In Flanzman v. Jenny Craig, Inc., 244 N.J.119, 2020 N.J. LEXIS 920 (Sept. 11, 2020), the New Jersey Supreme Court unanimously reversed an appellate division opinion, 456 N.J. Super. 613 (App. Div. 2018), that had required arbitration clauses to designate either an “arbitral institution” or a “process for selecting an arbitration mechanism or setting.” See R. Bartkus, “An Arbitration Agreement Must Identify the Forum and Rules.”
The court’s opinion reminded us that section 5 of the Federal Arbitration Act (FAA), 9 U.S.C. § 5, and section 11 of New Jersey’s version of the Revised Uniform Arbitration Act (NJRUAA), N.J.S.A. 2A:23B-11, provide an explicit remedy for the problem perceived by the appellate division; namely they give the court authority to appoint an arbitrator when the parties have failed to do so and their agreement does not specify a method for appointment. The appellate division’s additional requirement was held not to be a ground “at law or in equity for the revocation of a contract.” 2A:23B-6(a); 9 U.S.C. § 2. The court’s opinion also is significant for its analysis of both state and federal statutes’ “gap-filling” function, whether in the commercial, consumer, or employment context.
Flanzman’s sympathetic status may have swayed the appellate division’s analysis: in her 80’s, she had worked for Jenny Craig for many years and alleged that her hours had been gradually reduced to such extent as to constitute a constructive discharge in violation of New Jersey’s Law Against Discrimination. The arbitration agreement she signed in 2011 as a condition of her continuing employment began with a straightforward sentence—“Any and all claims or controversies . . . shall . . . be settled by final and binding arbitration,” slip op. at 5—and included a waiver of her right to a jury trial and court determination of her claims, as required three years later in Atalese v. United States Legal Services Group, L.P., 219 N.J. 430 (2014). It also delegated arbitrability issues to the arbitrator. However, the clause did not specify the location, choice of law or other rules for the arbitration, or the arbitral body to administer any claims; nor did it provide a method of selecting an arbitrator or rules—the absence of which the appellate division held precluded a “meeting of the minds” or mutual assent required for contract formation in New Jersey. Oddly, the opinion dismissed section 5 of the FAA and section 11 of the NJRUAA on the basis that they only addressed appointment of an arbitrator rather than an arbitral forum or institution.
The court recognized that, although identifying the arbitrator or forum (such as the American Arbitration Association or JAMS) as well as the detailed rules governing the arbitration would be useful, these designations may be intentionally omitted for practical reasons and, in any case, were not necessary for contract formation—whether measured by the “meeting of the minds” rubric or the requirement in Atalese that an arbitration clause fairly indicate to the parties (in certain consumer or employment contracts) the nature of the process that would be replacing a determination by a court and/or jury.
Significantly for other cases, the court noted that section 3 of the NJRUAA provides that it “governs all agreements to arbitrate” other than under a collective bargaining agreement or collectively negotiated agreement (which are covered by the predecessor act). The statute therefore is the “default” law part of all arbitration agreements and, whether an agreement is negotiated or adhesive, all parties are on legal notice of and bound by its provisions. Among those provisions are general descriptions of how an arbitration shall be run. More specific provisions, as in a forum’s rules, are not necessary for contract formation or to place parties on further notice of what to expect in an arbitration. This may have particular relevance for another case on appeal, argued September 15, 2020, regarding whether an arbitration clause in an attorney retainer agreement must attach or be accompanied by the rules for the forum specified in the clause. See Delaney v. Dickey, No. A-1726, 2019 N.J. Super. Unpub. LEXIS 1814 (N.J. Super. Ct. App. Div. Aug. 23, 2019), certif. granted, 240 N.J. 194 (2019).
The court opinion also is interesting for its discussion of the ways that the common law and other statutes, such as the Uniform Commercial Code or “terms that accomplish a result that was necessarily involved in the parties’ contractual undertaking,” slip op at 19, have been used to fill gaps in contracts in order to give effect to the parties’ intent. As the court noted, contracts often are “incomplete,” and courts are left to create or rely on background or default rules such as industry norms. Id. Thus, the court held that where the parties’ agreement evidences an intent to arbitrate it is consistent with New Jersey’s policy in favor of arbitration to apply general contract rules. Left unsaid, to do otherwise would place arbitration agreements on a lesser footing than other contracts which would directly violate the FAA as interpreted by several rulings of the U.S. Supreme Court.