by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)
In recent months I have written several times about the difficulty of enforcing arbitration agreements in New Jersey (e.g., here, here, and here). While the U.S. Supreme Court's decision in Kindred Nursing Centers v. Clark has some people confident that this will change, it hasn't yet. Instead, New Jersey courts continue to issue opinions demonstrating the uphill battle faced by parties trying to enforce contractual arbitration provisions. A recent unpublished Law Division opinion, Griffoul v. NRG Residential Solar Solutions, LLC, is the latest example.
In Griffoul, plaintiffs entered into a lease for a residential solar system. The lease contained a "broad form arbitration clause" in which plaintiffs agreed to arbitrate "any" claim "arising out of" or "in connection with" the lease, and agreed that, by entering into the lease, plaintiffs were waiving their right to a jury trial. The lease also contained a class action waiver provision, declaring that "each party may bring claims against the other only in its individual capacity and not as a plaintiff or a class member in any purported class or representative proceeding."
Nonetheless, just over three years after entering into the lease, plaintiffs filed a putative class action in state court. The complaint asserted the now-common one-two punch of claims under the Consumer Fraud Act ("CFA") and the Truth in Consumer Contract, Warranty and Notice Act ("TCCWNA"). The CFA claims were based on alleged misrepresentations made by defendants in connection with the marketing of the solar energy system, and the TCCWNA claims were based on six provisions of the lease that plaintiffs claimed violated clearly established rights under New Jersey law.
Defendants moved to dismiss the complaint and compel arbitration. The trial court denied the motion. In doing so, it followed a now familiar path. First it cited, seemingly favorably, the language from the New Jersey Supreme Court's seminal decision in Atalese v. U.S. Legal Services Group, L.P., that the "affirmative policy of this State, both legislative and judicial, favors arbitration as a mechanism of resolving disputes," and that "no particular form of words is necessary to accomplish a clear and unambiguous" arbitration provision. But then it noted that "the preferential status for arbitration agreements is not without limits," and that courts must evaluate the language used in contractual arbitration provisions to ensure that both parties had a clear, mutual understanding of the rights they were giving up by agreeing to arbitration. The trial court held that the language in defendants' arbitration clause was not clear enough and was therefore unenforceable.
In support of its decision, the court relied on Atalese. In that case, the arbitration provision was deemed invalid because "nowhere in the arbitration clause [was] there any explanation that plaintiff [was] waiving her right to seek relief in court for a breach of her statutory rights." After Atalese, this is what has sunk most arbitration provisions — if the provision recites that you agree to arbitrate but does not also specifically indicate that you are giving up the right to sue in court or to have your claims resolved by a jury, then it will not be enforceable. The arbitration clause in Griffoul contained language, in all caps, indicating that plaintiffs were "waiving the right to a jury trial." This should have been enough to satisfy Atalese. But, the court held that it was not specific enough because it "lack[ed] an explanation that [plaintiffs were] waiving [their] right to seek relief in court for breach of [their] statutory rights, specifically violations of the CFA and TCCWNA." In other words, even though the arbitration provision indicated that plaintiffs would submit "any dispute, disagreement, or claim" with defendants to arbitration, this did not encompass statutory claims. This seems like a stretch — "any claims" should mean "any claims" — but the lesson to take from this case is that, at least when it comes to arbitration provisions, redundancy may be necessary. To make sure your arbitration provision is enforceable, be sure to recite that it applies to all claims, including statutory claims.
The court also struck down the class action waiver in the arbitration provision. That provision, which was included within the arbitration clause, provided, again in all caps: "Each party may bring claims against the other party only in its individual capacity and not as a plaintiff or class member in any purported class or representative proceeding." The court held that this was unclear. It held, among other things, that "given that 'purported' is used to modify the allegedly waived right to a class action, it is unclear whether [plaintiffs were] being instructed that class action claims can only be brought through the courts, or that the preclusive effect of this provision only applies to reputed class claims and not meritorious class claims." Again, this seems like a stretch. "Purported" is used for the same reason that the court itself described the complaint as a "putative" class action — you are not a class when you file, you only become a class after a court grants your motion for class certification. Nonetheless, it shows the continued difficulty of enforcing arbitration provisions, and class action waivers, in New Jersey.