New Jersey Appellate Division Qualifies Longstanding Arbitration Requirement That Waiver of Court Relief Must Be Express

Nearly a decade ago, the New Jersey Supreme Court in Atalese v. U.S. Legal Services Group, L.P., held that for an arbitration agreement to be enforceable, it had to contain an explicit waiver of the parties’ right to seek access to court. According to a recent New Jersey Appellate Division opinion, that long-standing rule has been qualified to reflect the relative sophistication of the parties involved in the dispute. In County of Passaic v. Horizon Healthcare Services, Inc. d/b/a Horizon Blue Cross Blue Shield of New Jersey, the Appellate Division considered a contract between the County and the entity that managed the County’s self-funded benefits plan. Following the County’s institution of a breach of contract lawsuit, Horizon successfully moved to compel arbitration based upon a clause in the parties’ agreement that required “[i]n the event of any dispute between the parties to this Agreement arising under its terms, the parties shall submit the dispute to binding arbitration under the commercial rules of the American Arbitration Association.” The clause in question contained no explicit waiver of court access. Consequently, the County appealed the decision, arguing for that very reason, the arbitration clause was unenforceable.

In affirming the trial court’s decision to compel arbitration, the Appellate Division noted that even though there was no explicit waiver, “the County is a sophisticated contracting party and is not—as in Atalese and other authorities—an employee or consumer lacking sufficient bargaining power to resist the extraction of an agreement to arbitrate.” In arriving at this conclusion, the Appellate Division began its analysis by noting the policy favoring arbitration expressed by both the Federal Arbitration Act and the New Jersey Arbitration Act. It next considered whether the arbitration clause at issue was enforceable under basic contract principles, i.e., “whether there was mutual assent, as impacted by notions of unconscionability, which vary from case to case based on the parties’ sophistication and the one-sided nature of the negotiations.”

Those basic principles, the Court noted, were critical to determining the enforceability question, because where, as there, the parties were both sophisticated commercial parties possessing relatively equal bargaining power, Atalese’s requirement of an express waiver of the right to seek relief in court was inapplicable and the arbitration agreement was enforceable. The Court further opined that in Atalese the focus was on the “unequal relationship between the contracting parties or the adhesional nature of the agreement” when holding that an express waiver was necessary for enforceability. While recognizing that the New Jersey Supreme Court has not expressly declared it, the Appellate Division held that an express waiver to the degree required by Atalese was unnecessary given that the parties to the commercial agreement were sophisticated and possessed relatively equal bargaining power.

This opinion was long overdue. It makes explicit what many have known for years was implied in Atalese, i.e., it was decided based upon the unequal sophistication and bargaining power of its parties. Presumably, when faced with this issue again, the New Jersey Supreme Court will follow the logic laid out in County of Passaic. Until then, drafters of commercial contracts should not leave things to chance and continue to include the explicit waiver language in arbitration clauses regardless of the relative sophistication of the parties at issue. Moreover, litigators will now have a clear and credible peg to compel arbitration in the absence of explicit waiver wording when the relative positions of the parties call for it.