Claims against a pair of Cherry Hill auto dealers who auto buyers say defrauded them through bait-and-switch tactics must arbitrate their claims, said the New Jersey Supreme Court.
The court in Goffe v. Foulke Management Corp. reversed an Appellate Division ruling that was contrary to earlier decisions by lower courts compelling the plaintiffs to arbitrate.
In so doing, the Supreme Court ruled in favor of the dealerships, who argued that the enforceability of an arbitration agreement is a question for the arbitrator to decide and not the court.
“The trial courts’ resolution of these matters was correct and consistent with clear rulings from the United States Supreme Court that bind state and federal courts on how challenges such as plaintiffs’ should proceed,” Justice Jaynee LaVecchia wrote for the unanimous court on June 5. “Those rulings do not permit threshold issues about overall contract validity to be resolved by the courts when the arbitration agreement itself is not specifically challenged.
“Here, plaintiffs attack the sales contracts in their entirety, not the language or clarity of the agreements to arbitrate or the broad delegation clauses contained in those signed arbitration agreements,” LaVecchia wrote. “The [U.S.] Supreme Court’s precedent compels only one conclusion: an arbitrator must resolve plaintiffs’ claims about the validity of their sales contracts as well as any arbitrability claims that plaintiffs may choose to raise.”
Plaintiffs Sasha Robinson and Janell Goffe are represented by Cherry Hill attorney Charles Riley. He did not return a call for comment.
The dealerships are represented by Laura Ruccolo of Capehart & Scatchard in Mount Laurel. Ruccolo also did not return a call.
James Appleton, president of the New Jersey Coalition of Automotive Retailers (NJ CAR), which represents about 510 franchise new car and truck retailers throughout the state, said the ruling sends a clear message. NJ CAR weighed in on behalf of the dealers as an amicus.
“There’s been a lot of back and forth here in New Jersey about the enforceability of arbitration agreements included in consumer contracts,” Appleton said by phone. ”This is the clearest statement so far from the New Jersey Supreme Court that the courts must honor contracts which include arbitration agreements, when they are fair and reasonable.
“Arbitration is an option that many retailers, not just car dealers, would like to avail themselves of, and the Supreme Court decision sends a clear message that this is a viable, commercial practice which the courts must respect,” he said.
After the Appellate Division ruling in April 2018, the court agreed to hear the appeals filed by the dealerships—Foulke Management Corp., doing business as Cherry Hill Triplex and Cherry Hill Mitsubishi, and Mall Chevrolet, also in Cherry Hill—last September.
The appellate ruling had overturned two lower court rulings that said Johnson and Goffe must arbitrate.
According to court documents, Robinson had sued Mall Chevrolet after she returned a 2016 Chevrolet Malibu that she purchased in November 2016, while Goffe sued Foulke after returning a Buick Verano that she had purchased in October 2016.
The sales contracts, the defendant dealerships argued, required all disputes to be arbitrated, and those arbitration agreements were clear, concise and easily understandable.
Both lawsuits were filed in Camden County. Superior Court Judge Thomas Shusted Jr. granted Mall Chevrolet’s motion to compel arbitration; Superior Court Judge Michael Kassel granted Foulke’s motion. Both women appealed.
The lawsuits allege the dealerships violated the state Consumer Fraud Act, the New Jersey Truth-in-Consumer Contract Warranty and Notice Act, the New Jersey Plain Language Act and the federal Truth-in-Lending Act.
Appellate Division Judge Clarkson Fisher Jr. in the April 2018 decision said there should be limited discovery and hearings to determine if the dealerships complied with the requirements of the statutes, such as providing the plaintiffs with copies of the sales agreements, even though the judges noted that federal policy strongly favors arbitration as a means of settling disputes.
“The policy that favors arbitration does not exist in a vacuum,” Fisher said. Judges Douglas Fasciale and Thomas Sumners Jr. joined in the ruling. “Parties must have agreed to arbitrate before a judge may compel them to arbitrate,” Fisher said. “[C]ourts do not offend the federal policy favoring [arbitration] when applying state contract principles.”
The appeals panel noted that Robinson and Goffe later signed agreements rescinding the original sales contracts, and that those agreements contained no language compelling arbitration.
The panel relied on Guidotti v. Legal Helpers Debt Resolution, a 2013 decision from the U.S. Court of Appeals for the Third Circuit that sent the case back to district court on the fact issue of whether an arbitration contract had been formed. Factual disputes must be resolved by a judge before there can be any decision to compel arbitration, Fisher said. “Any other approach risks a possibility that a CFA violator might receive the benefit of the very contract extracted in violation of the CFA,” he said.
In reviewing the consolidated appeal, the justices disagreed.
The court noted that Robinson and Goffe each challenged the formation and validity of their sales agreements on the bases that the dealerships’ fraudulent practices and misrepresentations induced them to sign the transactional documents. The women also challenged the agreements’ validity due to violations of statutory consumer fraud requirements.
As part of the overall set of documents, Robinson and Goffe both signed arbitration agreements. Those agreements, the court said, contained straightforward and conspicuous language that broadly delegated arbitrability issues—issues of whether a particular matter is subject to arbitration or can be decided by a court—to an arbitrator.
On Nov. 5, 2016, Robinson contacted Mall Chevrolet about buying a car and allegedly was told that if she purchased from the dealership, she would have two days within which to change her mind, return it, and get her money back. Robinson moved ahead with the car purchase transaction that day, charged the $1,000 deposit to her debit card, and handed over the keys to her Chevrolet Cruze as a trade-in.
Robinson signed several documents, including a “Motor Vehicle Retail Order” (MVRO), that set forth the price of the new car, various fees, the price of the trade-in, and the deposit amount. She also signed an arbitration agreement to arbitrate “all claims and disputes arising out of … [the] purchase of any goods,” including disputes as to “whether the claim or dispute must be arbitrated,” according to court documents.
When Robinson sought to return the Malibu, she allegedly was told, contrary to what the sales representative told her, that she would not be able to rescind the deal, and that she was bound by the documents she signed. Robinson alleges that the representatives then attempted to “coerce” her into signing purchase documents even though she demanded her $1,000 deposit back.
Robinson testified she was able to leave the dealership with her former car after Mall Chevrolet eventually relented and returned the car to her, and promised to pay back her $1,000 deposit after she called an attorney and threatened to call police.
Robinson claims she did not receive the return of any deposit money until after she filed her complaint in Superior Court.
Plaintiff Goffe went to Cherry Hill Mitsubishi on Oct. 7, 2016, in response to an internet advertisement for a Buick listed for $15,800. Goffe testified that she was told that she could obtain the car that day if she traded in her 2006 Infiniti, paid $250 immediately, and then paid $750 two weeks later. She was told that financing on the Buick was approved, she claims.
Goffe went ahead with the proposed deal and signed several documents, including an arbitration agreement—identical in form to those that Robinson signed—and drove off the lot with the Buick.
When Goffe returned two weeks later with the remainder of the down payment, she was informed that financing had not been approved—contrary to what she was originally told—and that she could retain the Buick only if she agreed to a larger down payment and higher monthly payments, she claims.
Goffe refused and canceled the deal. Cherry Hill Mitsubishi returned her traded-in Infiniti, but didn’t immediately return Goffe’s initial $250 down payment, she claims. The down payment was returned after she filed a lawsuit, according to court documents.
In sending those disputes, and the question of arbitrability, to arbitration in its June 5 decision, the Supreme Court said the appellate panel misapplied Guidotti.
“Because plaintiffs here challenge the contract as a whole rather than the arbitration agreement itself, we hold that the Guidotti summary judgment standard does not apply in this instance,” LaVecchia wrote. “Rather, based on the complaint and the certifications provided to the trial court, it is apparent to us that the parties’ claims are subject to an enforceable arbitration agreement.”
The court noted the Federal Arbitration Act and the U.S. Supreme Court’s substantial guidance on the question of whether arbitration should be compelled in situations such as those involving Robinson and Goffe.
Section 2 of the FAA provides that agreements to arbitrate any controversy arising out of a commercial contract “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,” said the court. And New Jersey case law acknowledges the preeminence of the national policy established by Congress through the FAA, as well as the Supreme Court’s holdings interpreting and implementing that policy, the court said.
“The United States Supreme Court has held that when a plaintiff raises a claim of fraud in the inducement of a contract as a whole—rather than fraud in the making of the arbitration agreement itself—the FAA requires that the dispute be resolved by the arbitrator,” the court said.
Added the justices: “The Court’s determination recognized that arbitration agreements are severable from the rest of the contract, and that the arbitration agreement may be valid separate and apart from the contract as a whole, provided that a party has not challenged the arbitration agreement itself.
“We reinstate the orders compelling plaintiffs to arbitrate the merits of their claims,” LaVecchia wrote.