Supreme Court Declines to Hear Challenge to New Jersey’s Requirement of Express Waiver Language for Enforcement of Arbitration Provision in Consumer Contracts

The Supreme Court of the United States declined to review the New Jersey Supreme Court decision in U.S. Legal Services Group v. Atalese, holding that an arbitration provision in a consumer contract was not enforceable because the contract’s language waiving the consumer’s right to sue was not clear and unambiguous. The New Jersey Supreme Court’s decision, which affects the enforceability of arbitration provisions interpreted under New Jersey law, directs that such provisions must clearly notify the parties of their waiver of the right to bring a lawsuit.

For a thorough discussion of the underlying case, visit our October 2014 blog.

Following the New Jersey Supreme Court’s decision, the defendant petitioned the Supreme Court of the United States for certiorari, alleging the Federal Arbitration Act preempts any “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.” The Supreme Court declined to hear the appeal, thus keeping the rule of Atalese alive for now. But Atalese eventually may be found contrary to the Federal Arbitration Act and U.S. Supreme Court precedent. As previously reported on this blog, AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), for example, provides that the FAA may preempt a state law disfavoring enforceability of arbitration provisions. Particularly in light of Concepcion, the issue may soon be ripe for additional appellate commentary.

The U.S. Supreme Court’s decision to deny the petition for writ of certiorari not only preserves the New Jersey Supreme Court’s strong stance in favor of consumer protection, but it also leaves no question that for an arbitration provision to be enforceable, at least in the context of a consumer contract interpreted under New Jersey law, the provision must clearly place the parties on notice of their waiver of the right to sue. Individuals and business entities using arbitration provisions in their business would be well-advised to revisit their form contracts and ensure the provisions upon which they rely provide “clear and unambiguous language” that the signatories to any such agreement are waiving the right to bring suit in court.