May 24, 2018 Articles

New Jersey Holds That Rescission Defeats Arbitration

By Robert E. Bartkus

The New Jersey Appellate Division recently issued a for-publication opinion, Goffe v. Foulke Mgmt. Corp., ___ N.J. Super. __, A-2658-16, 2018 N.J. Super. LEXIS 61, 2018 WL 1915860 (App. Div. Apr. 24, 2018), holding that the rescission of the underlying contract containing an arbitration clause is a sufficient basis for denying a motion to compel arbitration. The decision is both interesting and troublesome—especially because it is precedential and binds lower courts.

Absent broader authorizing language, such as for particular statutory claims, arbitration typically is restricted to claims relating to the contract that contains the arbitration clause. In New Jersey, these limits are discussed in cases such as Spathos v. Smart Payment Plan LLC, No. 15-8014, 2016 WL 3951672 (D.N.J. July 21, 2016). There, the parties continued to work together under an oral contract after their agency agreement containing an arbitration clause had expired. When a dispute arose regarding performance under the oral agreement, the court declined to order arbitration since the clause in the written agreement covered only disputes related to that written agreement. In a similar vein, it has been held that a dispute regarding one credit card is not subject to arbitration based on the arbitration clause in the agreement for a different credit card. Katsil v. Citibank N.A., No. 16-3694, 2016 U.S. Dist. LEXIS 169560, 2016 WL 7173765 (D.N.J. Dec. 8, 2016). Likewise, the arbitration clause applicable to one visit to the gym cannot be the basis for arbitration of an accident claim during a second visit, where the first clause does not cover the second visit to the gym. Weed v. Sky NJ, LLC, No. A-4589-16, 2018 N.J. Super. Unpub. LEXIS 410 (N.J. Super. Ct. App. Div. Feb. 22, 2018).

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