United States: Arbitration Forum Dispute Does Not Necessarily Breach Contract Nor Waive Arbitration Right

Richard Raysman is a Partner in Holland & Knight's New York office

It is not breaking news that arbitration clauses are both increasingly favored and enforced, especially after the 2011 Supreme Court decision that held that the Federal Arbitration Act preempted a California state law that had prohibited contracts from barring class-wide arbitration. Unsurprisingly, this has led to an increase in commercial contracts which prohibit aggrieved consumers from circumventing mandatory arbitration clauses through bringing class action suits. Notwithstanding the broadening of arbitration rights by the high court five years ago, the fairness standard by which a court will judge an arbitration clause remains. This fact-sensitive inquiry often cannot be extrapolated from one decision to another, but a New Jersey Appellate Division decision may be the recent exception. The case, which involves a pair of class action plaintiffs seeking to avoid an arbitration clause in an agreement signed with a car dealership they alleged to have defrauded them, has been accepted for review by the New Jersey Supreme Court, and therefore may be the outlier which casts a significant influence over future disputes involving arbitrability. See Roach v. BM Motoring, LLC, No. L-1333-14, 2015 WL 9853066 (N.J. App. Div. Jan. 20, 2016), appeal granted, (N.J. April 29, 2016).

Facts

Plaintiffs Emelia Jackson and Tahisha Roach (collectively, plaintiffs) each purchased a used car from BM Motoring LLC (defendant or BM) in 2013. Each signed a substantially identical "Dispute Resolution Agreement" (DRA) as part of their purchases. Under the DRA, each plaintiff mutually agreed with BM to arbitrate "any claim, dispute, or controversy, including all statutory claims and any state or federal claims, that may arise out of or relating to the sale or lease identified by this agreement." The DRA further specified that the "arbitration shall be concluded in accordance with the rules of the American Arbitration Association [(AAA)] ... [BM] shall advance both party's filing, service, administration, arbitrator, hearing or other fees ...." Prior to joinder, each plaintiff's claims took different paths, though both are material to the court's holding, and are discussed below in turn.

In October 2013, Jackson filed an arbitration claims with the AAA alleging that BM had violated the New Jersey Consumer Fraud Act, based on its "refusal to sell the car for the advertised price, overcharging for title and registration fees, and misrepresenting the terms of an extended service plan." BM never responded to the claim, nor any letters from the AAA instructing it to advance the filing and arbitrator's fees. The AAA also informed BM that if it did not pay these fees, it would not arbitrate Jackson's claim and could decline to arbitrate any future claims by other consumers against it. Ultimately, the AAA closed Jackson's claim and informed BM that it would no longer administer any claims brought by consumers against it.

In August 2013, after a dispute arose relating to her vehicle purchase, Roach sued BM in a New Jersey superior court (the Law Division). The latter filed a motion to dismiss on the grounds that the court lacked subject matter jurisdiction because of the DRA. The court agreed and granted the defendant's unopposed motion without prejudice. Roach then filed a claim against BM at the AAA in January 2014. Less than a week later, the AAA confirmed what it had told BM in the Jackson matter that it would no longer arbitrate claims involving BM.

After receiving these letters, Roach joined Jackson and filed a putative class action in the Law Division based primarily on BM's alleged "pattern and practice of overcharging for title and registration fees." BM again filed a motion to dismiss on jurisdictional grounds and to compel arbitration. More specifically, in its MTD, BM argued that the DRA does not "contemplate" using the AAA as the arbitration forum, and that it has not used the AAA because of high expenses; therefore, neither plaintiff commenced arbitration in a manner permissible under the DRA. In opposition, the plaintiffs argued that BM had never specified that the AAA was not the proper forum nor suggested another option. This was true, as its filing in the second action in the Law Division was the first time it had communicated its objection to arbitration via the AAA.

Nonetheless, the Law Division rejected the plaintiffs' argument that BM's previous actions constituted a material breach of the DRA, which would have given them a defense to enforcement of the arbitration clause therein. Rather, the Law Division concluded that the DRA is "pretty clear. The intent is to go to arbitration and ... the parties should remain faithful to that clause ...." Accordingly, it compelled the plaintiffs to arbitrate with the AAA, and when the AAA accepted their claim, the court dismissed the class action with prejudice.

On appeal to the Superior Court of New Jersey, Appellate Division (the Appellate Division), the plaintiffs switched the rationale for their claims of the unenforceability of the DRA when they contended that BM materially breached the DRA by failing to arbitrate after receiving service of their demands. Moreover, they argued that BM waived the right to invoke the DRA by failing to pay the required arbitration and filing fees. BM countered that the AAA was not the mandatory forum to bring claims, so no breach or waiver of the DRA had occurred.

Legal Analysis and Conclusions

The court considered the plaintiffs' arguments that BM either (1) breached the DRA; or (2) waived its right to arbitrate pursuant to the DRA. It rejected both.

In terms of standard of review, the Appellate Division reviewed the lower court's conclusions de novo and without special deference, but did cite to the mandate of the New Jersey Supreme Court to be "mindful of the strong preference to enforce arbitration agreements, both at the state and federal level." Hirsch v. Amper Fin. Servs., LLC, 71 A.3d 849, 856 (N.J. 2013). As another threshold matter, in terms of the permissible scope of review under the Federal Arbitration Act, the Appellate Division acknowledged that it could not invalidate the DRA on public policy grounds or defenses endemic to arbitration agreements, but could invalidate the DRA by "invoking traditional legal doctrines governing the formation of a contract and its interpretation." (citations omitted).

As noted above, the court declined to hold that BM had breached the DRA based on plaintiffs' allegations that it had committed a prior material breach by failing to neither advance the arbitration fees nor to arbitrate upon service of the plaintiffs' demands. It credited BM's claim that it failed to respond to the plaintiff's entreaties to arbitrate because of a disagreement over the appropriate forum. More important, it held that the record supported the Law Division's conclusion that a sufficient factual dispute about the proper arbitration forum existed so as to preclude a claim that BM had breached the DRA, which would have taken the plaintiffs' claims outside the purview of arbitration.

Second, the court held that BM had not waived its right to arbitrate A waiver is never presumed, and the trial court's factual determination are "entitled to deference and are subject to review for clear error." Cole v. Jersey City Med. Center, 72 A.3d 224, 230 (N.J. 2013). Explicit, e.g., voluntary and intentional, and implicit waivers are possible, and a court makes a determination after concentrating on a the party's "litigation conduct to determine if its consistent with its reserved right to arbitrate the dispute." See id. at 233 (listing factors to determine consistency of a party's litigation conduct). In applying these principles, the court found no waiver. First, it concluded that the plaintiff's contention that BM's refusal to pay the requisite fees could not amount to an "implicit waiver by indifference" was meritless, as BM had a reasonable belief that the AAA was not the appropriate forum. There was no clear agreement between the AAA and the parties to use its dispute resolution services, and such a difference of opinion was adequately resolved by the Law Division's order to compel arbitration. Second, the court reviewed BM's litigation conduct and found that it was not dilatory or in bad faith so as to exempt it from the right to arbitration, for reasons including but not limited to, the fact that BM did not delay in making an arbitration request in either occasion, and instead quickly filed motions to dismiss.

Accordingly, the Appellate Division upheld the ruling of the Law Division and enforced the arbitration provision of the DRA against the plaintiffs.

Subsequent Developments

On April 29, 2016, the New Jersey Supreme Court accepted the plaintiffs' appeal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Moritt, Hock & Hamroff LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Moritt, Hock & Hamroff LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions