Arbitration Provision Bounced Again, Even After Kindred Nursing Decision.

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

As readers of this blog know, arbitration provisions in consumer contracts are difficult to enforce in New Jersey. (Click here or here for a refresher.) There was some belief that the U.S. Supreme Court's recent decision in Kindred Nursing Centers Ltd. P'ship v. Clark might change this, but it does not appear, at least not yet, that it has. In a recent case, Defina v. Go Ahead and Jump 1, LLC d/b/a Sky Zone Indoor Trampoline Park, the Appellate Division was asked to revisit, in light of Kindred Nursing, its prior decision refusing to enforce an arbitration provision in a contract between a trampoline park and one of its customers. The Appellate Division did so, but affirmed its prior decision, holding that Kindred Nursing did not require New Jersey courts to change the manner in which they approach arbitration provisions.

I wrote about Defina in its first go-around with the Appellate Division — Bounce Around The (Court)Room: Trampoline Park's Arbitration Provision Deemed Unenforceable. The underlying facts of the case are unfortunate. A child fractured his ankle while playing "Ultimate Dodgeball" at a trampoline park. Before entering the facility, the child's father signed a document entitled, "Participation Agreement, Release and Assumption of Risk." The document contained an arbitration provision, which provided:

If there are any disputes regarding this agreement, I on behalf of myself and/or my child(ren) hereby waive any right I and/or my child(ren) may have to a trial and agree that such dispute shall be brought within one year of the date of this Agreement and will be determined by binding arbitration before one arbitrator to be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. I further agree that the arbitration will take place solely in the state of Texas and that the substantive law of Texas shall apply.

Notwithstanding this provision, the child's parents sued the trampoline park in state court, alleging tort claims for simple negligence and gross negligence, and statutory claims for alleged violations of the Consumer Fraud Act and the Truth in Consumer Contract, Warranty and Notice Act.

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No Pay, No Play: Defendant’s Failure To Advance Arbitration Fees Is A Material Breach Of Arbitration Agreement And Precludes Enforcement Of Agreement

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

One of the more vexing procedural issues in arbitration arises when the other side refuses to pay its share of the arbitration fees. The arbitrator won't work for free so you are faced with a dilemma, advance the fees for the other side and try to recover them through the arbitration or have your arbitration dismissed. And, if you opt for the latter approach, can you then sue in court notwithstanding the admittedly valid and binding agreement to arbitrate? The New Jersey Supreme answered one aspect of this question in Roach v. BM Motoring, LLC, holding that defendant's refusal to advance arbitration fees as it was required to do under an arbitration agreement with plaintiffs was a material breach of the contract that precluded defendant from later trying to enforce the agreement.

In Roach, plaintiffs each purchased used cars, at separate times, from defendant. As part of their purchases, each signed a Dispute Resolution Agreement, which provided that "any and all claims, disputes or issues" would be resolved through arbitration. It further required that the arbitration be conducted "in accordance with the rules of the American Arbitration Association before a single arbitrator who shall be a retired judge or attorney," and that defendant would "advance both party's [sic] filing, service, administration, arbitrator, hearing, or other fees, subject to reimbursement by decision of the arbitrator."

After purchasing her car, Plaintiff Jackson filed an arbitration demand against defendant, alleging that defendant violated the Consumer Fraud Act. The AAA advised defendant that it was required to pay the applicable filing fees and arbitrator compensation, but defendant never did. Accordingly, the AAA declined to administer the claim and further advised (1) that it would not administer "any other consumer disputes" involving defendant as a result of defendant's failure to comply with the AAA's rules, and (2) that defendant should remove the AAA name from its arbitration agreement. Jackson never received a response from defendant's to her arbitration demand.

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Bounce Around The (Court)Room: Trampoline Park’s Arbitration Provision Deemed Unenforceable

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

In the interest of full disclosure, I have taken my kids to the Sky Zone Trampoline Park near our home and we have always had a great time. For those who have never been, these types of places are full of trampolines, but not your parents' trampolines (assuming your parents had trampolines and your experience with them was slightly better than the children of Springfield). They are huge facilities where you can "free jump," play dodge ball on trampolines, use trampolines to dunk a basketball, jump off trampolines into foam pits, etc. As you might expect, before you are allowed to jump, you need to sign a waiver, usually electronically either before you get to the facility or when you get there. I have done this on behalf of myself and my kids and of course, being a lawyer, read each word carefully as my kids were excitedly asking me, on a seemingly endless loop, when we could start jumping. In a recent decision, Defina v. Go Ahead and Jump 1, LLC d/b/a Sky Zone Indoor Trampoline Park, the Appellate Division considered whether the arbitration provision contained in this waiver was enforceable. It ruled that it was not, which is perhaps not surprising given the recent trend in New Jersey courts regarding the enforceability of arbitration agreements. (I wrote about this trend here and here.)

In Defina, plaintiff was a minor who, through her parents, sued Sky Zone for injuries allegedly suffered at the facility. Before using the facility, plaintiff's father signed a "Participation Agreement, Release and Assumption of Risk." Among other things, the agreement required parties to release, discharge, and hold Sky Zone harmless for any claims arising out of Sky Zone's "ordinary negligence." The waiver did not preclude lawsuits arising out of Sky Zone's alleged gross negligence or willful and wanton misconduct, but it did require that those claims be arbitrated pursuant to a separate arbitration provision, which provided:

If there are any disputes regarding this agreement, I on behalf of myself and/or my child(ren) hereby waive any right I and/or my child(ren) may have to a trial and agree that such dispute shall be brought within one year of the date of this Agreement and will be determined by binding arbitration before one arbitrator to be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. I further agree that the arbitration will take place solely in the state of Texas and that the substantive law of Texas shall apply.

The arbitration provision also provided that anyone who ignored the provision and sued in court would be liable to Sky Zone for $5,000 in liquidated damages. Finally, the agreement also contained a provision, in bold type, which provided that, by signing the agreement, an individual "may be found by a court of law to have waived [his or her] right to maintain a lawsuit against [Sky Zone]."

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NUB-ish! Arbitrator’s Preliminary Decision On Construction Lien Is Not Law Of The Case

by: Steve P. Gouin

In the recently decided Seavey Construction Inc. v. St. Peter, the Appellate Division reversed the Law Division and its construction of the New Jersey Construction Lien Law, N.J.S.A. 2A:44A-1, et. seq. (the Lien Law”).

Under the Lien Law, before a contractor may file a construction lien stemming from a residential project, he must file a Notice of Unpaid Balance and Right to File Lien (“NUB”) and Demand for Arbitration of the NUB with the AAA. This added step is intended to prevent contractors from filing meritless lien claims against unsuspecting homeowners. An arbitrator will be assigned to make certain determinations regarding the NUB, such as whether it was filed correctly and states a valid lien claim and whether the homeowner has any valid setoffs or counterclaims. Once the arbitrator renders his decision, the contractor may file his lien, but may be required to post a bond, to the extent the arbitrator determines that the homeowner’s claims have merit.

In Seavey, the arbitrator ruled in favor of the contractor on the NUB arbitration. In doing so, it found the homeowner’s counterclaims to be invalid. Subsequently, the contractor filed a complaint in the Law Division seeking to foreclose on its lien. The homeowner’s answered and asserted the same counterclaims that the arbitrator had found to be invalid. The trial court dismissed these counterclaims, on the grounds that the arbitrator had already found them to be invalid.

On appeal, the Appellate Division held that the arbitrator’s determination merely established a “prejudgment lien” which still need to be confirmed in litigation brought pursuant to the lien law. The arbitrator’s decision does not, as the trial division held, absolve the contractor of the burden of proving the validity of its lien claims at trial. Moreover, it does not prevent the homeowner’s from raising the same counterclaims as were asserted during arbitration of the NUB. The Court noted that, to do so, would require the parties “to have completed discovery for all non-lien causes of action within” the thirty day period provided by the Lien Law for the arbitrator to render a decision.

The Appellate Division also reversed the trial court’s grant of summary judgment on the contractor’s breach of contract and unjust enrichment claims, which the trial court had granted based on the arbitrator’s decision. The Appellate Court noted that the trial court improperly treated the arbitrator’s decision as one entitling the contractor to a money judgment. Rather, pursuant to the Lien Law, the Appellate Division held that the arbitrator’s decision, while confirming the validity of the NUB and the underlying lien claim, is not to be used for res judicata or law of the case purposes.