New Jersey Supreme Court Holds That Attorneys Cannot Enforce Arbitration Agreements With Clients Absent Full Disclosure

The New Jersey Supreme Court has rejected the enforceability of an arbitration provision in a law firm’s engagement agreement with “a sophisticated businessman”, holding that “for an arbitration provision in a retainer agreement to be enforceable, an attorney must generally explain to a client the benefits and disadvantages of arbitrating a prospective dispute between the attorney and client. Such an explanation is necessary because, to make an informed decision, the client must have a basic understanding of the fundamental
differences between an arbitral forum and a judicial forum in resolving a future fee dispute or malpractice action.”

Noting that “[w]e do not pretend hat this opinion is or should be the last word on this subject,” the Court also referred “the issues raised in this opinion to the Advisory Committee on Professional Ethics. The Committee may make recommendations to this Court and propose further guidance on the scope of an attorney’s disclosure
requirements.”

Expect this decision to resonate throughout the legal profession.

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