You Can’t Be Compelled To Arbitrate In A Nonexistent Forum

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

Arbitration (pd)This one may seem obvious, but, in MacDonald v. Cashcall, Inc., the U.S. Court of Appeals for the Third Circuit held that a contractual arbitration provision that calls for arbitration in an "illusory forum" is not enforceable. So, if you were thinking about trying to compel arbitration in Wakanda or before the Jedi Council, better think twice.

In MacDonald, plaintiff entered into a loan agreement with a entity known as Western Sky in connection with a $5,000 loan. The loan agreement stated that it was "subject solely to the jurisdiction of the Cheyenne River Sioux Tribe," and "governed by the . . . laws of the Cheyenne River Sioux Tribe." It also contained an arbitration provision requiring that any disputes arising out of the agreement be "conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of [the agreement]." But the agreement also provided that either party, after demanding arbitration, could select an arbitrator from the American Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services ("JAMS") to administer the arbitration, and, if it did, "the arbitration [would] be governed by the chosen arbitration organization's rules and procedures" to the extent that they did not contradict the "law of the Cheyenne River Sioux Tribe." The agreement also contained a severability clause, providing that, if any provision of the agreement was deemed invalid, the remaining provisions would remain in effect.

Although plaintiff originally borrowed $5,000, "[h]e was charged a $75 origination fee and a 116.73% annual interest rate over the seven-year term of the loan, resulting in a $35,994.28 finance charge." After paying approximately $15,493 on the loan, which included $38.50 in principal, $15,256.65 in interest, and $197.85 in fees, plaintiff filed a putative class action lawsuit against defendants, asserting federal RICO claims and state law claims for usury and consumer fraud. Defendants moved to compel arbitration. The district court denied the motion, holding that the loan agreement's "express disavowal of federal and state law rendered the arbitration agreement invalid as an unenforceable prospective waiver of statutory rights." Defendants appealed. 

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Court Bounces Trampoline Park’s Arbitration Provision

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

Sky zone (pd)A few months ago, I wrote about the enforceability of an arbitration provision in a case involving a child who was injured at a trampoline park ("Bounce Around The (Court)Room: Trampoline Park's Arbitration Provision Deemed Unenforceable"). In that case, the trampoline park moved to compel arbitration, but the court denied the motion, holding that the waiver was unenforceable under the New Jersey Supreme Court's seminal decision in Atalese v. U.S. Legal Servs. Group, L.P, because there was no clear and unambiguous statement that plaintiff was waiving the right to sue in court to obtain relief. Today, the Appellate Division released its decision in Weed v. Sky NJ, LLC, which involved a similar issue at a similar trampoline park and in which, unfortunately for the trampoline park, the court arrived at the same conclusion (albeit for different reasons).

In Weed, plaintiff, a minor, went to a SkyZone trampoline park. Before being allowed to jump, her mother was required to sign a document with a title only a lawyer could love — "Conditional Access Agreement, Pre-Injury Waiver of Liability, and Agreement to Indemnity, Waiver of Trial, and Agreement to Arbitrate" (the "Agreement") Having apparently read my blog about the enforceability of these types of agreements at trampoline parks, the Agreement explained, in some detail, that, by signing the Agreement, the participant was waiving the right to sue in court, the right to trial by jury, etc. Plaintiff's mother signed it, and plaintiff's visit to the park on this occasion was apparently uneventful.

Not so when she returned several months later. On that visit, plaintiff was accompanied by a friend and her friend's mother. Both children were again required to sign the Agreement before being allowed to jump. Plaintiff's friend's mother signed on behalf of both children. Notably, the Agreement required that an adult signing on behalf of a child had to be the child's parent or legal guardian, or had to have been granted power of attorney to sign on behalf of the child. Plaintiff's friend's mother did not meet these requirements, but nonetheless signed the Agreement and plaintiff and her friend were allowed to enter. Plaintiff was injured during this visit to the park and sued. 

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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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If You Cancel Your Wedding Reception Can You Get Your Money Back From The Venue? (Or, When Is A Liquidated Damage Clause Enforceable?)

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

Wedding reception (pd)In the past, I have written about engagements gone wrong, including a case involving a failed (alleged) engagement and the return of a (purported) engagement ring that the recipient initially claimed to have lost, but later (apparently) found, and marriages gone wrong, including a case asking whether a marriage can be annulled because of a former wife's equitable fraud, but never a marriage reception gone wrong. With the Appellate Division's recent decision in Corona v. Stryker Golf, LLC, I am finally able to fill this gap in my failed relationship scholarship. On a more routine note, Corona also provides a helpful primer on the enforceability of liquidated damages clauses in contracts.

In Corona, plaintiff entered into a contract with defendant to hold her wedding reception at defendant's catering hall. Defendant agreed to provide the venue, food, and beverages for a contract price of approximately $12,012.80. The contract required an initial, non-refundable deposit of $2,500. Plaintiff made this payment and two subsequent payments of $5,166.35 and $1,725.35, for a total of $9,391.70. The contract contained the following provision regarding cancellation:

Cancellation under any circumstances is not acceptable and, in addition to forfeiting all deposits, the Patron will remain responsible for paying the entire balance of the contract price (excluding service charge) for the Event even if the Event does not occur.

Unfortunately, six months before the reception was to be held, plaintiff notified defendant that she was cancelling the wedding. Relying on the cancellation provision in the contract, defendant refused to return any of the money Plaintiff had paid under the contract. Plaintiff sued. Both parties moved for summary judgment. After trying to settle the case, the trial court granted defendant's motion and dismissed the complaint. The trial court held that plaintiff "twice breached the contract," although the decision does not explain how. On the issue of damages, defendant argued that the liquidated damages clause was "grossly disproportionate to [any] actual damages sustained by defendant and thus unenforceable as a penalty." The trial court rejected this argument, holding that the terms of the contract were "clear and unambiguous," therefore the court was required to enforce those terms as written.

Plaintiff appealed and the  Appellate Division reversed.

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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)

Arbitration (pd)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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