's counsel emailed defendant's counsel as follows: "I was able to speak to my client and we will proceed to arbitration. I can draft stip of dismissal." Two weeks later, however, plaintiff apparently had a change of heart. His counsel wrote to defendant's counsel stating that plaintiff had "instructed him to make efforts to avoid arbitration." Seeing the writing on the wall, plaintiff's counsel ended the email, "we'll be awaiting your motion."

As expected, defendant moved to compel arbitration, but did so in a somewhat unusual way. Defendant's counsel acknowledged that the arbitration provision in plaintiff's employment contract was unenforceable because it was not "sufficiently specific." But defendant argued that the back-and-forth between counsel created a separate, binding agreement to arbitrate. The trial court denied the motion, holding that (1) the emails between counsel did not "evidence a bargained for exchange but only a statement by plaintiff's counsel as to what his intentions were going forward in response to inquiries from defense counsel," and (2) there was no consideration to support the alleged agreement to arbitrate. Defendant appealed.   

The Appellate Division reversed. It began its decision with the well-settled notion that, while New Jersey law favors arbitration and enforcing arbitration agreements, arbitration is a matter of contract and "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." It then addressed the two grounds on which the trial court denied defendant's motion to compel arbitration.

First, the Appellate Division rejected the trial court's conclusion that the exchange of emails between counsel did not evidence a bargained for exchange. In doing so, the Appellate Division compared an agreement to arbitrate with the settlement of litigation, noting:

By analogy here, if defendant's counsel had emailed plaintiff's counsel, stating that "we will settle this case for $1000," and if plaintiff's counsel had sent a responding email stating that "we agree  to  settle  the  case  for  $1000,"  that  exchange  would  have created a binding settlement agreement. Plaintiff's later change of heart could not vitiate the agreement.

The same was true in So. While plaintiff's counsel initially indicated that he was only "leaning toward" arbitration and had to speak with his client, he later emailed defendant's counsel and unequivocally agreed to arbitrate, even offering to draft a stipulation of dismissal. Once he did so, the parties had agreed on the "essential terms" of the agreement, and "manifested an intention to be bound by those terms." Therefore, according to the Appellate Division, they had a bargained for exchange and an enforceable agreement.

Second, the Appellate Division held that there was consideration for the agreement to arbitrate. It observed that, in general, finding consideration was not hard, holding that "a very slight advantage to one party, or a trifling inconvenience to the other, is a sufficient consideration to support a contract." And, in So, there was more than a slight advantage or trifling inconvenience. Rather, both sides received a benefit by agreeing to arbitrate because arbitration is faster and less expensive than a trial, and each side gave up the right to a jury trial. Together, these evidenced sufficient consideration to support the formation of a contract.

Thus, even though the contractual arbitration provision in plaintiff's employment contract likely would not have been enforceable, the parties' subsequent agreement to arbitrate, confirmed via email, was enforceable as a separate, binding obligation.

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