Overview
The New Jersey Appellate Division's recent decision in Wang v. COA 99 Hudson, LLC (2025 N.J. Super. LEXIS 123) underscores the critical need for real estate developers and contractors to draft clear and enforceable arbitration clauses in consumer contracts. This ruling reinforces New Jersey's stringent requirements for arbitration agreements, particularly in consumer-based transactions, and serves as a reminder to review and update contract language to mitigate litigation risks.
Case Background
In Wang v. COA 99 Hudson, LLC, plaintiffs Jia Wang and Xiaodong Jiang entered into a Subscription and Purchase Agreement (SPA) to buy a condominium unit in Jersey City from defendants COA 99 Hudson, LLC, and others. The SPA contained an arbitration clause stating that disputes would be resolved through "binding arbitration." When the plaintiffs refused to close, citing issues like unit size and construction defects, the defendants sought to enforce the arbitration clause. The plaintiffs challenged its validity, filing a lawsuit alleging violations of the New Jersey Consumer Fraud Act and other statutes.
The trial court denied the defendants' motion to compel arbitration, finding the clause invalid under Atalese v. U.S. Legal Services Group, L.P. (219 N.J. 430, 2014). The Appellate Division affirmed, ruling that the clause failed to clearly and unambiguously inform the plaintiffs that they were waiving their right to seek judicial relief.
Key Legal Findings
The Wang decision provides several critical insights for any consumer-facing contract:
Explicit Waiver Requirement:
Arbitration clauses in consumer contracts must explicitly state that parties waive their right to a judicial forum. The SPA's reference to "binding arbitration" was insufficient, as it did not clarify the waiver of court access.
Consumer Contract Classification:
The court classified the SPA as a consumer contract under New Jersey's Plain Language Law (N.J.S.A. 56:12-1), which applies to agreements for personal, family, or household purposes, such as residential real estate purchases. This classification subjects such contracts to heightened scrutiny.
Irrelevance of Buyer's Counsel:
The defendants argued that the plaintiffs' legal representation made the contract commercial, not consumer, but the court rejected this, emphasizing that Atalese protections apply regardless of a buyer's sophistication or counsel.
No Federal Preemption:
The Federal Arbitration Act (9 U.S.C. §§ 1-16) does not override New Jersey's contract law principles. State law governs the enforceability of arbitration clauses, allowing courts to invalidate unclear agreements.
Ancillary Documents Insufficient:
A Public Offering Statement mentioning arbitration was not signed or incorporated into the SPA, so it did not cure the clause's deficiency.
No Waiver by Participation:
The plaintiffs' limited engagement in arbitration proceedings did not waive their right to challenge the clause's validity.
Implications for Real Estate Developers, Contractors, and Consumer Facing Businesses
The Wang ruling has significant implications for those involved in any consumer-based industry in New Jersey:
Heightened Scrutiny for Consumer Contracts:
Consumer contracts are subject to strict arbitration clause requirements. This applies even if buyers in a residential real estate transaction are represented by counsel or appear sophisticated.
Risk of Litigation:
Unenforceable arbitration clauses increase the likelihood of disputes being resolved in court, which can be more costly, time-consuming, and unpredictable than arbitration.
Need for Contract Review:
Standard form contracts must be revised to comply with Atalese and Wang, ensuring arbitration clauses are clear and conspicuous.
Recommendations
To ensure arbitration clauses are enforceable and disputes are resolved efficiently, any individual or business operating in the consumer space should take the following steps:
- Use Clear, Plain Language: Arbitration clauses should explicitly state the waiver of judicial remedies.
- Ensure Conspicuous Placement: Highlight the clause using bold text, a larger font, or a separate section to make it stand out, as required by the New Jersey Plain Language Law.
- Audit Existing Contracts: Review all consumer contracts, particularly those for residential projects, to verify compliance with Atalese and Wang standards.
- Consult Legal Counsel: Engage attorneys experienced in New Jersey real estate law to draft or revise arbitration clauses, ensuring they meet both state and federal requirements.
- Incorporate Governing Documents: Ensure that any ancillary documents, like Public Offering Statements, are signed and explicitly incorporated into the main contract if they contain arbitration terms.
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.
