In Atalese v. U.S. Legal Services Group, L.P., 99 A.3d 306 (N.J. 2014), cert. denied, 135 S. Ct. 2804 (2015), the plaintiff, Patricia Atalese, entered into a contract with U.S. Legal Services Group (USLSG) to provide debt-adjustment services. Atalese paid USLSG approximately $5,000. She sued under the New Jersey Consumer Fraud Act and Truth-in-Consumer Contract, Warranty and Notice Act, alleging that USLSG misrepresented that the monies were spent on numerous attorneys negotiating with her creditors. She maintained that the only work performed was preparation by one attorney of a single one-page answer for a collection action in which she represented herself. Further she alleged that USLSG settled a single debt, knowingly omitted that USLSG was not a licensed debt adjuster in New Jersey, and violated New Jersey’s usury law.

USLSG moved to compel arbitration based on an arbitration provision in the 23-page service agreement. The arbitration provision provided for arbitration before a single arbitrator in accordance with the rules of either the Judicial Arbitration and Mediation Services (JAMS) or the American Arbitration Association (AAA), as mutually agreed upon by the parties or selected by the party filing the claim. The cost of arbitration, excluding legal fees, was to be split equally or born by the losing party.

New Jersey Supreme Court Rules Arbitration Agreement Involving Statutory Claims Unenforceable

The New Jersey Superior Court Law Division and Appellate Division both ruled that arbitration was required. On further appeal, applying the de novo standard of review to the interpretation of the contract, the New Jersey Supreme Court reversed in a unanimous decision. The court reasoned that agreements to arbitrate, like any other contract, must be the product of mutual assent. In addition, an effective waiver of the right to bring suit in a judicial forum requires a party to have full knowledge of his or her legal rights and intent to surrender those rights. This is so not only of agreements to arbitrate, but of any clause in which a party gives up constitutional or statutory rights. Because the arbitration provision in question did not clearly explain that the plaintiff was waiving her right to seek relief in court of her statutory rights, the arbitration agreement was unenforceable.

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