Arbitration is essentially hiring a private judge to make a decision in a dispute. If the arbitration is binding, there are few grounds to appeal that award.
Arbitration is a creation of contract. Generally, all parties must agree to enter arbitration to resolve their dispute. In fact, in NJ, the NJ Supreme Court has ruled that an arbitration clause must explicitly state that the parties may be giving up their rights to go to court. But what happens when the arbitration clause does not specify who the arbitrator will be (or how the arbitrator will be chosen) or what arbitration rules will be followed? This is the question a NJ Appeals Court recently addressed in Flanzman v. Jenny Craig, Inc.
From the opinion:
This appeal requires us to decide whether to invalidate an arbitration agreement because the parties failed to identify any arbitration forum and any process for conducting the arbitration. In general, a forum is the mechanism – or setting – that parties use to arbitrate their dispute. They could have designated an arbitral institution […] or they could have communicated a general method for selecting a different arbitration setting. The process is important because the rights associated with arbitration forums differ depending on which is chosen, or how the arbitral process is defined. Here, the agreement ignored the subject altogether. We hold that the parties lacked a “meeting of the minds” because they did not understand the rights under the arbitration agreement that ostensibly foreclosed plaintiff’s right to a jury trial. We therefore reverse the order compelling arbitration for lack of mutual assent.
In a contract in which one gives up a right – a jury trial for example – expecting to resolve a dispute in a some other forum, one must know about that other forum. Without that knowledge, they are unable to understand the ramifications of the agreement. If the parties do not identify an arbitral institution (such as AAA or JAMS), then they should identify the process for selecting an alternate forum. Without doing that, they have no realistic idea about the rights that replaced judicial adjudication because not all arbitration forums, mechanisms, or settings are alike.
Pursuant to this decision, you should recheck any arbitration clauses you have to ensure they are compliant and enforceable.