The New Jersey Supreme Court on Wednesday kicked off its 2018-19 term by hearing arguments over the enforceability of a mandatory arbitration clause in a consumer contract.
Lawyers sparred over the issue of whether a mandatory arbitration clause in an appliance-service insurance contract barred a woman from filing a lawsuit in Superior Court alleging violation of the state Consumer Fraud Act, and related claims.
The lawyer representing the defendant companies asked the justices to overturn two lower courts who ruled that the arbitration clause was unenforceable because it contained no language prohibiting consumers from going to court if they were dissatisfied with the arbitration process.
Lori Grifa, representing defendants Home Warrant Administration of Florida and Choice Home Warranty, which has an office in Edison, said the language in the clause was “clear and unambiguous” and should have been enforced.
“Any dispute is to be exclusively resolved through arbitration,” said Grifa, of Haddonfield-based Archer & Greiner.
John Keefe Jr., the lawyer for plaintiff Amanda Kernahan, disagreed and urged the justices to affirm the two lower court rulings.
“Arbitration agreements are no more sacrosanct” than other contracts, said Keefe, of the Keefe Law Firm in Red Bank. “They’re only guaranteed equal footing.”
According to court documents, Kernahan purchased a service contract from the defendants in 2015 to cover any possible repairs to her home appliances.
She canceled her contract that same year and requested and received a full refund, but after she had received more than $3,000 in payments to cover appliance repairs, according to the June 2017 unpublished ruling by Appellate Division Judges William Nugent and Heidi Currier.
Kernahan then had some type of unspecified dispute with the defendants and filed a lawsuit in Middlesex County Superior Court. She alleged violations of the Consumer Fraud Act and the state Truth in Consumer Contract, Warranty and Notice Act, and breach of the implied covenant of good faith and fair dealing.
The defendants moved for summary judgment dismissal, contending that Kernahan knowingly signed the contract and agreed to the terms of mandatory arbitration.
The contract stated: “Any and all disputes, claims and causes of action … shall be resolved exclusively by the American Arbitration Association.” The contract also barred any successful claimant from seeking counsel fees, treble damages or punitive damages.
Both the motion judge and the appeals court said the clause was unenforceable as written, in part because there was no language specifically barring a plaintiff from seeking recourse in the courts.
The Supreme Court granted certification in November 2017.
Grifa said the lower court rulings had to be overturned based on the U.S. Supreme Court’s 2017 ruling in Kindred Nursing Centers v. Clark. In that case, the court, in a 7-1 ruling, overturned a ruling by the Kentucky Supreme Court that invalidated a mandatory arbitration clause because of language ambiguity and established a “clear-statement rule,” which established rules that must be followed for arbitration agreements to be enforced. Justice Elena Kagan, writing for the majority in Kindred, said the “clear-statement rule” unfairly placed arbitration clauses on a different plane than other dispute-resolution contracts.
“Any implication on arbitration cannot stand,” Grifa told the court.
Keefe said Kindred does not apply because it was not meant to invalidate “generally applicable contractual presumptions.”
“Don’t abandon decades of sound, fundamental contract law,” Keefe said. “This contract is not an arbitration contract. There was no mutual assent here.”