NJ Court: Agreement To Arbitrate “Any Claims” Does Not Include Agreement To Arbitrate Statutory Claims

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Arbitration (pd)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 A recent unpublished Law Division opinion, Griffoul v. NRG Residential Solar Solutions, LLC, is the latest example.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. 

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Another Day, Another Lawsuit About Injuries Suffered At A Gym (Another Reason For Me Not To Go To The Gym)

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Weight lifters (pd)
I have written about the enforceability of waivers in health club membership agreements before, including just last week. Now the Appellate Decision has issued another decision on this same topic, Crossing-Lyons v. Town Sports International, Inc., which nicely illustrates the types of injuries that are covered by these agreements and those that are not.

First, a little background. The two seminal cases on this issue are Stelluti v. Casapenn and Walters v. YMCA , both of which I have written about before.

In Stelluti, plaintiff was injured when the handlebars of her stationary bike dislodged and caused her to fall during a spin class. The New Jersey Supreme Court held that these injuries were covered under the broad release in plaintiff's membership agreement. It reasoned that exercising entails vigorous physical exertion (depending, of course, on the person exercising – I am not sure my time on the stationary bike this morning was terribly vigorous), and that the member assumes some risks — faulty equipment, improper use of equipment, inadequate instruction, inexperience, poor physical condition of the user, or excessive exertion — as a result. While a health club must maintain its premises in a condition safe from known or discoverable defects, it need not ensure the safety of members who voluntarily assume some risk by engaging in strenuous physical activities that have a potential to result in injuries.  

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Waiver In Gym Membership Agreement Not Too Broad And Not Barred By TCCWNA

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Contract(pd)Gym memberships are notoriously difficult to cancel. As a result, there is a fair amount of litigation over the cancellation, or attempted cancellation, of gym memberships, many of which are class actions. A recent Appellate Division decision, Mellet v. Aquasid, LLC, was one such lawsuit. As an added bonus, the decision also involves the Truth in Consumer Contract, Warranty, and Notice Act (TCCWNA), a once relatively obscure statute that has recently become popular — or controversial depending on which side of a lawsuit you find yourself — and about which I have written here and here.

In Mellet, defendant was a health club. Plaintiffs were members of the health club. Plaintiffs attempted to cancel their memberships but their requests were declined and the health club continued to bill each of them. When plaintiffs failed to pay, defendant attempted to collect these unpaid fees — which included monthly dues, late fees, collection fees, and administrative fees –  from plaintiffs. In response, plaintiffs filed a putative class action, alleging that defendant's membership agreement and the fees it charged violated New Jersey law, including TCCWNA. The trial court denied plaintiffs' motion for class certification and plaintiffs appealed.

On appeal, plaintiffs raised a number of issues, but the most interesting one involved its claim that the broad waiver in the membership agreement violated TCCWNA. It provides, in part, that "[n]o seller . . . shall . . . enter into any written  consumer contract  . . . which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller . . . as established by State or Federal law at the time." Its purpose was to prevent deceptive practices in consumer contracts by prohibiting the use of illegal terms or warranties, but it has become a favorite of plaintiff's attorneys because consumers can sue under TCCWNA even if they have suffered no injury or loss, and because the statute allows successful plaintiffs to recover attorney's fees as part of their damages. 

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Winning Bidder At Sheriff’s Sale Entitled To Recoup Some, But Not All, Of His Deposit After Sale Is Vacated

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Auction (pd)A recent decision from the Appellate Division drives home (1) the duty of sellers at sheriff's sales to announce all material information about the property being sold at the sale, (2) the duty of bidders at sheriff's sales to perform independent due diligence about the property notwithstanding that announcement, and (3) the flexibility of Chancery Division courts to fashion remedies when both fail to fully satisfy their obligations.

In Wells Fargo Bank Bank, N.A. v. Torney, plaintiff foreclosed on property owned by defendant, obtained final judgment against defendant, and proceeded to sheriff's sale. In advance of the sheriff's sale, plaintiff submitted its "sheriff's sale package" to the Camden County Sheriff. Included in the package was a short form property description (required under N.J.S.A. 2A:61-1), which, among other things, disclosed that the property was subject to a $94,000 first mortgage. The existence of this prior mortgage was also disclosed in the conditions of sale attached to the short form property description, and in the Affidavit of Consideration submitted by plaintiff in connection with the foreclosure. Finally, the short form property description also contained the following disclaimer: "all interested parties are to conduct and rely upon their own independent investigation to ascertain whether or not any outstanding interest remain[s] of record and/or have priority over the lien being foreclosed and, if so[,] the correct amount due thereon."

Edward Shuman, who would eventually be the winning bidder at the sheriff' sale,  learned about the sale through the sheriff's website, which did not mention the prior mortgage. Also, at the sheriff's sale, plaintiff did not announce, as part of its "general announcements," that the property was subject to a prior mortgage. And, on the "printed condition of sale, the box next to 'subject to a first mortgage' was not checked." Shuman claims that he did not know about the prior mortgage when he placed his winning bid on the property, and did not learn about it until later that day when he inquired about the existence of any tax liens on the property. Once he learned about the mortgage, he contacted plaintiff and requested that the sale be vacated and his deposit returned. When plaintiff refused, Shuman filed a motion seeking the same relief. 

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Supreme Court: Party That Buys Defaulted Debt Not A “Debt Collector” Under The Fair Debt Collection Practices Act

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Debt collection (pd)In Henson v. Santander Consumer USA Inc., Justice Gorsuch delivered his first opinion for the Supreme Court, and in doing so, provided an interesting opinion on a relatively boring issue, and subconsciously (I assume) invoked the movie Repo Man, a classic (?) mid-1980's movie starring Emilio Estevez and Harry Dean Stanton, which the website, imdb.com, summarized as follows: "Young punk Otto [Estevez] becomes a repo man after helping to steal a car, and stumbles into a world of wackiness as a result."

Neither the facts nor the law in Henson were wacky. Plaintiffs took out loans from CitiFinancial Auto to buy cars, but later defaulted on those loans. Defendant purchased the defaulted loans and sought to collect the debt from plaintiffs in ways that plaintiffs claimed violated the Fair Debt Collection Practices Act. The Act, which was designed to curtail "[d]isruptive dinnertime calls, downright deceit and more besides" authorizes private lawsuits and "weighty fines" for anyone who engages in "wayward collection practices." But, it only applies to "debt collectors," a term that is defined to include anyone who "regularly collects or attempts to collect . . . debts owed or due . . . another." The question in Henson was whether a party who purchases debts originated by someone else and then seeks to collect those debts for its own account qualifies as a debt collector." Justice Gorsuch framed the issue as follows:

Everyone agrees that the term ["debt collector"] embraces the repo man – someone hired by a creditor to collect an outstanding debt. What if you purchase a debt and then try to collect it for yourself – does that make you a "debt collector" too? That 's the nub of the dispute now before us.  

The district court and the U.S. Court of Appeals for the Fourth Circuit sided with defendant, holding that a party that buys defaulted debt and collects it for its own account is not a "debt collector." In doing so, however, the Fourth Circuit acknowledged that other circuit courts had come to the opposite conclusion. The U.S. Supreme Court took the case to clear up this split. 

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Words Matter: Language In Retainer Agreement Bars Recovery Of Fees Incurred In Fee Arbitration Proceeding

     by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Words (pd)One of my favorite quotes from a judicial decision comes from the New Jersey Supreme Court in Atlantic Northern Airlines v. Schwimmer: "Litigation proceeding from the poverty of language is constant." I have never understood this to be a knock on the drafter. Rather, I understood it to mean that no matter how carefully you choose your words you can never make a contract, agreement, or other document litigation-proof. You see examples of this nearly every day in the daily decisions, including in the Appellate Division's recent decision in The Law Offices of Bruce E. Baldinger, LLC v. Rosen.

Baldinger involved a dispute between a law firm and its former client over attorney's fees. Defendant retained plaintiff to represent him in connection with a dispute with a contractor over work performed at defendant's home. Plaintiff and defendant entered into a retainer agreement that included an initial flat fee of $1,200 followed by hourly billing. The retainer agreement also dictated that interest at the rate of 1% per month would be charged on any unpaid balances after 30 days. The retainer agreement also contained the following provision, which is most important to our story: "If collection and enforcement efforts are required, you agree to pay counsel fees along with costs of suit." This would become important later on.

After about a month, defendant "became dissatisfied with plaintiff's representation and terminated plaintiff's services." Defendant had already paid the $1,200 flat fee, but plaintiff demanded that he also pay an addition $4,308 for work performed by plaintiff up to that point. Defendant refused to pay.

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Clear Arbitration Provision, Negotiated By Sophisticated Party While Represented By Counsel Deemed Enforceable

     by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Arbitration def (pd)The headline of this post is a little like "Dog bites man." But, given the recent trend in New Jersey of "man bites dog" type cases where courts have invalidated arbitration provisions that once seemed unambiguous (look here, here, and here for examples), the headline should make more sense.

In Columbus Circle NJ LLC v. Island Construction Co., LLC, the Appellate Division enforced an arbitration provision contained in a construction contract. Plaintiff was a single-member LLC that retained defendant to build a $1.9 million home on the bay in Avalon, New Jersey. Plaintiff's representative circulated an initial draft contract for the project that used the standard American Institute of Architects (AIA) forms. These forms contain a provision entitled "BINDING DISPUTE RESOLUTION," which, as the name suggests, requires the parties to choose "the method of binding dispute resolution" for any claims between them that are not resolved by mediation. In the draft it circulated, plaintiff's representative checked off "Arbitration pursuant to Section 15.4 of AIA Document A201-2007," rather than "Litigation in a court of competent jurisdiction." Before it was signed, the attorney for the LLC's sole member reviewed the draft and proposed changes, as did defendant, but none of these changes appear to have altered the dispute resolution provision.

During construction, disagreements arose between the parties regarding the cost of the project, leading both parties to terminate the contract. When mediation apparently failed, defendant filed a demand for arbitration. Three months later, plaintiff sued in state court. Defendant successfully moved to dismiss plaintiff's complaint and compel arbitration, and Plaintiff appealed.

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