NJ Supreme Court Enforces Arbitration Agreement Despite Failure to Specify Forum, Arbitrator, & Governing Law

On September 11, 2020, in a unanimous decision, the New Jersey Supreme Court found that New Jersey law does not require that an arbitration agreement identify the arbitrator, name the arbitral forum, describe the arbitrator selection process, or provide for the governing law, so long as the agreement to arbitrate includes a clear and unmistakable waiver of the right to a jury or other civil trial of the claims. The ruling reverses an appellate panel that found the arbitration agreement unenforceable because it did not designate an arbitral forum. Flanzman v. Jenny Craig, Inc. (opinion by Patterson, J.).

BACKGROUND

In 2017, Marilyn Flanzman quit her job at Jenny Craig after her hours were reduced and then filed suit alleging age discrimination, constructive discharge, discriminatory discharge, and harassment under the New Jersey Law Against Discrimination. Jenny Craig moved to dismiss the suit and compel arbitration of the claims, relying on Flanzman’s agreements to arbitrate claims and waive her right to have a “jury or other civil trial” determine “any and all claims and controversies arising out of her employment.” The trial court agreed with Jenny Craig, enforced the arbitration agreement, and held that California law applied to Flanzman’s claims on the basis that the arbitration agreement required Flanzman to pay a fee to California state court. On appeal, the trial court’s decision was reversed and the Appellate Division found that the arbitration agreement was invalid in its entirety because it was silent as to the arbitral forum, and held that an arbitration agreement must at least designate an arbitral forum, such as the American Arbitration Association or Judicial Arbitration and Mediation Services, or at least the general process for selecting the arbitration mechanism.

THE DECISION

The New Jersey Supreme Court reversed the appellate panel, finding that the New Jersey Arbitration Act “clearly expresses the Legislature’s intent that an arbitration agreement may bind the parties without designating a specific arbitrator or arbitration organization or prescribing a process for such a designation.” The Court summarily rejected the Appellate Division’s reasoning that the agreement was unenforceable simply because it did not specify an arbitral forum. Justice Patterson wrote, although it may be clarifying and advantageous to designate an arbitral organization in the agreement, “No New Jersey statutory provision or prior decision has elevated the selection of an ‘arbitral institution’ or the designation of a ‘general process for selecting an arbitration mechanism or setting’ to the status of essential contract terms, without which an arbitration agreement must fail,” and “the NJAA’s default provisions are available to parties who leave these issues unresolved.”

The Court reaffirmed the principles established in its 2003 decision in Atalese v. U.S. Legal Services Group, that an arbitration agreement is enforceable if it contains a clear and unmistakable waiver of the claimant’s right to a jury trial. The Court found that the language in Flanzman’s agreement clearly and unmistakably waived her right to a jury or other civil trial of any and all claims or controversies arising out of her employment with Jenny Craig, in exchange for arbitration. As a practical matter, the Court commented, the parties “may choose to defer the choice of an arbitrator to a later stage when they will be in a position to assess the scope and subject of the dispute, the complexity of the proposed arbitration, and considerations of timing and cost.”

The Court also reversed the trial court’s holding that the agreement’s requirement that Flanzman pay an initial fee to a California court made California law applicable and made California the forum state, and held that these issues were for an arbitrator to decide.

BOTTOM LINE

This decision reiterates New Jersey’s strong policy in favor of resolving disputes through arbitration and is yet another example of this Court’s applying basic contract law principles to enforce an arbitration agreement and resisting the invitation to scrutinize arbitration agreements more stringently than other contracts. In enforcing the arbitration agreement, the Court specifically rejected the arguments that an arbitration agreement must at minimum name the arbitral forum, describe the process for selecting the arbitrator, and specify the governing law, and applied its June 2020 holding in Colon v. Strategic Delivery Solutions that the NJAA will provide the procedural terms missing from an arbitration agreement and thereby speed the parties toward arbitration.

For any questions regarding updating your organization’s arbitration agreements or other dispute resolution mechanism that apply in the workplace in the aftermath of the recent New Jersey and U.S. Supreme Court decisions, please contact Patrick W. McGovern, Esq. via email here or 973.535.7129, or any attorney in our Firm’s Labor Group.