Arbitration Clause That Does Not Specify Forum for Arbitration Ruled Unenforceable

On November 13, 2018, by way of published opinion in Flanzman v. Jenny Craig, Inc. the Appellate Division reversed a Law Division order that had compelled arbitration of the dispute. The arbitration agreement did not designate the forum for the arbitration and the appellate court held that this failure resulted in the lack of a “meeting of the minds” and therefore the arbitration provision could not be enforced.

Public policy supports consensual arbitration as a means of resolving a dispute in lieu of litigation. The arbitration agreement can be made either before or after the dispute arises. Many commercial organizations include pre-dispute arbitration agreements in their standard forms of consumer contract. A substantial body of law has developed regarding the enforceability of these clauses, with many plaintiffs preferring to have their disputed adjudicated in court. Under the Federal Arbitration Act, a state cannot refuse to enforce an arbitration agreement on a ground that would not be recognized in defense of a contract claim generally. Thus, judicial decisions refusing to enforce an arbitration agreement usually find that some general requirement for an enforceable contract was not met.

There are several organizations (the opinion names the American Arbitration Association (AAA) and JAMS as examples) which are in the business of supplying a forum for arbitration of disputes. The arbitration agreement in Flanzman did not specify either a particular forum or any method by which a forum would be selected.

In Flanzman the court found that the choice of the arbitration forum or the method for selecting the forum was important “because the rights associated with arbitration forums may differ depending on which forum the parties choose, or on how they define the arbitral process.” Therefore, the court held that there was no “meeting of the minds” on the subject of the arbitration provision and it could not be enforced.

Schiller, Pittenger & Galvin, P.C., has attorneys who are experienced in controversies over the enforceability of arbitration clauses.