Party That Drafted Arbitration Provision Moves To Have Provision Deemed Unenforceable. It Lost.

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

Arbitration (pd)Most cases involving commercial contracts and arbitration provisions follow a similar pattern. They generally involve consumers arguing that they cannot be bound by arbitration clauses found in the fine print of boilerplate contracts that they had no ability to negotiate. But Shah v. T & J Builders, LLC turns this scenario on its head. In Shah, plaintiffs, the consumers, drafted the contract that contained the arbitration clause but later argued that it was unenforceable. To make matters worse (or at least more unusual), plaintiffs took this position after participating in an arbitration proceeding with defendant for two years. Not surprisingly, plaintiffs efforts to have their own arbitration clause deemed unenforceable were unsuccessful.

In Shah, plaintiffs hired defendant to build an extension on their home. The contract, which was "heavily negotiated between the parties," albeit without counsel, was drafted by plaintiffs. It contained an arbitration clause that required the parties to arbitrate "any dispute [ ] relative to the performance of [the] contract that [they could not] satisfactorily resolve." After one such dispute arose, plaintiffs terminated the contract and defendant filed an arbitration demand. Plaintiffs answered the demand and filed a counterclaim, alleging breach of contract and violations of New Jersey Consumer Fraud Act. Nowhere in their answer or counterclaim did plaintiffs address, much less challenge, the arbitration clause.

The parties, through counsel, then pursued their claims in arbitration for almost two years, exchanging discovery and expert reports, participating in a site inspection, and participating in several conferences with the arbitrator. Two weeks before the scheduled arbitration date, the parties submitted their pre-arbitration briefs. This is where the fun began. 

Continue reading “Party That Drafted Arbitration Provision Moves To Have Provision Deemed Unenforceable. It Lost.”

Appellate Division Holds That Trial Court Had The Right To Decide If Foreclosure-Related Dispute Was Arbitrable, But Decided It Wrong

by:  Peter J. Gallagher (@pjsgallagher)

Most of the current litigation over foreclosures has played out in the courts, but a recent decision from the Appellate Division, Banquez v. Deutsche Bank National Trust Company, involved a foreclosure-related dispute that was headed to arbitration. Actually, the decision in Banquez sent the dispute to arbitration after the trial court originally held that it could stay in state court where the plaintiff originally filed it. It is an interesting decision on the enforceability of arbitration agreements, particularly on the issue of whether an arbitrator or a court gets to decide the threshold question of whether a dispute is arbitrable.

In Banquez, plaintiff purchased residential property in Linden and executed a note and mortgage to the lender. At the same time, plaintiff signed a separate arbitration agreement with the lender. The agreement gave either party the “absolute right” to demand that any “Claim” be submitted to arbitration. The agreement defined “Claim” broadly and required that any dispute about whether a Claim was subject to the agreement would be resolved by an arbitrator, not a court. The agreement also contained several “Excluded Claims” that would not be covered by the agreement, including actions “to effect a judicial or quasi-judicial foreclosure.” The agreement was silent as to whether an arbitrator or a court would decide whether a purported Excluded Claim would be governed by the agreement. Finally, the agreement contained a class action waver, which prohibited plaintiff from participating in a class action, absent the lender’s consent, if the lender elected to arbitrate a claim. The agreement provided that the validity and effect of the class action waiver was to be “determined exclusively by a court and not by an arbitrator.”


Continue reading “Appellate Division Holds That Trial Court Had The Right To Decide If Foreclosure-Related Dispute Was Arbitrable, But Decided It Wrong”