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.”

Arbitration Provision Bounced Again, Even After Kindred Nursing Decision.

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

Arbitration (pd)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. 

Continue reading “Arbitration Provision Bounced Again, Even After Kindred Nursing Decision.”

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. 

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

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.

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

You Can’t Cross Examine A Map!

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

Drug free zone (pd)In a case decided earlier last week, State v. Wilson, the New Jersey Supreme Court answered an interesting Constitutional Law question: Whether the admission into evidence of a map showing the designated 500-foot  "drug free zone" around a public park violated an accused's right, under both the U.S. Constitution and New Jersey Constitution, to be "confronted with the witnesses against him." The court held that maps like this do not violate the Confrontation Clause and, if properly authenticated, are admissible. The problem in Wilson, however, was that the map was not properly authenticated as a public record, therefore it was inadmissible hearsay. 

The Sixth Amendment to the U.S. Constitution provides that, "[i]n all criminal prosecutions, the accused shall enjoy the right . . . to be confronted with the witnesses against him." The New Jersey Constitution contains an almost identical provision. "The Confrontation Clause affords a procedural guarantee that the reliability of evidence will be tested 'in a particular manner' through the crucible of cross-examination." As interpreted by the U.S. Supreme Court, the Confrontation Clause provides that a "testimonial statement against a defendant by a non-testifying witness is inadmissible . . . unless the witness is unavailable and the defendant had a prior opportunity to cross-examine him or her." The threshold issue, therefore, is whether a statement is "testimonial."

The U.S. Supreme Court has "labored to flesh out what it means for a statement to be 'testimonial.'" It eventually arrived at the "primary purpose" test, which asks whether a statement has the primary purpose of "establishing or proving past events potentially relevant to a later criminal prosecution." If it does, then it is testimonial. If not, then it is not. For example, the U.S. Supreme Court has held that statements made to police to assist them in responding to an "ongoing emergency," rather than to create a record for a future prosecution, are not testimonial. 

The New Jersey Supreme Court has wrestled with this "primary purpose" test as well. For example, in one case, police sent a defendant's blood to a private laboratory after a fatal car crash. Approximately 14 analysts performed a variety of tests on the blood. A supervisor at the lab then wrote a report concluding that the defendant's blood contained traces of cocaine and other drugs and that this "would have caused the defendant to be impaired an unfit to operate a motor vehicle." The State sought to admit the report, or statements from it, into evidence. The court refused, holding that the report was testimonial because its primary purpose was to "serve as a direct accusation against the defendant." Similarly, the court held, in a separate case, that the statements in an autopsy report were testimonial because the autopsy was conducted after a homicide investigation had begun, after the defendant was a suspect, and after he had spoken to police, and because the autopsy was conducted in the presence of the lead State investigator. Thus, the court held, the "primary purpose of the report was to establish facts for later use in the prosecution."

Continue reading “You Can’t Cross Examine A Map!”

One Minute for Oral Argument? Motion Decided in 60 Seconds Doesn’t Survive Appeal.

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

Stopwatch (pd)
"We anticipate that the court will engage counsel with more patience on remand."

I assume this is not something a trial court wants to see at the end of an opinion from an appellate court. But, this was precisely how the Appellate Division ended its decision in Midland Funding v. Bordeaux. The case, which involved the enforceability of an arbitration provision, is notable as much for the manner in which it was decided by the trial court as the legal issues at play in the decision.

In Midland Funding, plaintiff sued defendant over $1,018.04 in consumer debt that plaintiff purchased from the original creditor. In response, defendant denied liability and asserted a counterclaim alleging plaintiff violated the Fair Debt Collections Practices Act. During discovery, defendant moved to compel plaintiff to answer interrogatories. Plaintiff responded with a motion to compel arbitration. On the eve of the return date of that motion, defendant moved for summary judgment. Oral argument on these motion was adjourned for approximately 30 days. 

When oral argument was eventually held, it did not last long. The Appellate Division noted that the transcript "show[ed] that the oral argument hearing began at 9:10 a.m. and concluded at 9:11 a.m." In the span of a minute, the trial court concluded that defendant's credit card agreement "contain[ed] an arbitration agreement," therefore "[i]t's going to arbitration." The trial court also denied defendant's summary judgment motion without explanation and declared that defendant's motion to compel answers to interrogatories was moot.

Continue reading “One Minute for Oral Argument? Motion Decided in 60 Seconds Doesn’t Survive Appeal.”

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

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

Sky zone (pd)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]."

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