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Recent News Regarding Arbitration Clauses in New JerseyJoseph J. DePalma

Many cases that would ordinarily be brought in court have been swept into the black holes of AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011), and Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.Ct. 1421 (2017), black holes, forcing these disputes into secret arbitration proceedings. Many readers of our blog are familiar with these Supreme Court decisions, but for those who are not, here’s a brief recap.

In AT&T Mobility v Concepcion, the United States Supreme Court held that the Federal Arbitration Act prevents a state from enforcing a law that subjects an arbitration agreement to more burdensome scrutiny than other contractual provisions. The Supreme Court stated that an arbitration clause cannot be invalidated by state law “defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.”

Concepcion set the table for the Supreme Court’s 2017 decision in Kindred Nursing, where the Court emphatically underscored its view of the nearly sacrosanct nature of these forced arbitration clauses. There, plaintiffs were relatives of two deceased persons who were residents at the nursing home. The relatives each signed agreements pursuant to powers of attorney when the patients were admitted to the home. The agreements required that all disputes be sent to arbitration. When the survivors sued the nursing home alleging substandard care, the nursing home moved to compel arbitration. The Kentucky Supreme Court ruled that because the powers of attorney did not specify that the agents could bind the principle to an arbitration agreement, they were invalid. The Kentucky court stated that arbitration agreements invalidate a “sacred” right- the right to a jury trial. The United States Supreme Court reversed, ruling that the Kentucky decision singled out arbitration clauses for special treatment, contrary to the teaching of Concepcion.

In 2014, our State Supreme Court, in Atalese v U.S Legal Services Grp., L.P., 219 N.J. 430 (2014), was confronted with an arbitration agreement that contained, among other things, a waiver of a right to a jury trial. That waiver was not clearly expressed. Our Supreme Court invalidated the provision, but rather than singling out arbitration clauses in its analysis as the Kentucky court was to do three years later, our Supreme Court analyzed the matter under general principles of contract law equally applicable to all agreements.

Atalese recognized that the Federal Arbitration Act requires courts to put arbitration agreements on equal footing with all other contracts. That is precisely the analysis that our Supreme Court undertook. The Atalese Court ruled that the requirement that a contractual provision that waives a person’s constitutional or statutory rights be sufficiently clear is not unique to arbitration clauses. Under New Jersey law, any contractual waiver of rights must reflect that the parties clearly and unambiguously agree to its terms. Because the waiver was not sufficiently clear, the arbitration clause was invalidated.

On June 5, 2018 our Appellate Division decided Defina v Go Ahead and Jump, Docket No. A-1861-17T2, where it considered whether Atalese had been overruled by Kindred Nursing. In an unpublished opinion, the court ruled that Atalese remains good law. Unlike the error the Kentucky Supreme Court made by singling out the arbitration clause and treating it differently from other agreements, the Defina court stressed the Atalese teaching that when any contract, including an arbitration agreement, contains a waiver of rights, it is invalid unless the waiver is expressed clearly and unmistakably. Perhaps the opinion was issued as not for publication because of the reason that follows.

Our Supreme Court soon will tackle the exact issue considered by the Defina court. In Kernahan v Home Warranty Administrator of Florida, Inc., Docket No. 079680, the Supreme Court granted certification to hear argument as to whether Kindred Nursing has overruled Atalese.

Stay tuned.