Are Beth Din Arbitration Clauses Invalid?

      Under Orthodox Jewish practice, a Jew is not supposed to sue another Jew in secular courts. Instead, they are to arbitrate their disputes before a Beth Din, which is an arbitration panel of rabbis. In order ensure that the parties will follow this rule an arbitration clause is included in a contract. Most of these are extremely basic. The Beth Din of America, in its sample arbitration provision simply states that any controversy arising out of the contract shall be settled before the Beth Din of America in accordance with their rules and that any award may be entered in any court having jurisdiction. Apparently the assumption is that anyone entering into this agreement knows what a Beth Din is. At least in New Jersey, this clause and others like it is invalid and unenforceable.

     In Atalese v. U.S. Legal Services Group, L.P., a September 2014 New Jersey Supreme Court case, the court held that if an arbitration clause does not at least in some general and sufficiently broad way explain that the plaintiff is giving up his right to bring his claims in court or have a jury render a decision, the arbitration clause is unenforceable. The reason is that an effective waiver of rights requires a party to have full knowledge of his legal rights and the intent to surrender those rights. The average member of the public may not know without explanation, that arbitration is a substitute for the right to have one’s claim heard in a court of law. Although the holding in Atalese dealt with a consumer contract, it will probably not be so limited. In Kelly v. Beverage Works N.Y. Inc., a November 2014 case, the New Jersey Appellate Division, following Atalese, invalidated an arbitration clause contained in an employee’s handbook and in the union’s collective bargaining agreement for not containing the waiver language. The court dismissed the defendant’s argument that Atalese should be limited to consumer disputes. It stated it saw no reason that employees should be charged with greater understanding of their rights then an average consumer. Such reasoning should apply to almost anyone, short of a Beth Din rabbi.
      New York courts have not reviewed this issue and it is unclear whether they will follow New Jersey. However, it is better to be safe than sorry since the problem can be easily remedied. If you have any agreement requiring arbitration, whether for Beth Din or the American Arbitration Association, you should immediately review it with your lawyer to make sure that it at least states something like the following:
"Parties understand that by entering into this agreement, that they are giving up their right to have such dispute or claim decided in a court of law before a jury and instead accept the use of arbitration."

Kim Steven Juhase
Partner, Novak Juhase & Stern, LLP

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