Two recent New Jersey court decisions continue trend favoring arbitration

In a recent unanimous decision, the New Jersey Supreme Court in Flanzman v. Jenny Craig, Inc., 244 N.J. 119 (2020), reversed the Appellate Division’s ruling and enforced the parties’ arbitration agreement. In Flanzman, the plaintiff signed an “Arbitration Agreement” in connection with her employment with Jenny Craig, Inc., which provided, in part, that “all claims or controversies arising out of or relating to Employee’s employment, the termination thereof, or otherwise arising between Employee and Company shall, in lieu of a jury or other civil trial, be settled by final and binding arbitration.”

In 2017, when the plaintiff was eighty-two (82) years old, she left the company after having her hours reduced. The plaintiff then filed a complaint against her former employer and individual defendants, alleging age discrimination, constructive discharge and other claims pursuant to the Law Against Discrimination (LAD). The defendants moved to dismiss the complaint and compel arbitration relying on the arbitration agreement.

The trial court granted the defendants’ motion to dismiss and compelled arbitration of the plaintiff’s claims. The Appellate Division reversed holding that in order to be valid, an arbitration agreement must designate either an “arbitral institution” or a “process for selecting an arbitration mechanism or setting.” The Appellate Division conceded that  an arbitration agreement would not be rendered unenforceable merely because the parties failed to “identify a specific arbitrator,” however, “[t]he failure to identify…the general process for selecting an arbitration mechanism or setting…deprived the parties from knowing what rights replaced their right to judicial adjudication.”

The New Jersey Supreme Court rejected the Appellate Division’s reasoning and reversed. The New Jersey Supreme Court noted that Congress through the Federal Arbitration Act (FAA) and the New Jersey Legislature through the New Jersey Arbitration Act (NJAA) have both enacted policies favoring arbitration agreements. Further, the FAA and NJAA both provide “default” provisions enabling a court to decide issues left silent by the Flanzman parties in the arbitration agreement in question, including the process for identifying and selecting an arbitrator. In light of the NJAA's default provisions supplying terms missing from an arbitration agreement, a court's enforcement of an agreement supplemented by those default terms comports with common-law principles of New Jersey contract law. Although the parties may choose to agree upon an arbitrator or arbitral organization or set forth a plan for such a designation, the NJAA's default provisions are available to parties who leave those issues unresolved. Accordingly, the Supreme Court held that the arbitration agreement at issue was enforceable even though the parties did not choose a specific arbitrator or arbitral forum. The parties were then compelled to proceed to arbitration.

In light of the Supreme Court’s ruling in Flanzman, the Appellate Division recently remanded a matter and directed the trial court to reconsider its decision denying an attempt to compel arbitration.  In Falzo v. Greene Jumpers South Plainfield, LLC, No. A-2134-19T2, 2020 WL 5944006 (App. Div. Oct. 7, 2020), the owner and operator of Sky Zone, an indoor trampoline park, appealed from the Law Division's orders denying a defendant's Rule 4:6-2(e) motion to dismiss and to compel arbitration and denying defendant's motion for reconsideration. The defendant sought to dismiss the complaint for damages relating to the personal injuries she sustained while a patron at defendant's facility and to enforce an arbitration clause in a “Participant” agreement signed by plaintiff prior to her entry to the trampoline park.

The arbitration clause provides, in part, that the parties would arbitrate “any dispute, claim or controversy arising out of or relating to [plaintiff's] use of the Sky Zone premises…” The arbitration was to “be administered by JAMS [formerly known as the Judicial Arbitration and Mediation Service] pursuant to its Rule 16:1 expedited arbitration rules and procedures.” Also, the clause contained an acknowledgment by plaintiff that she knew that the “JAMS Arbitration Rules [were] available online for [her] review[.]” However, two years prior to the date that plaintiff signed the agreement, JAMS became ineligible for providing services in New Jersey.

The trial court originally declined to enforce the arbitration clause "[s]ince the agreement expressly provides for JAMS to be the forum for all disputes and since JAMS is not authorized to practice law in New Jersey, there was no meeting of the minds between the parties as to the forum in which the parties agreed to arbitrate.” The lower court cited the Appellate Division’s holding in Kleine v. Emeritus at Emerson, 445 N.J. Super. 545 (App. Div. 2016) and found that the parties in Kleine had agreed upon a “forum for arbitration [that] was no longer available,” which had warranted reversal of an order compelling arbitration. The parties and the motion judge in Falzo also relied on the Appellate Division’s prior ruling in Flanzman. However, after the parties had fully briefed their positions and after the Appellate Division considered oral arguments in Falzo, the New Jersey Supreme Court reversed the Appellate Division’s ruling Flanzman.

Thereafter, the Falzo panel determined that the best course was to remand the matter back to the trial court for reconsideration of its orders in light of the Supreme Court's recently issued opinion in Flanzman. Even though the matter was remanded, the Falzo panel carefully noted that “we do not suggest what the outcome of the remand should be, only that we believe that the parties' and the motion judge's consideration of the issues presented would benefit from the additional guidance provided by the Supreme Court."

Takeaways:

  • Flanzman v. Jenny Craig, Inc. is one of several recent decisions from the New Jersey Supreme Court that upholds federal and state policies favoring arbitration agreements.
  • When a New Jersey court is called on to enforce an arbitration agreement, it begins its inquiry -- just as it would for any other contract -- by determining whether the agreement to arbitrate is the product of mutual assent.
  • Any agreement to arbitrate must still meet the standard stated in Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014) in that it must sufficiently explain that the parties are waiving their right to bring claims in court and/or have a jury resolve the dispute and must reflect that the parties have “clearly and unambiguously” agreed to its terms.
  • The failure to specify an agreed-to arbitrator or arbitral forum when drafting an arbitration agreement will not render the agreement unenforceable.
  • In situations where there is no designation as to an arbitrator or arbitral forum, the New Jersey Arbitration Act (NJAA) “provides a default procedure for the selection of an arbitrator [,] generally addresses the conduct of the arbitration, [and] 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 New Jersey Supreme Court provided some beneficial guidelines for drafting arbitration agreements in order to avoid disputes:
    • A “detailed description of the contemplated arbitration in an arbitration agreement enhances the clarity of that agreement.”
    • “If the parties identify a specific arbitrator or arbitrators or agree to retain an arbitrator affiliated with a given arbitration organization who will apply that organization’s rules, they may avoid future disputes.”
    • It “may be advantageous for parties to designate in their agreement an arbitral organization but also provide an alternative method of choosing an organization should the parties’ primary choice be unavailable.”
  • The New Jersey Supreme Court distinguished Flanzman from Kleine v. Emeritus at Emerson, 445 N.J. Super. 545 (App. Div. 2016), where an Appellate Division panel invalidated an arbitration agreement because the parties’ chosen arbitration forum was not available when the parties executed the arbitration agreement. The Kleine panel found that “the arbitration process contemplated by the clause in question was not available when the parties executed their contract.” In Flanzman, by contrast, there was no agreement to a particular arbitral organization that proved to be unavailable, and no evidence that the involvement of a specific organization was an essential term of the parties’ agreement.
  • It remains to be seen how the trial court in Falzo will apply the ruling in Flanzman in light of the fact that the parties specifically agreed to a defunct arbitration forum, as was the case in Kleine.