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Arbitration Clauses: Valid or Invalid?

By on June 20, 2019 in Arbitration with 0 Comments

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.comBetsy 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.

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Carmen Saginario Jr., Esq.

About the Author

About the Author:

Carmen Saginario Jr., Esq. is Co-Chair of Capehart Scatchard’s Labor & Employment Group. Mr. Saginario focuses his practice on employment litigation and counseling. He regularly counsels clients on litigation avoidance, personnel policies and procedures including those associated with the Americans with Disabilities Act, Family and Medical Leave Act and Fair Labor Standards Act, employment discipline, layoffs and other terminations. Mr. Saginario directs and participates in internal investigations involving claims of harassment, policy violations, ethics and other employment issues. He also appears on behalf of private and public sector clients before the judiciary as well as State and Federal administrative agencies (EEOC, N.J. Division on Civil Rights, etc.). Mr. Saginario is also experienced in representing clients before arbitrators and mediators. He has negotiated numerous public collective negotiations agreements (e.g., law enforcement, public works, etc.). Mr. Saginario has been certified by the National Football League Players Association (NFLPA) as a Contract Advisor (player agent).

Mr. Saginario also regularly represents clients in administrative and complex civil litigation matters and also supervises Capehart Scatchard’s Corporate Compliance Group which counsels and assists public and private sector entities on establishing and implementing legal and ethics compliance programs.

Mr. Saginario serves as counsel for governmental and other entities (including counties, municipalities, school boards, and fire districts) and individuals with respect to laws governing public entities, as well as educational, procurement, environmental, transportation, and public safety issues.

Mr. Saginario served as a Deputy Attorney General for the State of New Jersey and Assistant Counsel to Governor Thomas H. Kean, has served as Vice Chair and Director of Administration for the Cinnaminson Sewerage Authority, and Vice Chair and Treasurer of the New Jersey Health Care Facilities Financing Authority.

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