Both the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 to 16, and the New Jersey Arbitration Act (NJAA), N.J.S.A. 2A:23B-1 to -32, encourage enforcement of arbitration agreements and speak to the general principle that such agreements are to be favored by the courts. Recently, the United States Supreme Court in Kindred Nursing Ctrs. L.P. v. Clark, 581 U.S.__, 137 S. Ct. 1421, 1426 (2017), reiterated this favored status, holding that the FAA preempts any state rule that either facially or “covertly” leads to the disfavoring of the “defining features” of arbitration agreements, stating that a court may not implicitly “rely on the uniqueness of an agreement to arbitrate” as a basis to invalidate that agreement.
The NJAA and the FAA have generally been held to be analogous. However, New Jersey’s Supreme Court in Kernahan v. Home Warranty Administrator of Florida, Inc., (A-15-17) (N.J. 2019) decided on January 10, 2019, clarified that in the State of New Jersey, even the favored status arbitration enjoys in our courts has its limits.
In Kernahan, Plaintiff purchased a “home service agreement” from defendants. When Plaintiff became dissatisfied, she filed a complaint in the Superior Court of New Jersey seeking statutory and common law relief. Plaintiff claimed that the agreement misrepresented its length of coverage and that the deceptively labelled “MEDIATION” section of the agreement failed to inform her that she was waiving her right to a jury trial and would be deterred from seeking the additional remedies available to her under the New Jersey Consumer Fraud Act. In this specific case, the provision confusingly and unpredictably shifted between the terms “arbitration” and “mediation” and the procedures for those proceedings. As a result, the Court sought to determine whether (i) the use of the term “arbitration” is apparent and self-defining, and (ii) whether the confusing language of the arbitration clause would allow for an ordinary person to knowingly assent to arbitration.
Justice LaVecchia, writing for the Court, stated that the language of the agreement is debatable, confusing and contradictory, and as a result there could be no finding of mutual assent. Relying on its holding in Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 435 (2014), the Court stated that an arbitration agreement is clearly enforceable when its terms affirmatively state, or unambiguously convey to a consumer in a way that he or she would understand, that there is a distinction between agreeing to resolve a dispute in arbitration and in a judicial forum. 219 N.J. at 442-44. In this case, the Court found that the ambiguity affecting the mutuality of assent question focuses on the overall language of the provision and whether the plaintiff-consumer fairly should have known that by signing her contract, she was knowingly assenting to arbitration as an exclusive remedy.
The Court held that because the alternative dispute resolution provision’s “arbitration agreement” is located within a section labeled “MEDIATION,” the contents of the section is unclear to an ordinary person. Even when located, the small size of the print makes the provision burdensome to read and appears to violate the font size requirements of the Plain Language Act, N.J.S.A. 56:12-1 to -13. As for the substance of the provision, its terms are contradictory. Additionally, the Court reiterated that mediation and arbitration are distinct and different procedures, and the conflation of the two created an irreconcilable ambiguity.
Schiller, Pittenger & Galvin, P.C., has attorneys who are experienced in defending arbitration clauses in court.