U.S. District Judge Kevin McNulty. Photo: Carmen Natale/ALM

In a federal case that was stayed pending a New Jersey Supreme Court decision that came last month, a judgehas ruled that a dispute between a disability advocate agency and a former employee accused of breach of contract must be resolved through arbitration.

U.S. District Judge Kevin McNulty of the District of New Jersey on Feb. 6 granted GAR Disability Advocate’s motion to compel arbitration in its case against Pamela Taylor.

“If the New Jersey Supreme Court has not yet declared a consumer contract to be an absolute prerequisite to the application of the Atalese ’explicit waiver’ rule, it has been elevated to the status of a very critical factor,” McNulty said, adding that “the parties here, are not ‘average member[s] of the public.’”

GAR claimed that Taylor breached the nondisclosure, noncompete, and nondisparagement clauses of its employment agreement with her when she allegedly failed to assign new cases and clients to GAR, and held herself out as the primary representative to clients, instead of GAR, according to McNulty.

Taylor was terminated, McNulty said, though it was disputed whether the termination was with or without cause. GAR filed suit after Taylor allegedly sent emails to GAR, threatening to take employees and claimants, and to release confidential information. She then filed a counterclaim, alleging she was not paid her salary, reasonable expenses, or compensation for unused vacation time as laid out in the employment agreement. GAR then filed a motion to compel arbitration of the counterclaim.

Taylor claimed that the arbitration clause is not valid under New Jersey law because it lacked an explicit waiver-of-rights provision, as detailed in the New Jersey Supreme Court’s 2014 decision in Atalese v. U.S. Legal Services.

The GAR case against Taylor was stayed pending the high court’s ruling in Kernahan v. Home Warranty Administrator of Florida, which came on Jan. 10.

In its Kernahan decision, the high court “stopped short of a categorical ruling that the rule in Atalese applies only to consumer contracts,” McNulty said. “Still, it relied very heavily on the ‘consumer fraud’ aspect of Atalese.

McNulty said that because Taylor was a sophisticated litigant who sold her business to GAR before becoming its employee, she understood the right to trial was being waived by signing the agreement.

“ In short, this was very far from being a ‘setting[] where a person would not be presumed to understand’ that the right to a civil trial was being waived,” McNulty said. “Presented with the issue, I think that the New Jersey Supreme Court would hold that the more exacting standard of Atalese does not apply here.

“Most persuasive in this context are cases compelling arbitration where the clause at issue, while not explicitly waiving a jury right, is nonetheless held enforceable because the parties were involved in sophisticated negotiations, and were not average consumers confronted with an adhesion contract,” McNulty said.

GAR’s attorney, Eli Rogers of Dreifuss Bonacci & Parker said in an email, “The record evidence would not have supported a finding that the underlying transaction was anything but commercial in nature.  The New Jersey Supreme Court’s decisions in Atalese and Kernahan are rooted in a consumer protection policy interest.  Judge McNulty’s opinion articulated that context of the Atalese line, and underscored that the exception created by the state supreme court does not apply “across the board” to every contractual arbitration clause.”

Taylor’s attorney, Michael Orozco of Price, Meese, Shulman & D’Arminio, did not respond to a request for comment.