The answer is “Valid,” thanks to the efforts of Capehart Scatchard shareholder Laura D. Ruccolo, Esq. who won a landmark decision on June 5, 2019, which will impact business entities in New Jersey for many years to come.
Who Decides Whether an Arbitration Clause in a Commercial Contract is Valid?
“The arbitrator,” said the New Jersey Supreme Court in the commercial contract case argued by Ruccolo this past February.
What was the Court’s Ruling?
The Court ruled that arguments and claims about the validity of commercial contracts should not be resolved by the courts when the arbitration agreement in the contract is not challenged. This is particularly so when the agreements to arbitrate contain straightforward and conspicuous language (drafted by Ruccolo) that empowered the arbitrator, not the courts, to decide whether a dispute under a contract is subject to arbitration or can or should be decided by a court.
What’s the Policy Issue Behind the Decision?
The general policy is that arbitration is favored as opposed to court proceedings. Why? Arbitration is more cost-effective, is binding (the parties are limited in their appeals), and gets to the “finish line” much quicker than initiating an action in the courts. Also, Congress has declared a national policy favoring arbitration (over litigation) and has said that states cannot require court intervention when the parties agreed to resolve their differences by arbitration.
What Does this Decision Mean for Agreements that have Arbitration Clauses?
In general, it means that if you carefully draft an agreement to arbitrate any disputes, and the arbitration clause of the agreement is not specifically challenged, disputes about the agreement must be decided by the arbitrator, not the courts.
What Should Our Business Do if We Want to Avoid Litigation? First, consult your legal professionals, and for clients who would like further information on this critical decision and your business, you may contact Laura D. Ruccolo, Esq. at lruccolo@capehart.com, Betsy G. Ramos, Esq. at bramos@capehart.com, or myself at csaginario@capehart.com. As we say, “forewarned is forearmed.” This means that with knowledge of what you can and cannot do, you may avoid trouble down the road. Second, carefully review your contracts and agreements to ensure that they comply with well-settled law on arbitration agreements.