Companies doing business in New Jersey and accustomed to settling contract disputes through binding arbitration should carefully review their contracts – and carefully draft all future contracts – to ensure that each arbitration provision contains clear and unambiguous language that the parties are waiving their rights to sue in court. An arbitration clause stating that all disputes will be determined through binding arbitration, but failing to contain this explicit waiver, may not be enforceable in accordance with the recent holding by the Appellate Division in Dispenziere v. Kushner Cos.
The Dispenziere decision stems from a dispute between a real estate developer and purchasers of residential condominium units in a Perth Amboy development known as the Landings at Harborside. At issue was the enforceability of the arbitration clause contained in the purchase agreement, which in relevant part provided:
“[a]ny disputes arising in connection with this Agreement . . . shall be heard and determined by arbitration before a single arbitrator . . . [t]he decision of the arbitrator shall be final and binding. Costs of arbitration shall be borne equally between the Seller and the Purchaser. This clause shall survive closing of title.”
The court held that the provision was not binding because the provision was “devoid of any language that would inform unit buyers such as plaintiffs that they were waiving their right to seek relief in a court of law.” In making its decision, the court relied on Atalese v. U.S. Legal Services Group, a 2013 decision by the New Jersey Supreme Court that had appeared to be limited to the context of consumer contracts.
Extending the Atalese holding to apply to real estate contracts, Dispenziere also determined that the presence of counsel during a transaction is insufficient to cure an otherwise inadequate arbitration provision. Implicit in this decision is that the relative bargaining power between parties is irrelevant in evaluating the enforceability of a contract’s arbitration clause. In other words, arbitration clauses in real estate contracts that lack “clear and unambiguous language” regarding the waiver of the right to sue in court cannot be cured of their inadequacy simply because the contract is between sophisticated third parties represented by counsel and dealing at arms’ length.