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August 20, 2015 Practice Points

Arbitration Litigation Waiver Clause Blues

By Calvin K. May and Robert J. MacPherson

In Dispenziere v. Kushner Companies, 2014 N.J. Super. Lexis 157, 101 A.3d 1126 (App. Div. Nov. 21, 2014) the New Jersey Appellate Court refused to enforce the arbitration clause in a condominium unit purchase agreement that did not include “clear and unambiguous language” that the buyer was waiving the right to sue in court. The Appellate Division relied on a New Jersey Supreme Court case decided in September 2014, Atalese v. United States Legal Services Corp 219 N.J. 430 (2014). Although both cases involved what are commonly called “consumer” contracts, one cannot safely assume that the holdings are limited to such contracts. Under New Jersey law a consumer is anyone who “consumes” goods or services, including business entities. See Hundred E. Credit Corp. v. Eric Schuster Corp., 212 N.J. Super. 350, 355–56 (App. Div. 1986) (Ruling that business entities are persons protected by the Consumer Fraud Act, and that the Act is not limited to “personal, family or household use.”). Since many arbitration clauses do not contain sufficiently clear waiver language, it may now be open season in New Jersey on arbitration clauses.

The plaintiffs who appealed in Dispenziere purchased condominiums at The Landings at Harborside, LLC (The Landings) in Perth Amboy, New Jersey. In August of 2000, the Perth Amboy Redevelopment Agency (PARA) authorized the city of Perth Amboy to enter into an agreement with The Landings. The agreement envisioned development of town-homes, row houses, condominiums, retail space, a hotel, ample parking, a cultural center, a waterfront walkway, and park spaces. The Landings entered into an agreement with the city in September 2000. 2014 N.J. Super. LEXIS 157, **1–3.

The plaintiffs bought their units between 2004 and 2007, each executing a purchase agreement. By 2011 the developers allegedly sought to pare back the development and submitted a revised proposal to PARA, which deleted proposed amenities and substituted rental units for owner-occupied units. 2014 N.J. Super. LEXIS 157, **2, 4, 5. Unhappy with these changes, the plaintiffs filed suit against the developers alleging various common law claims as well as a violation of the New Jersey Consumer Fraud Act. N.J.S.A. 56:8-1 to 20. The defendants moved to compel arbitration pursuant to an arbitration clause in the purchase agreement.

The trial court granted the defendants’ motion, and the plaintiffs appealed. In reversing, the Appellate Division explained that, like the clause recently invalidated by the New Jersey Supreme Court in Atalese, “the arbitration provision in the purchase agreements is similarly devoid of any language that would inform unit buyers such as plaintiffs that they were waiving their right to seek relief in a court of law.” 2014 N.J. Super. LEXIS 157, *12. This finding alone was conclusive, without regard to the sophistication of the parties or whether the plaintiffs were represented by counsel at the time they purchased their units.

The practical reality is that in New Jersey, an arbitration clause must make clear that by agreeing to arbitrate the parties waive their right to bring suit in court. Accordingly, practitioners drafting arbitration clauses should include waiver provisions in clear and unambiguous language. “No particular form of words is necessary to accomplish a clear and unambiguous waiver of rights[,]” but the court in Atalese cast a lifeline by giving examples of valid waiver language:

• Employee agrees to waive her right to a jury trial and that all disputes relating to her employment shall be decided by an arbitrator;
• By agreeing to arbitration, the parties understand and agree that they are waiving their rights to maintain other available resolution processes, such as a court action or administrative proceeding, to settle their disputes; and
• Instead of suing in court, we each agree to settle disputes (except certain small claims) only by arbitration. The rules in arbitration are different. There’s no judge or jury, and review is limited, but an arbitrator can award the same damages and relief, and must honor the same limitations stated in the agreement as a court would. 219 N.J. at 444-45 (examples paraphrased).

Going forward, similar language should be used in every arbitration clause in a contract governed by New Jersey law, and even in those arbitration agreements arguably subject to the Federal Arbitration Act and the laws of other states. Not doing so is an invitation to litigation.

Keywords: alternative dispute resolution, litigation, clear, unambiguous waiver, jury, trial, unenforceable

Calvin K. May and Robert J. MacPherson are with Gibbons P.C. in Newark, New Jersey.

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