New Jersey Court Holds Arbitration Agreement Is Unenforceable Since It Fails To Disavow The Parties’ Right To Proceed In Court

The New Jersey Chancery Court has issued a decision that extends the New Jersey Supreme Court’s recent decision in Flanzman v. Jenny Craig Inc. Flanzman held enforceable an arbitration provision that failed to provide certain specifics regarding the arbitration provision to be followed because the contract language made abundantly clear that “final and binding arbitration will take the place of a jury or other civil trial.”

In Gramkow, Carnevale, Seifert & Co. v. CPAs4MDs, the Chancery Court addressed the converse. The arbitration provision provided clear guidance as to the protocol for arbitration:

“Any controversy or dispute arising out of or relating to a breach or alleged breach of any provision of this Agreement shall be settled by arbitration in Hackensack, New Jersey, in accordance with the rules of the American Arbitration Association by one arbitrator (either jointly selected by the parties, or if no agreement, then as appointed by the AAA) and judgement upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.”

The contract, however, did not include language disavowing the parties’ rights to sue in court. According to the Chancery Court, this omission is “dispositive” and “runs afoul of Flanzman,” rendering the agreement to arbitrate unenforceable.

As many, many agreements in New Jersey and elsewhere provide for arbitration without specifically stating that arbitration “would be very different from a court proceeding,” it will be exceedingly interesting to monitor this decision as it works its way through the appellate courts. Especially because this is a dispute between commercial parties, appellate affirmation would substantially change the arbitration landscape.

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