## Facts

- Patricia Atalese entered a 23-page consumer “service contract” with U.S. Legal Services Group, L.P. (USLSG) for debt-adjustment services and paid about $5,000 in fees.
- The contract contained an arbitration clause stating that any claim or dispute related to the agreement or services “shall be submitted to binding arbitration” at either party’s request, before JAMS or AAA, with the arbitrator’s decision final and enforceable as a court judgment.
- The clause did not state that arbitration replaced court litigation or that agreeing to arbitration waived the consumer’s right to seek relief in court.
- Atalese sued in New Jersey Special Civil Part alleging statutory consumer-protection violations, including claims under the New Jersey Consumer Fraud Act and the Truth-in-Consumer Contract, Warranty and Notice Act, and sought statutory remedies (including treble damages, penalties, and attorney’s fees).
- The trial court compelled arbitration and dismissed the complaint without prejudice; the Appellate Division affirmed.

## Issues

1. Whether a consumer arbitration clause is enforceable under New Jersey contract law when it does not clearly communicate that the consumer is waiving the right to pursue claims in court.
2. Whether requiring such clarity is preempted by the Federal Arbitration Act.

## Decision

- The New Jersey Supreme Court reversed and held the arbitration clause unenforceable.
- The Court vacated the Appellate Division’s judgment, reversed the order compelling arbitration, and remanded for litigation of the statutory claims in court.
- The Court concluded that the absence of language alerting the consumer that arbitration waived the right to seek relief in a judicial forum defeated mutual assent.
- The Court held the Federal Arbitration Act did not preempt applying New Jersey’s generally applicable “clear and unambiguous” waiver rule to arbitration provisions.

## Legal Principles

- Arbitration is a matter of contract; enforcement requires mutual assent, including a basic understanding of the terms by the parties.
- A contractual provision that waives constitutional or statutory rights must state its purpose clearly and unambiguously so a reasonable consumer can understand the rights being relinquished.
- No specific “magic words” are required, but the clause must communicate, in understandable terms, that arbitration is a substitute for a court action and that the party is giving up the right to sue in court.
- A state-law clarity requirement that applies generally to waivers of rights, and not uniquely to arbitration, is not preempted by the Federal Arbitration Act.

## Conclusion

The court held that a consumer arbitration clause must clearly inform the consumer that agreeing to arbitration means giving up the right to have disputes resolved in court; because the clause failed to provide that notice, it was unenforceable and the consumer’s statutory claims could proceed in court.


Atalese v. U.S. Legal Servs. Grp., L.P., 99 A.3d 306 (N.J. 2014)