Another Cautionary Tale For Those Drafting Arbitration Provisions

Kersten Kortbawi of Greenbaum Rowe has authored this informative article, discussing the New Jersey Appellate Division’s recent decision in County of Passaic v. Horizon Healthcare Services, Inc. Attorney Kortbawi posits that the court’s decision “fundamentally reshapes the interpretation of arbitration clauses in commercial contracts.”

Specifically, the court made a meaningful U-turn from a 2014 New Jersey Supreme Court decision, rendering unenforceable contractual arbitration provisions which fail to state that the contracting parties are waiving their right to pursue claims in a judicial forum. In Horizon Healthcare, the Appellate Division saved the arbitration provision (and the drafting attorneys) by distinguishing the case on the ground that the contracting parties were sophisticated commercial entities rather than “an employee or consumer lacking sufficient bargaining power to resist the extraction of an agreement to arbitrate.” While the language of Horizon Healthcare did not carve out this exception, the Appellate Division determined it was appropriate. One court taketh away, another court giveth.

For me, the larger takeaway from the court’s decision is reinforcement of the importance that drafting attorneys be knowledgeable about arbitration law and procedure. Absent the court creating a judicial carve out, the contracting party in Horizon Healthcare would have lost its expected right to arbitrate because the drafting attorneys failed to include the requisite “mother, may I” language. And, until created by the N.J. Supreme Court in its 2014 decision, there was nothing in pre-existing statutory or case law requiring this language.

Drafting attorneys, as they are wont to do, may copy and paste arbitration provisions from one contract to another, without in many cases having an understanding and appreciation that there can be surrounding law and legal developments that may make their chosen language unenforceable. And it simply is not realistic to expect that transactional attorneys who do not spend their days in the arbitration weeds will know of substantive changes made by legislatures or created by courts. Nonetheless, parties run the risk of having their expectations thwarted. Those drafting arbitration agreements who seek to avoid traps for the unwary should seek the input of their colleagues who devote their professional time to such matters.

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