Marilyn Flanzman v. Jenny Craig, Inc.(082207)(Bergen County & Statewide) ( 2020 )

SYLLABUS
This syllabus is not part of the Court’s opinion. It has been prepared by the Office of the
Clerk for the convenience of the reader. It has been neither reviewed nor approved by the
Court. In the interest of brevity, portions of an opinion may not have been summarized.
Marilyn Flanzman v. Jenny Craig, Inc. (A-66-18) (082207)
Argued November 19, 2019 -- Decided September 11, 2020
PATTERSON, J., writing for the Court.
In this appeal, the Court considers whether the Arbitration Agreement
(Agreement) signed by plaintiff Marilyn Flanzman and her former employer compels
arbitration of Flanzman’s discrimination claims given that the Agreement did not name
the arbitrator, designate an arbitration organization to conduct the proceeding, or set forth
a process for the parties to choose an arbitrator.
In approximately July 1991, Jenny Craig, Inc., a weight loss, weight management,
and nutrition company, hired Flanzman to work as a weight maintenance counselor. In
May 2011, Flanzman signed a document entitled “Arbitration Agreement” in connection
with her employment. In February 2017, when the dispute that led to this appeal arose,
Flanzman was eighty-two years old. Flanzman’s managers informed her that her hours
would be reduced from thirty-five to nineteen hours per week. In April 2017, Flanzman’s
managers further reduced her hours to approximately thirteen hours per week. In June
2017, they reduced her hours to three hours per week, at which point she left her
employment.
Flanzman brought suit, asserting claims for age discrimination, constructive
discharge, discriminatory discharge, and harassment. Relying on the Agreement,
defendants moved to dismiss the complaint and to compel arbitration. Defendants
contended that California law governed the Agreement and that the Agreement was
enforceable. The trial court granted the motion to dismiss and ordered the parties to
arbitrate Flanzman’s claims. It held that California law governed the arbitration and that
the arbitral forum is assumed to be California.
The Appellate Division reversed. 456 N.J. Super. 613, 630 (App. Div. 2018). The
Appellate Division invalidated the Agreement because it did not designate an “arbitral
forum.” Id. at 623-24. The court held that if the parties select no “arbitral institution,”
they must at least identify “the general process for selecting an arbitration mechanism or
setting” in order for their agreement to be binding. Id. at 628-29.
The Court granted certification. 237 N.J. 310 (2019).
1
HELD: The New Jersey Arbitration Act (NJAA), which provides a default procedure for
the selection of an arbitrator and generally addresses the conduct of the arbitration,
clearly expresses the Legislature’s intent that an arbitration agreement may bind the
parties without designating a specific arbitrator or arbitration organization or prescribing
a process for such a designation. N.J.S.A. 2A:23B-11(a), -15. Under principles of New
Jersey law that generally govern contracts, the Agreement at issue is valid and
enforceable.
1. Section 2 of the Federal Arbitration Act (FAA) represents a congressional declaration
of a liberal federal policy favoring arbitration agreements, notwithstanding any state
substantive or procedural policies to the contrary. The FAA preempts any state rule
discriminating on its face against arbitration. In the FAA, Congress also promoted
arbitration by addressing the selection of an arbitrator. Section 5 of the statute authorizes
a court to designate an arbitrator on the application of any party if no contractual
provision governs the designation of an arbitrator, and an arbitrator or arbitrators
appointed by the court in accordance with the FAA “shall act under the [arbitration]
agreement with the same force and effect as if he or they had been specifically named
therein.” 9 U.S.C. § 5. (pp. 13-15)
2. The New Jersey Arbitration Act (NJAA) is nearly identical to the FAA and enunciates
the same policies favoring arbitration. The NJAA’s legislative history confirms the
Legislature’s view that the statute would operate as a “default” provision, deferring in
most respects to the terms agreed upon by the parties but mandating certain provisions
that the Legislature viewed to be critical. As did Congress when it enacted 9 U.S.C. § 5,
the Legislature ensured in the NJAA that a court can act when the parties have not agreed
on a specific arbitrator or designated a method of choosing an arbitrator, or when an
agreed-upon selection process has failed. See N.J.S.A. 2A:23B-11(a). The NJAA thus
codifies the Legislature’s intent that an arbitration agreement may be valid and
enforceable even if the parties have not chosen a specific arbitrator or set forth a process
for the selection of the arbitrator. The NJAA also provides general guidance as to how
the arbitration will proceed. See N.J.S.A. 2A:23B-15(a) to (e). (pp. 15-18)
3. In light of the NJAA’s default provisions supplying terms missing from an arbitration
agreement, a court’s enforcement of an agreement supplemented by those terms comports
with common-law principles of New Jersey contract law. Although the parties may
choose to agree upon an arbitrator or arbitral organization or set forth a plan for such a
designation, the NJAA’s default provisions are available to parties who leave those issues
unresolved. (pp. 18-20)
4. When a New Jersey court is called on to enforce an arbitration agreement, its initial
inquiry must be -- just as it is for any other contract -- whether the agreement to arbitrate
all, or any portion, of a dispute is the product of mutual assent, as determined under
customary principles of contract law. Conducting that inquiry in Atalese v. U.S. Legal
2
Services Group, L.P., the Court observed that “under New Jersey law, any contractual
‘waiver-of-rights provision must reflect that [the party] has agreed clearly and
unambiguously’ to its terms.” 219 N.J. 430, 443 (2014). The Arbitration Agreement at
issue in this appeal meets the standard of Atalese. (pp. 20-22)
5. When it invalidated the Agreement, the Appellate Division set forth a requirement for
arbitration agreements that was not imposed in Atalese, mandating either the designation
in the agreement of an “arbitral institution” or a description of “the general process for
selecting an arbitration mechanism or setting.” 456 N.J. Super. at 628-29. That principle
is not among the “grounds as exist at law or in equity for the revocation of any contract.”
Atalese, 219 N.J. at 441. No New Jersey statutory provision or prior decision has
elevated the selection of an “arbitral institution” or the designation of a “general process
for selecting an arbitration mechanism or setting” to the status of essential contract terms,
without which an arbitration agreement must fail. To the contrary, the NJAA makes clear
that its default provision for the selection of an arbitrator may operate in the absence of
contractual terms prescribing such procedures. See N.J.S.A. 2A:23B-11(a). The Court
shares the Appellate Division’s view that a detailed description of the contemplated
arbitration in an arbitration agreement enhances the clarity of that agreement and agrees
that it may be advantageous for parties to designate in their agreement an arbitral
organization but also provide an alternative method of choosing an organization should
the parties’ primary choice be unavailable. See 456 N.J. Super. at 626-30. But the
parties’ omission of a designated arbitral institution or general process for selecting an
arbitration mechanism or setting does not warrant the invalidation of an arbitration
agreement. Should the parties prove unable or unwilling to agree upon an arbitrator, the
court may exercise its appointment authority in accordance with N.J.S.A. 2A:23B-11 on
the application of either party, and the designated arbitrator may conduct the arbitration
in accordance with the procedures described in N.J.S.A. 2A:23B-15. In short, the
Agreement at issue in this appeal meets the standards imposed by New Jersey contract
law and is therefore valid and enforceable. (pp. 22-27)
6. The Court finds the Agreement to be silent as to the governing law and the jurisdiction
in which the arbitration should be held. The Court therefore vacates the trial court’s
judgment insofar as it designates California law as the governing law and concludes that
the parties agreed that California would provide the forum of the arbitration. That issue
is for the arbitrator to resolve. (pp 27-28)
The judgment of the Appellate Division is REVERSED, and the judgment of
the trial court is REINSTATED AS MODIFIED.
CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, FERNANDEZ-
VINA, and SOLOMON join in JUSTICE PATTERSON’s opinion.
3
SUPREME COURT OF NEW JERSEY
A-66 September Term 2018
082207
Marilyn Flanzman,
Plaintiff-Respondent,
v.
Jenny Craig, Inc., Lillias Piro, individually,
and Denise Shelley, individually,
Defendants,
and
JC USA, Inc.,
Defendant-Appellant.
On certification to the Superior Court,
Appellate Division, whose opinion is reported at
456 N.J. Super. 613 (App. Div. 2018).
Argued Decided
November 19, 2019 September 11, 2020
Sharon P. Margello argued the cause for appellant
(Ogletree, Deakins, Nash, Smoak & Stewart, attorneys;
Sharon P. Margello and Jocelyn A. Merced, on the
briefs).
David Zatuchni argued the cause for respondent
(Zatuchni & Associates, attorneys; David Zatuchni, on
the brief).
1
William D. Wright argued the cause for amicus curiae
New Jersey Association for Justice (The Wright Law
Firm, attorneys; William D. Wright and David T. Wright,
on the brief).
Andrew Dwyer argued the cause for amicus curiae
National Employment Lawyers Association of New
Jersey (Dwyer & Barrett, attorneys; Andrew Dwyer, of
counsel and on the brief).
JUSTICE PATTERSON delivered the opinion of the Court.
In this appeal, we determine whether the Arbitration Agreement
(Agreement) signed by plaintiff Marilyn Flanzman and her former employer,
defendant JC USA, Inc. (JC USA), compels arbitration of Flanzman’s
discrimination claims. In the Agreement, Flanzman and JC USA agreed to
resolve their disputes by “final and binding arbitration” that would take the
place of “a jury or other civil trial.” Although the Agreement stated that an
arbitrator would resolve the parties’ disputes, it did not name the arbitrator,
designate an arbitration organization to conduct the proceeding, or set forth a
process for the parties to choose an arbitrator.
Following a dispute with her employer, Flanzman left her position and
filed a complaint against the employer and individual defendants, alleging age
discrimination, constructive discharge and other claims pursuant to the Law
Against Discrimination (LAD), N.J.S.A. 10:5-1 to -49. The trial court granted
2
defendants’ motion to dismiss Flanzman’s complaint and compel arbitration of
her claims.
The Appellate Division reversed the trial court’s judgment. Flanzman v.
Jenny Craig, Inc., 456 N.J. Super. 613, 625-30 (App. Div. 2018). The court
held that in order to be valid, an arbitration agreement must designate either an
“arbitral institution” or a “process for selecting an arbitration mechanism or
setting,” and declined to enforce the Agreement on those grounds. Id. at 628-
29.
We granted JC USA’s petition for certification and reverse the Appellate
Division’s judgment. As did Congress in the Federal Arbitration Act (FAA), 9
U.S.C. §§ 1 to 16, the New Jersey Legislature adopted a policy in favor of
arbitration in the New Jersey Arbitration Act (NJAA), N.J.S.A. 2A:23B-1
to -36. The NJAA, which provides a default procedure for the selection of an
arbitrator and generally addresses the conduct of the arbitration, clearly
expresses the Legislature’s intent that an arbitration agreement may bind the
parties without designating a specific arbitrator or arbitration organization or
prescribing a process for such a designation. N.J.S.A. 2A:23B-11(a), -15.
Applying principles of New Jersey law that generally govern contracts,
we hold that the Agreement at issue is valid and enforceable. We modify the
3
trial court’s judgment as to the governing law and forum for the arbitration,
and we reinstate that judgment as modified.
I.
A.
We derive our summary of the facts from the record presented to the
trial court.
In approximately July 1991, Jenny Craig, Inc. (Jenny Craig), a weight
loss, weight management, and nutrition company, hired Flanzman to work as a
weight maintenance counselor at its facility in Paramus, New Jersey.1 In that
capacity, Flanzman provided weight-loss and weight-maintenance counseling
to Jenny Craig customers. Her normal hours as a Jenny Craig employee were
approximately thirty-five hours per week.
On May 12, 2011, Flanzman signed a document entitled “Arbitration
Agreement” in connection with her employment. 2 The Agreement provided in
part:
1
The record does not reveal the date on which Flanzman ceased being an
employee of Jenny Craig and became an employee of JC USA, nor does it
explain the relationship between the two corporate entities.
2
In a certification submitted to the trial court, Flanzman stated that she did
not recall “ever seeing the form called ‘Arbitration Agreement’ before this
litigation,” and that she had “no memory of being asked to sign this specific
form called, ‘Arbitration Agreement.’” She conceded, however, that the
Agreement “does contain my signature.”
4
Any and all claims or controversies arising out of or
relating to Employee’s employment, the termination
thereof, or otherwise arising between Employee and
Company shall, in lieu of a jury or other civil trial, be
settled by final and binding arbitration. This agreement
to arbitrate includes all claims whether arising in tort or
contract and whether arising under statute or common
law including, but not limited to, any claim of breach
of contract, discrimination or harassment of any kind.
The parties also agree to submit claims to the Arbitrator
regarding issues of arbitrability, the validity, scope, and
enforceability of this Agreement, his or her jurisdiction,
as well as any gateway, threshold, or any other
challenges to this Agreement, including claims that this
Agreement is unconscionable.
The arbitrator shall not have the authority to add to,
subtract from or modify any of the terms of this
Agreement. Judgment on any award rendered by the
arbitrator may be entered and enforced by any court
having jurisdiction thereof. Employee will pay the
then-current Superior Court of California filing fee
toward the costs of the arbitration (i.e. filing fees,
administration fees, and arbitrator fees), and each party
shall be responsible for paying its own other costs for
the arbitration, including, but not limited to attorneys’
fees, witness fees, transcript fees, or other litigation
expenses that Employee would otherwise be required to
bear in a court action. Employee shall not be required
to pay any type or amount of expense if such
requirement would invalidate this agreement or would
otherwise be contrary to the law as it exists at the time
of the arbitration. The prevailing party in any
arbitration shall be entitled to recover its reasonable
attorney’s fees and costs, where authorized by contract
or statute.
5
This agreement supersedes any and all other arbitration
agreements or policies, including, but not limited to,
anything regarding arbitration in any employee
handbook.
The Agreement also included a provision in which Flanzman and JC
USA agreed to resolve their disputes on an individual basis, not as part of “any
purported class, collective, or representative proceeding.”
In February 2017, when the dispute that led to this appeal arose,
Flanzman was eighty-two years old and was the only employee over eighty
years of age working at Jenny Craig’s Paramus location. At that time,
Flanzman’s managers informed her that her hours would be reduced from
thirty-five to nineteen hours per week. In April 2017, Flanzman’s managers
further reduced her hours to approximately thirteen hours per week. In June
2017, they reduced Flanzman’s hours to three hours per week. Flanzman
contends that although the hours of other employees at Jenny Craig’s Paramus
location were also reduced, those employees were assigned to work at least
twenty-two hours per week.
Flanzman asserts that when she complained to her managers about the
reduction in her hours, they responded, “[t]hat is just the way it is,” and
informed her that if she did not accept the reduced schedule, her position
would be terminated. She states that after finding a document in her
6
workplace that confirmed that she was the only employee at the Jenny Craig
Paramus location whose hours had been drastically reduced, she declined her
managers’ offer to work on the three-hour-per-week schedule and left her
employment at JC USA.
Flanzman claims that she was constructively discharged, and JC USA
contends that Flanzman voluntarily “elected to be separated from her
employment.”
B.
1.
Flanzman sued Jenny Craig, JC USA, and two of JC USA’s employees.
She asserted LAD claims for age discrimination, constructive discharge,
discriminatory discharge, and harassment.
Relying on the Agreement, defendants moved to dismiss the complaint
and to compel arbitration. Defendants contended that California law governed
the Agreement, that the Agreement was enforceable under both New Jersey
and California law, and that no term of the Agreement was unconscionable.
Flanzman opposed the motion. She argued that the Arbitration
Agreement was invalid because it identified no forum for the proposed
arbitration. Flanzman also asserted that because the Agreement contained no
choice-of-law provision, it was unclear whether New Jersey or California law
7
governed, and that it would be substantively and procedurally unconscionable
to require her to pursue her LAD claims in a California forum.
The trial court granted the motion to dismiss and ordered the parties to
arbitrate Flanzman’s LAD claims. Giving Flanzman the benefit of all factual
inferences, the court found that she signed the Agreement and declined to
invalidate the Agreement based on her contention that JC USA did not advise
her to consult with an attorney before signing it.
The trial court acknowledged the federal policy in favor of arbitration
codified in the FAA and recognized New Jersey’s corresponding policy in
favor of arbitration, as expressed in the NJAA. The court rejected Flanzman’s
argument that the Agreement could not be enforced without a choice-of-law
provision and a provision specifying an arbitral forum. It held that California
law governed the arbitration and that the arbitral forum is assumed to be
California. The court rejected Flanzman’s contention that the Agreement was
unconscionable and contrary to public policy because it required her to pursue
her claims in a California forum pursuant to California law. The court noted
defendants’ agreement to arbitrate the claims in a location “closer to New
Jersey” on condition that California law would govern those claims. Citing
“the interest of fairness,” the trial court ordered that Flanzman would choose
“which arbitral body would conduct the arbitration.”
8
2.
Flanzman appealed the trial court’s judgment dismissing the complaint
and compelling arbitration. The Appellate Division reversed the trial court’s
judgment. Flanzman, 456 N.J. Super. at 630.
The Appellate Division invalidated the Agreement because it did not
designate an “arbitral forum,” a term that it defined as “the mechanism -- or
setting -- that parties utilize to arbitrate their dispute.” Id. at 623-24. The
court stated that an arbitration agreement would not be rendered unenforceable
merely because the parties failed to “identify a specific arbitrator,” in light of
the NJAA’s provision for judicial selection of an arbitrator. Ibid. (citing
N.J.S.A. 2A:23B-11(a)). It held, however, that
[t]he failure to identify in the arbitration agreement the
general process for selecting an arbitration mechanism
or setting -- in the absence of a designated arbitral
institution like [the American Arbitration Association
(AAA)] or [the Judicial Arbitration and Mediation
Service (JAMS)] or any other ADR setting -- deprived
the parties from knowing what rights replaced their
right to judicial adjudication.
[Id. at 628-29.]
The Appellate Division expressed a preference that to meet the “arbitral
forum” requirement, the parties designate an “arbitral institution” such as the
AAA or JAMS, because such a designation “informs the parties, at a
9
minimum, about that institution’s general arbitration rules and procedures.”
Id. at 626. The court held that if the parties select no “arbitral institution,”
they must at least identify “the general process for selecting an arbitration
mechanism or setting” in order for their agreement to be binding. Id. at 628-
29.
Because it viewed the Agreement to lack a provision essential to the
formation of a contract, the Appellate Division declined to enforce that
Agreement and remanded the matter to the trial court for further proceedings.
Id. at 630.
3.
We granted JC USA’s petition for certification, 237 N.J. 310 (2019), and
the applications of the New Jersey Association for Justice (NJAJ) and the
National Employment Lawyers Association of New Jersey (NELA) to
participate as amici curiae.
II.
A.
Defendants contend that the Agreement at issue here is valid and
enforceable. They assert that the Agreement meets the standard stated in our
decision in Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430, 435, 445
(2014), because it clearly and unambiguously explains the distinction between
10
arbitration and a judicial forum. Defendants invoke FAA and NJAA
provisions confirming that an arbitration agreement can be enforced even if the
parties do not select an arbitrator. They argue that the Appellate Division
imposed requirements on the Agreement that are not applied in other
contractual settings, thus contravening the FAA as construed by the United
States Supreme Court in Kindred Nursing Centers Ltd. Partnership v. Clark,
581 U.S. ___, 137 S. Ct. 1421, 1424 (2017).
B.
Flanzman counters that the Appellate Division premised its decision on
settled principles of New Jersey contract law, which demand a “meeting of the
minds” as to the essential terms of the parties’ agreement. She views Atalese
not only to require that an arbitration agreement clearly and unmistakably
identify the rights that are waived, but also to mandate a description of the
arbitration proceedings that will replace the adjudication of claims in court.
Flanzman asserts that neither the FAA nor NJAA obviates the need for the
parties to specify an arbitral forum in order to enter into an enforceable
agreement.
C.
Amicus curiae NJAJ argues that an arbitration agreement does not bind
the parties unless it specifies the arbitration organization that will resolve the
11
parties’ disputes. It cites the policies adopted by three prominent arbitration
organizations mandating that all arbitrations be administered in accordance
with the respective organization’s rules, and asserts that a party should know
what arbitration organization will administer his or her arbitration before
agreeing to waive the right to litigate claims in court.
D.
Amicus curiae NELA contends that when employees agree to arbitration,
they should know not only what rights they waive by their agreement, but what
procedures will take the place of court proceedings should there be a dispute.
It argues that Flanzman’s LAD claims can be subject to arbitration only if the
parties clearly and unmistakably elect arbitration as an alternative to the court
proceedings envisioned in LAD and that, because the Agreement in this case is
silent as to an arbitral forum, it does not provide the basis for mutual assent.
III.
A.
We review de novo the trial court’s judgment dismissing the complaint
and compelling arbitration. Kernahan v. Home Warranty Adm’r of Fla., Inc.,
236 N.J. 301, 316 (2019); Morgan v. Sanford Brown Inst., 225 N.J. 289, 302-
03 (2016). The Court does not defer to the interpretive analysis of either the
12
trial court or the Appellate Division unless persuaded by either court’s
reasoning. Morgan, 225 N.J. at 302-03.
B.
1.
Section 2 of the FAA represents “a congressional declaration of a liberal
federal policy favoring arbitration agreements, notwithstanding any state
substantive or procedural policies to the contrary.” Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Section 2 provides
that
[a] written provision in any maritime transaction or a
contract evidencing a transaction involving commerce
to settle by arbitration a controversy thereafter arising
out of such contract or transaction, or the refusal to
perform the whole or any part thereof, or an agreement
in writing to submit to arbitration an existing
controversy arising out of such a contract, transaction,
or refusal, shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for
the revocation of any contract.
[9 U.S.C. § 2.]
In accordance with the FAA, “courts must place arbitration agreements
on an equal footing with other contracts . . . and enforce them according to
their terms.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)
(first citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443
13
(2006), then citing Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford
Junior Univ., 489 U.S. 468, 478 (1989)). As the Supreme Court held in
Kindred Nursing,
[t]he FAA thus preempts any state rule discriminating
on its face against arbitration -- for example, a “law
prohibit[ing] outright the arbitration of a particular type
of claim.” And not only that: The Act also displaces
any rule that covertly accomplishes the same objective
by disfavoring contracts that (oh so coincidentally)
have the defining features of arbitration agreements. In
Concepcion, for example, we described a hypothetical
state law declaring unenforceable any contract that
“disallow[ed] an ultimate disposition [of a dispute] by
a jury.” Such a law might avoid referring to arbitration
by name; but still, we explained, it would “rely on the
uniqueness of an agreement to arbitrate as [its] basis
. . . .”
[137 S. Ct. at 1426 (all but first alteration in original)
(quoting Concepcion, 563 U.S. at 341-42).]
Thus, under federal law, “[a]n arbitration clause cannot be invalidated by
state-law ‘defenses that apply only to arbitration or that derive their meaning
from the fact that an agreement to arbitrate is at issue.’” Atalese, 219 N.J. at
441 (quoting Concepcion, 563 U.S. at 339).
In the FAA, Congress also promoted arbitration by addressing the
selection of an arbitrator. Section 5 of the statute authorizes a court to
designate an arbitrator on the application of any party if no contractual
14
provision governs the designation of an arbitrator, “or if a method be provided
and any party thereto shall fail to avail himself of such method, or if for any
other reason there shall be a lapse in the naming of an arbitrator or arbitrators
or umpire, or in filling a vacancy.” 9 U.S.C. § 5. An arbitrator or arbitrators
appointed by the court in accordance with the FAA “shall act under the
[arbitration] agreement with the same force and effect as if he or they had been
specifically named therein.” Ibid.
2.
Like the federal policy expressed by Congress in the FAA, “the
affirmative policy of this State, both legislative and judicial, favors arbitration
as a mechanism of resolving disputes.” Martindale v. Sandvik, Inc., 173 N.J.
76, 92 (2002); accord Atalese, 219 N.J. at 440. The New Jersey Legislature
“codified its endorsement of arbitration agreements” in the NJAA. Hojnowski
v. Vans Skate Park, 187 N.J. 323, 342 (2006). The NJAA governs “all
agreements to arbitrate made on or after January 1, 2003,” except “an
arbitration between an employer and a duly elected representative of
employees under a collective bargaining agreement or collectively negotiated
agreement.” N.J.S.A. 2A:23B-3(a).
The NJAA “is nearly identical to the FAA and enunciates the same
policies favoring arbitration.” Arafa v. Health Express Corp., ___ N.J. ___,
15
___ (2020) (slip op. at 22) (citing Atalese, 219 N.J. at 440). The statute was
enacted to “advance arbitration as a desirable alternative to litigation and to
clarify arbitration procedures in light of the developments of the law in this
area.” Assemb. Judiciary Comm. Statement to S. 514 1 (Dec. 9, 2002).
Closely tracking its federal counterpart, the NJAA provides that “[a]n
agreement contained in a record to submit to arbitration any existing or
subsequent controversy arising between the parties to the agreement is valid,
enforceable, and irrevocable except upon a ground that exists at law or in
equity for the revocation of a contract.” N.J.S.A. 2A:23B-6(a).
The NJAA’s legislative history confirms the Legislature’s view that the
statute would operate as a “default” provision, deferring in most respects to the
terms agreed upon by the parties but mandating certain provisions that the
Legislature viewed to be critical. As the Assembly Statement to the bill
explained,
[the NJAA] is a default act, meaning that many of its
provisions may be varied or waived by contract.
Provisions that may not be varied or waived include the
rule that an agreement to submit a dispute to arbitration
is valid; the rules that govern disclosure of facts by a
neutral arbitrator; and the standards for vacating an
award but permitting the parties by agreement to review
an arbitration award under certain circumstances.
[Assemb. Judiciary Comm. Statement to S. 514 1.]
16
As did Congress when it enacted 9 U.S.C. § 5, the Legislature ensured in
the NJAA that a court can act when the parties have not agreed on a specific
arbitrator or designated a method of choosing an arbitrator, or when an agreed-
upon selection process has failed:
If the parties to an agreement to arbitrate agree on a
method for appointing an arbitrator, that method shall
be followed, unless the method fails. If the parties have
not agreed on a method, the agreed method fails, or an
arbitrator appointed fails or is unable to act and a
successor has not been appointed, the court, on
application of a party to the arbitration proceeding,
shall appoint the arbitrator. An arbitrator so appointed
has all the powers of an arbitrator designated in the
agreement to arbitrate or appointed pursuant to the
agreed method.
[N.J.S.A. 2A:23B-11(a).]
The NJAA thus codifies the Legislature’s intent that an arbitration
agreement may be valid and enforceable even if the parties have not chosen a
specific arbitrator or set forth a process for the selection of the arbitrator. See
ibid. It authorizes the court, upon application of a party, to decide an issue left
open by the parties with respect to the selection and appointment of their
arbitrator, thus facilitating the performance of the agreement. Ibid.The NJAA also provides general guidance as to how the arbitration will
proceed. It provides that the “arbitrator may conduct an arbitration in such
manner as the arbitrator considers appropriate for a fair and expeditious
17
disposition of the proceeding.” N.J.S.A. 2A:23B-15(a). The statute addresses
the arbitrator’s conduct of conferences, evidential determinations, summary
disposition of a claim or issue, and hearings; it also authorizes a court to
replace a designated arbitrator who “ceases or is unable to act.” N.J.S.A.
2A:23B-15(a) to (e); see also Kernahan, 236 N.J. at 324 (noting that the NJAA
“grants an arbitrator significant discretion over evidentiary matters in order to
advance the goal of quick and fair disposition of the parties’ dispute”) .
In light of the NJAA’s default provisions supplying terms missing from
an arbitration agreement, a court’s enforcement of an agreement supplemented
by those terms comports with common-law principles of New Jersey contract
law. Under state law, “if parties agree on essential terms and manifest an
intention to be bound by those terms, they have created an enforceable
contract.” Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992); accord
Graziano v. Grant, 326 N.J. Super. 328, 339-40 (App. Div. 1999). “So long as
the basic essentials are sufficiently definite, any gaps left by the parties should
not frustrate their intention to be bound.” Berg Agency v. Sleepworld-
Willingboro, Inc., 136 N.J. Super. 369, 377 (App. Div. 1975). As this Court
has observed,
all but the simplest contracts are, to some extent,
obligationally incomplete -- there are gaps in the
contract’s explicit and implicit provisions that leave the
parties’ obligations unspecified under certain
18
contingencies. It falls to public institutions -- courts
and legislatures -- to create background, or “default,”
rules to govern private relationships when such
unaddressed contingencies arise and private ordering,
thus, has failed.
[Mantilla v. NC Mall Assocs., 167 N.J. 262, 272 (2001)
(quoting Russell Korobkin, The Status Quo Bias and
Contract Default Rules, 83 Cornell L. Rev. 608, 609-10
(1998)).]
Thus, in Mantilla, the Court applied a default rule based on case law that
limited an indemnification obligation absent an express contractual term to the
contrary. Id. at 267-68. In Sun Coast Merchandise Corp. v. Myron Corp., the
Appellate Division recognized that where an offeree renders “an acceptance
coupled with the proposal of new or different terms . . . either the new or
different terms . . . become part of the contract or those terms could be
provided by the gap-filling provisions of the [Uniform Commercial Code
(UCC)].” 393 N.J. Super. 55, 76 (App. Div. 2007). In Kas Oriental Rugs, Inc.
v. Ellman, the Appellate Division noted that “when a contract is found to have
emanated from an agreement on essential material terms, a court will also fill
the gaps created by the parties’ silence by adding terms that accomplish a
result that was necessarily involved in the parties’ contractual undertaking.”
394 N.J. Super. 278, 287 (App. Div. 2007); see also Richardson v. Union
Carbide Indus. Gases, Inc., 347 N.J. Super. 524, 532 (App. Div. 2002)
19
(recognizing that under “[t]he majority view . . . conflicting terms fall out and,
if necessary, are replaced by suitable UCC gap-filler provisions”); Neptune
Research & Dev., Inc. v. Teknics Indus. Sys., Inc., 235 N.J. Super. 522, 531
(App. Div. 1989) (“in the absence of an agreement” with respect to time
requirements “the [UCC] will imply a provision in the contract requiring
delivery within a reasonable time,” pursuant to N.J.S.A. 12A:2-309(1)).
Thus, consistent with New Jersey contract law and the State’s policy in
favor of arbitration, the Legislature provided a default provision for the
selection of an arbitrator and general guidance for the administration of the
arbitration. N.J.S.A. 2A:23B-11(a), -15. Although the parties may choose to
agree upon an arbitrator or arbitral organization or set forth a plan for such a
designation, the NJAA’s default provisions are available to parties who leave
those issues unresolved. N.J.S.A. 2A:23B-11(a).
C.
1.
Against that backdrop, we consider the Arbitration Agreement at issue in
this appeal.
When a New Jersey court is “called on to enforce an arbitration
agreement, [its] initial inquiry must be -- just as it is for any other contract --
whether the agreement to arbitrate all, or any portion, of a dispute is ‘the
20
product of mutual assent, as determined under customary principles of contract
law.’” Kernahan, 236 N.J. at 319 (quoting Atalese, 219 N.J. at 442).
Conducting that inquiry in Atalese, we observed that “under New Jersey
law, any contractual ‘waiver-of-rights provision must reflect that [the party]
has agreed clearly and unambiguously’ to its terms.” Atalese, 219 N.J. at 443
(alteration in original) (quoting Leodori v. Cigna Corp., 175 N.J. 293, 302
(2003)). We held that an arbitration clause, “in some general and sufficiently
broad way, must explain that the plaintiff is giving up her right to bring her
claims in court or have a jury resolve the dispute.” Id. at 447. Noting that
“[n]o particular form of words is necessary to accomplish a clear and
unambiguous waiver of rights,” we stated that “[o]ur courts have upheld
arbitration clauses phrased in various ways when those clauses have explained
that arbitration is a waiver of the right to bring suit in a judicial forum.” Id. at
444. Consistent with New Jersey’s general waiver-of-rights law, however, we
required language that explains that a party who agrees to arbitration waives
the right to sue in court and makes clear that arbitration and civil litigation are
distinct proceedings. Id. at 442-48.
Applying the “clear and unmistakable” standard to the waiver of rights
provision before us in Atalese, we found no evidence of mutual assent to
arbitrate future disputes in a consumer contract’s arbitration provision that did
21
not explain that the parties had waived the rights to pursue their claims before
a judge or jury in court. Id. at 444-48. We accordingly invalidated the
arbitration clause. Id. at 448.
The Arbitration Agreement at issue in this appeal meets the standard of
Atalese. The Agreement clearly and unmistakably informs the parties that for
“[a]ny and all claims or controversies arising out of or relating to [Flanzman’s]
employment, the termination thereof, or otherwise arising between” Flanzman
and JC USA, “final and binding arbitration” will take the place of “a jury or
other civil trial.” Although the Agreement provides only a general concept of
the arbitration proceeding that would replace a judicial determination of
Flanzman’s claims, it makes clear that the contemplated arbitration would be
very different from a court proceeding.
Accordingly, under Atalese, the Agreement at issue here represents a
“meeting of the minds” with respect to Flanzman’s waiver of her right to
pursue her age discrimination cause of action under the LAD before a judge or
a jury in favor of an arbitration forum.
2.
When it invalidated the Agreement, the Appellate Division set forth a
requirement for arbitration agreements that was not imposed in Atalese.
Flanzman, 456 N.J. Super. at 628-29; cf. Atalese, 219 N.J. at 444-48. The
22
court mandated either the designation in the agreement of an “arbitral
institution” such as AAA or JAMS, or a description of “the general process for
selecting an arbitration mechanism or setting.” Flanzman, 456 N.J. Super. at
628-29. To the Appellate Division, the absence of such terms meant that the
parties “did not understand [their] rights under the arbitration agreement that
ostensibly foreclosed [Flanzman’s] right to a jury trial.” Id. at 617.
We respectfully disagree with the Appellate Division’s reasoning. The
principle that the court stated is not among the “grounds as exist at law or in
equity for the revocation of any contract.” Atalese, 219 N.J. at 441 (internal
quotation marks omitted) (quoting Martindale, 173 N.J. at 85); accord 9 U.S.C.
§ 2; N.J.S.A. 2A:23B-6(a). No New Jersey statutory provision or prior
decision has elevated the selection of an “arbitral institution” or the
designation of a “general process for selecting an arbitration mechanism or
setting” to the status of essential contract terms, without which an arbitration
agreement must fail.
To the contrary, the NJAA makes clear that its default provision for the
selection of an arbitrator may operate in the absence of contractual terms
prescribing such procedures. See N.J.S.A. 2A:23B-11(a). The NJAA reflects
the Legislature’s intent that the parties’ omission of an arbitrator or arbitral
organization, or their failure to set forth the method by which they will choose
23
an arbitrator in the event of a dispute, will not preclude the enforcement of
their agreement. Ibid.The Appellate Division construed the NJAA to authorize judicial
appointment of an arbitrator only if the parties have previously agreed on an
“arbitral forum” -- a particular “arbitral institution, or an arbitrator or
arbitrators” -- but are “unable to actually select the arbitrator.” Flanzman, 456
N.J. Super. at 623-25. We do not share that view. Nothing in the NJAA
suggests the parties’ agreement in their contract on an arbitral institution or
individual or multiple arbitrators is a prerequisite to the court’s appointment of
an arbitrator. Indeed, the NJAA expressly states that the court may appoint an
arbitrator on a party’s application in several settings, including circumstances
in which “the parties have not agreed on a method” to select an arbitrator.
N.J.S.A. 2A:23B-11(a). The statute applies to the Arbitration Agreement in
dispute here.3
3
The Appellate Division found it significant that “neither party made a
N.J.S.A. 2A:23B-11(a) application to the judge” and that “the parties did not
argue on this appeal that the judge should have appointed an arbitrator under
N.J.S.A. 2A:23B-11(a).” Flanzman, 456 N.J. Super. at 624. No such
application would be expected at the early stage of this matter, at which the
only question before the court was whether Flanzman’s claims should be
litigated in court or arbitrated. There is no evidence in the record that any
issue arose between the parties that would warrant an application to the court
under N.J.S.A. 2A:23B-11(a).
24
The setting of this case is distinct from that of the decision on which the
Appellate Division most heavily relied, Kleine v. Emeritus at Emerson, 445
N.J. Super. 545 (App. Div. 2016). There, another Appellate Division panel
invalidated an arbitration agreement because the parties’ chosen arbitration
organization, AAA, had announced prior to the execution of the arbitration
agreement that it would “no longer accept the administration of [nursing home
personal injury] cases involving individual patients without a post-dispute
agreement to arbitrate.” Id. at 552. The court reasoned that because the
parties had chosen AAA as their arbitration organization, but their dispute was
in the category of disputes that AAA no longer accepted, “the arbitration
process contemplated by the clause in question was not available when the
parties executed their contract.” Ibid. Here, in contrast, there was no
agreement to a particular arbitral organization that proved to be unavailable,
and no evidence that the involvement of a specific organization was an
essential term of the parties’ Agreement.
We share the Appellate Division’s view that a detailed description of the
contemplated arbitration in an arbitration agreement enhances the clarity of
that agreement. See Flanzman, 456 N.J. Super. at 626-28. If the parties
identify a specific arbitrator or arbitrators or agree to retain an arbitrator
affiliated with a given arbitration organization who will apply that
25
organization’s rules, they may avoid future disputes. We also agree with the
Appellate Division that it may be advantageous for parties to designate in their
agreement an arbitral organization but also provide an alternative method of
choosing an organization should the parties’ primary choice be unavailable.
See id. at 629-30 (citing Oasis Health & Rehab. of Yazoo City, LLC v. Smith,
42 F. Supp. 3d 821, 824-26 (S.D. Miss. 2014)). In many settings, such a
provision could provide a sound and practical basis to proceed.
We do not, however, view the parties’ omission of a designated arbitral
institution or general process for selecting an arbitration mechanism or setting
to warrant the invalidation of an arbitration agreement. Parties who have
expressed mutual assent to the arbitration of their disputes instead of a court
proceeding may choose to defer the choice of an arbitrator to a later stage,
when they will be in a position to assess the scope and subject of the dispute,
the complexity of the proposed arbitration, and considerations of timing and
cost. Given the availability of many skilled and experienced arbitrators --
some affiliated with arbitration organizations and some not -- parties may
choose to refrain from designating an arbitrator or an arbitration organization
until a dispute arises. Should the parties prove unable or unwilling to agree
upon an arbitrator, the court may exercise its appointment authority in
accordance with N.J.S.A. 2A:23B-11 on the application of either party, and the
26
designated arbitrator may conduct the arbitration in accordance with the
procedures described in N.J.S.A. 2A:23B-15.
In short, we concur with the trial court that the Agreement at issue in
this appeal meets the standards imposed by New Jersey contract law, and that
it is therefore valid and enforceable.
D.
We briefly address one aspect of the trial court’s judgment. Based on a
provision of the Agreement stating that Flanzman “will pay the then-current
Superior Court of California filing fee towards the costs of the arbitration ,” the
trial court ruled that California law would govern the arbitration and that the
forum for the arbitration would be California. In the interest of fairness, the
court nonetheless allowed Flanzman to choose the “arbitral body” to
administer the proceedings.
We do not view the filing-fee provision in the Agreement to constitute
either a choice-of-law provision prescribing California law as the law
governing the arbitration or a forum-selection clause requiring that the
arbitration be conducted in California. Instead, we find the Agreement to be
silent as to the governing law and the jurisdiction in which the arbitration
should be held. We therefore vacate the trial court’s judgment insofar as it
designates California law as the governing law and concludes that the parties
27
agreed that California would provide the forum of the arbitration. That issue is
for the arbitrator to resolve.
IV.
The determination of the Appellate Division is reversed, and the
judgment of the trial court, as modified, is reinstated.
CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN,
FERNANDEZ-VINA, and SOLOMON join in JUSTICE PATTERSON’s opinion.
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