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State Courts Allowing Anti-Arbitration Cases to Proceed to Court

Wednesday, June, 29, 2016

Many state courts are finding ways to essentially ignore the US Supreme Court’s pro-arbitration rulings and allow customers to take legal action, despite arbitration-friendly contracts. One recent example occurred when a New Jersey court allowed a student to sue a for-profit college.


In a June 14th ruling, the New Jersey Court ruled the arbitration clause included in student enrollment agreements for Sanford Brown Institute was unenforceable. The students’ fraud claims concerning the school’s marketing and registration programs will end up being settled in a New Jersey courtroom.


According to the court, the arbitration clause could not be upheld because it failed to explain in broad or general terms that arbitration serves as a replacement for the right to take legal action within the court system. According to one consumer advocate, the clause is no good because students enrolling in the school did not understand the terms and therefore did not agree to arbitrate in lieu of filing a lawsuit. The ruling by the New Jersey court found that arbitration is not self-evident. One study even showed that just seven percent of people understood the arbitration clause meant they could not go to court.


The bottom line? According to New Jersey courts, it is legal for businesses to force customers into arbitration, but their contracts need to be very clear in explaining this is the case.


The ruling in the Sanford Brown case brings New Jersey in line with West Virginia and Kentucky concerning the refusal to enforce arbitration clauses. It’s a move by the states to avoid having their own laws pre-empted by federal court rulings.