The pandemic has certainly been a learning experience for lawyers (and also, for normal people). With very few problems, we’ve been able to conduct court conferences, negotiations, arbitrations, and even some bench trials through the miracle of Zoom (or similar services). The judges here in New Jersey also keep threatening to attempt virtual jury trials. I have my reservations about that for many reasons, but I can’t fault them for trying.
Regardless of the ability of Courts to do many things remotely, COVID-19 has caused an enormous backlog. And, when jury trials fully start again, jurors will have to be assigned to criminal cases first. This means more delay in the jury system, and makes the private arbitration of business disputes an option worth considering.
Of course, one of the parties to a dispute may not want to go to arbitration. You may have to ask a Court to enforce your arbitration agreement. Whether a judge will agree that the language of your contract is clear enough is anyone’s guess. As Humpty Dumpty said in Through the Looking Glass:
"When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master—that's all."
With that background in mind, let’s take a look at two very recent New Jersey judicial decisions interpreting arbitration clauses, and see whether we can learn anything useful.
Sengebush v. House Values Real Estate, No. A-3094-19T4 (App. Div. Feb. 2, 2021), which you can read here, involved a sexual harassment suit by a real estate broker against her former employer. Her employment agreement contained an arbitration provision that required mediation and then, if the mediation failed, binding arbitration. Naturally, plaintiff’s counsel disliked that provision, because the prospect of a jury trial usually increases the settlement value of a plaintiff’s case. Also, arbitration involves paying the arbitrator’s fees, which can be substantial.
This is the type of case (sexual harassment) in which a Court normally would bend over backwards to give a plaintiff the right to a jury trial, given the public policy issues involved. But here, the Appellate Division affirmed the trial court’s ruling mandating arbitration, and wrote in part as follows:
“The arbitration provision in the Agreement is broadly worded. It requires all disputes arising out of the Agreement, plaintiff's conduct, activities or service as a real estate licensee, and plaintiff's relationship with Re/Max HV or any Re/Max affiliate to first go to mediation and then binding arbitration. The Agreement expressly states that plaintiff ‘is agreeing not to resort to the courts or the judicial system and [is] waiving [her] rights to do so.’ We hold that that broad language is a clear and unambiguous waiver of plaintiff's right to a jury trial and her right to pursue statutory claims in a court of law.”
I have to wonder whether, pre-pandemic, the Court would have ruled the same way. Overburdened courts, combined with a shortage of judges, may lead more Courts to enforce arbitration clauses where ordinarily there might be questions.
Now consider the recent case of Delaney v. Dickey, which you can read here. That case involved an arbitration clause in an attorney’s retainer agreement. The client was a sophisticated businessperson, and there is no question that he was given sufficient time to read and understand the arbitration provision. But when a fee dispute arose, and morphed into a malpractice suit, the Court held that the arbitration clause was unenforceable. Specifically, the Court held that for an arbitration clause in a legal retainer agreement to be valid with respect to a malpractice matter, the lawyer had to explain the following in great detail to the client before the agreement was signed:
“We hold that attorneys who insert provisions in their retainer agreements to arbitrate future fee disputes or legal malpractice claims must explain the advantages and disadvantages of the arbitral and judicial forums. Attorneys can fulfill that requirement in writing or orally -- or by both means. Attorneys may explain, for example, that in arbitration the client will not have a trial before a jury in a courtroom open to the public; the outcome of the arbitration will not be appealable and will remain confidential; the client may be responsible, in part, for the costs of the arbitration proceedings, including payments to the arbitrator; and the discovery available in arbitration may be more limited than in a judicial forum. Additionally, a lawyer who drafts a retainer agreement that channels any future legal malpractice action into an arbitral forum must say so directly in the written agreement. The client should not be left to discern the meaning of language that is clothed in ambiguity.”
My friend Bill Denver argued this case on behalf of the New Jersey State Bar Association as amicus. (Bill is an excellent lawyer, and you can visit his website here.) Bill has described the case to me as follows:
“The NJSBA argued that the use of arbitration to resolve attorney-client disputes had previously been approved and recommended by the New Jersey Supreme Court and that nothing in the agreement in question violated the Rules of Professional Conduct. NJSBA argued the court should uphold the arbitration clause in question but refer the issue of whether additional disclosures should be included into law firm arbitration provisions to an ethics committee for considered review and input from the regulated community and the public. Fortunately, the Supreme Court agreed with our view, holding that the retainer agreement in question was ethical and referring the matter to committee to recommend future changes to the Rules of Professional Conduct as they apply to arbitration clauses in law firm retainer agreements. The Court also directed firms using arbitration clauses in retainer agreements to include certain information and disclosures, which provides invaluable guidance moving forward for these firms and their client.”
The bottom line is this: In any situation involving potentially unequal bargaining power, make sure the benefits, detriments, and potential costs of arbitration are clearly explained to the party that did not draft the contract, preferably in writing. Consider including all the items recommended in Delaney, irrespective of whether you’re drafting a retainer agreement for legal services. You may end up saving yourself a lot of aggravation.