New Jersey Supreme Court Finds Arbitration Agreement Unenforceable for Lack of Notice

The New Jersey Supreme Court rendered a decision on September 23 that found an arbitration provsion unenforceable because the language was insufficient to alert a reasonable consumer that she was surrendering a constitutional or statutory right.  The plaintiff, Patricia Atalese, entered into a contract with U.S. Legal Service Group, L.P. (USLSG) for debt adjustment services.  Atalese paid USLSG approximately $5,000  for its services.  She alleged that USLSG did very little for her and further, that it failed to mention that it was not a licensed debt adjuster in New Jersey.  She sued, alleging that USLSG violated the Consumer Fraud Act and other consumer law.

The contract contained the following provision:

Arbitration: 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. The parties shall agree on a single arbitrator to resolve the dispute. The matter may be arbitrated either by the Judicial Arbitration Mediation Service or American Arbitration Association, as mutually agreed upon by the parties or selected by the party filing the claim. The arbitration shall be conducted in either the county in which Client resides, or the closest metropolitan county. Any decision of the arbitrator shall be final and may be entered into any judgment in any court of competent jurisdiction. The conduct of the arbitration shall be subject to the then current rules of the arbitration service. The costs of arbitration, excluding legal fees, will be split equally or be born by the losing party, as determined by the arbitrator. The parties shall bear their own legal fees.

 The NJ Supreme Court found that despite arbitration’s “favored status,” not every arbitration clause, “however phrased,” will be enforceable.  NJ consumer law required that consumer contracts be written in a “simple, clear, understandable and easily readable way.”  Arbitration clauses, like other contractual clauses, must also be phrased in “plain language that is understandable to the reasonable consumer.”

Here, the arbitration clause was on page 9 of a 23 page contract.  It provided no explanation that the plaintiff was waiving her right to sue in court for breach of her statutory rights.  The provision also did not explain the meaning of arbitration or indicate how it differed from a court proceeding.  Finally, the court found that it was not written in plain language that would be “clear and understandable to the average consumer that she is waiving statutory rights.”  The court concluded:

“In the matter before us, the wording of the service agreement did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court.  That deficiency renders the arbitration agreement unenforceable.”

Very nice work, Supreme Court of New Jersey, for recognizing that “reasonable consumers” should not be expected to sift through fine print and make sense of legal mumbo jumbo.