One of the contemporary hot topics in New Jersey law is when and how an arbitration agreement will be binding and when it won’t be. There are, of course, many possible scenarios, which could each lead to different outcomes. For illustrative purposes, here are a few examples:
- A credit card company has an arbitration agreement buried deep in the fine print that 97% of consumers never even look at.
- Two business owners use a contract template that includes language requiring arbitration, but the language is broad and lacks specificity.
- Two parties enter into arbitration, but then one of the parties discovers conflicts of interest on the arbitrator’s part.
In each of these cases, there are arguments to void the arbitration agreement, or even the arbitration itself. Each of these cases will also have certain principles that may support the arbitration agreement. Over the next few weeks I will dive into the case law of different circumstances, and clarify when and how arbitration agreements will be binding, and how to challenge an arbitration agreement.
To start with however, it is important to understand some underlying principles relating to arbitration agreements.
- An arbitration agreement is a contract. Therefore, standard principals of contract law will apply. See J.S.A. 2A:23B-6; Pinto v. Spectrum Chems. & Lab. Prods., 200 N.J. 580, 600 (2010).
- Arbitration is favored by the courts, and an agreement to arbitrate should be read liberally in favor of arbitration. Lederman v. Prudential Life Ins. Co. of America, Inc., 385 N.J. Super. 324, 338 (App. Div. 2006).
- By its very nature, an agreement to arbitrate involves giving up the right to a trial and jury. Therefore, special care is taken to ensure that there was clear understanding and intent prior to entering into the agreement, as well as what the arbitral forum would be. See Fawzy v. Fawzy, 199 N.J. 456, 469-70 (2009); Rockel v. Cherry Hill Dodge, 368 N.J. Super. 577, 582-83 (App. Div. 2004).
- Although an arbitration agreement is a binding contract, the arbitrator acts in a quasi-judicial capacity and must render a faithful, honest and disinterested opinion upon the testimony submitted to him. Brotherton, Inc. v. Kreielsheimer, 8 N.J. 66, 70 (1951). Therefore, bias or even the appearance of bias, may disqualify an arbitrator. See Arista Marketing Associates, Inc. v. Peer Group, Inc., 316 N.J. Super. 517, 528 (N.J. Super. 1998).
Over the next several articles, we will look through specific cases and see how courts have applied these principles.