The Supreme Court of New Jersey recently granted certiorari in Passaic County v. Horizon Healthcare Services. The closely watched case involves whether the requirement that an enforceable arbitration provision must contain an express waiver of the right to seek relief in a court of law applies in suits involving sophisticated commercial parties.
Facts of Passaic County v. Horizon Healthcare Services
Starting in 2002, plaintiff County of Passaic contracted with defendant Horizon Healthcare Services, Inc. to manage the County’s self-funded health benefit plan; that relationship, in one form or another, lasted until December 31, 2019. The County filed this action in 2021, claiming, among other things, that Horizon breached their contract by failing to implement certain modified reimbursement rates.
Horizon quickly moved to compel arbitration based on a stipulation in their 2009 written agreement that “[i]n the event of any dispute between the parties to this Agreement arising under its terms, the parties shall submit the dispute to binding arbitration under the commercial rules of the American Arbitration Association.” In response, the County argued that the arbitration provision is unenforceable because it lacks an explicit waiver of access in accordance with the Supreme Court’s landmark decision in Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014).
Appellate Division’s Decision
The Appellate Division affirmed the trial court’s grant of Horizon’s motion to compel. It held that arbitration provisions between sophisticated entities need not include an express warning of the implications of arbitration to be enforceable.
“We reject this argument and affirm because, even though the arbitration provision does lack such an explicit waiver, the county is a sophisticated contracting party and is not—as in Atalese and other authorities—an employee or consumer lacking sufficient bargaining power to resist the extraction of an agreement to arbitrate,” the court wrote.
In reaching its decision, the Appellate Division noted that Atalese, as well as other decisions from the New Jersey Supreme Court, focus on the unequal relationship between the contracting parties or the adhesional nature of the contract when holding that an arbitration agreement could not be enforced without an express waiver of the right to seek relief in a court of law. It also agreed with the Third Circuit Court of Appeals in recognizing that the New Jersey Supreme Court has adopted the stricter approach found in Atalese “only in the context of employment and consumer contracts.”
The Appellate Division went on to find that an express waiver of the right to seek relief in a court of law to the degree required by Atalese is unnecessary when parties to a commercial contract are sophisticated and possess comparatively equal bargaining power. While the court acknowledged that the New Jersey Supreme Court has not expressly limited Atalese’s insistence on an express waiver of the right to seek relief in a court of law, it insisted that the clues are there. As evidence, it noted that the New Jersey Supreme Court mentioned that the arbitration provision was contained in a consumer contract throughout the Atalese opinion.
“This concern for those not versed in the law or not necessarily aware of the fact that an agreement to arbitrate may preclude the right to sue in a court or invoke the inestimable right of trial by jury, on the other hand, vanishes when considering individually-negotiated contracts between sophisticated parties – often represented by counsel at the formation stage – possessing relatively similar bargaining power,” the court explained.
Issue before NJ Supreme Court
The New Jersey Supreme Court granted certiorari on May 22, 2023. The justices agreed to consider the following question:
Under the circumstances presented, was the arbitration clause unenforceable under Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014), because it lacked an explicit waiver of the right to seek relief in a court of law?
Oral arguments have not yet been scheduled. Please check back for updates.