U.S. Supreme Court Asked to Review a Controversial New Jersey Arbitration Decision

A California debt collector is challenging the Supreme Court of New Jersey Arbitration Decision regarding the enforceability of arbitration clauses in consumer contracts.

U.S. Legal Services Group has petitioned the U.S. Supreme Court to determine whether the New Jersey arbitration decision conflicts with the Federal Arbitration Act (FAA).

The Legal Background

As previously discussed on the Scarinci Hollenbeck Business Law News Blog, the New Jersey Supreme Court ruled in U.S. Legal Services Group v. Atalese that arbitration clauses in consumer contracts must explicitly express that the party is forfeiting the right to sue in court. If not, the agreements will not be enforced.

The arbitration agreement at issue states: “In the event of any claim or dispute … 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…. Any decision of the arbitrator shall be final and may be entered into any judgment in any court of competent jurisdiction.”

The Supreme Court Petition

In its petition for certiorari, U.S. Legal presents the following question: “Whether the Federal Arbitration Act preempts a state-law rule holding that an arbitration agreement is unenforceable unless it affirmatively explains that the contracting party is waiving the right to sue in court.”

To support its case, U.S. Legal argues the New Jersey Supreme Court’s decision is at odds with the FAA and the decisions of numerous other courts, including the Third Circuit Court of Appeals. Its petition further argues that, if left uncorrected, the court’s decision will invalidate scores of arbitration agreements, noting that the rule is a “radical departure from innumerable contracting parties’ settled expectations.”

U.S. Legal also contends that the conflict between the position adopted by the New Jersey Supreme Court and other courts will lead to forum shopping. “[A]ny time a dispute arises in a case involving an arbitration agreement that does not meet the New Jersey Supreme Court’s clear-and- unambiguous requirement, parties seeking to litigate will try their utmost to sue in New Jersey state court, while parties seeking to arbitrate will attempt the opposite,” the brief states.

To date, several groups, including the U.S. Chamber of Commerce, have filed amicus curiae briefs in support of U.S. Legal. We will be closely tracking the status of this case and will post an update here should the Supreme Court decide to grant review.