More and more contracts include clauses requiring that any dispute be resolved through arbitration rather than by going to court. Courts generally favor arbitration, a process whereby a private neutral third party hears evidence and decides the dispute. Arbitration is believed to be faster and cheaper than lengthy court actions. Often this is the case (although complex business disputes may be less fast or cheap as commonly expected.) Arbitration is, however, different than going to court, with limited or no right to appeal, and far fewer protections against arbitrary or unsatisfactory decisions.
More and more “boilerplate standard contracts” that consumers are entering into contain these clauses. This is an effort by companies providing credit, goods or services to consumers to control or restrict the rights of customers to drag them into court.
However, the New Jersey Supreme Court recently ruled that an arbitration clause in one such contract was not sufficiently clear about what the customer was giving up to be enforceable. Patricia Atalese signed a contract with US Legal Services Group [USLSG] for it to work to settle or resolve her debts. Dissatisfied with what USLSG did, she sued in New Jersey alleging violations of state and federal consumer protection statutes. Pointing to the arbitration clause on page 9 of its 23 page contract, USLSG moved to compel arbitration, and the trial court agreed. This was upheld on the first level of appeals but then the case got to the Supreme Court, which disagreed and reversed.
The key, the Court said, was that the arbitration clause did not clearly put Ms. Atalese on notice that she was waiving her right to sue in court. Waivers of important rights, it said, must always be clear and specific. Here, while the clause said that either party may submit any dispute to “binding arbitration” it did not explain what arbitration is, or how it is different from a proceeding in a court of law. Most importantly, it did not state, in language that was clear, unambiguous, and understandable to the average consumer, that she was giving up the “time honored” right to bring her claims to court or have a jury decide them.
Every day, consumers agree to terms that they may or may not have read. They may sign a lengthy “standard” contract, or they may simply “click” online acceptance of terms. Most times, these are “contracts of adhesion” in that the consumer has no meaningful power to negotiate. It is refreshing, however, that at least one court is requiring some clarity in those documents where they involve waiver of important rights.
For those drafting contracts, the decision, Atalese v U.S. Legal Services Group (decided Sept. 23, 2014) is a reminder to turn square corners in securing waivers of established rights.