Capitol Report

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January 21, 2019

This is a status report provided by the New Jersey State Bar Association on recently passed and pending legislation, regulations, gubernatorial nominations and/or appointments of interest to lawyers, as well as the involvement of the NJSBA as amicus in appellate court matters.

Supreme Court finds arbitration agreement obscure; sides with NJSBA argument

The Supreme Court held that an arbitration agreement within a consumer contract that contained “debatable, confusing, and contradictory” and “misleading” language was unenforceable. The New Jersey State Bar Association advocated this position as amicus curaie in the matter of Kernahan v. Home Warranty Administrator of Florida, Inc., Docket No. A-15-17.

The NJSBA urged the Supreme Court to affirm the Appellate Division’s decision, arguing that arbitration agreements, like all other contracts, must be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” The association argued that the Supreme Court’s decision in a prior arbitration matter, Atalese v. U.S. Legal Services, LP, 219 N.J. 430 (2014), reinforces and does not abrogate the United States Supreme Court’s decision in Kindred Nursing Centers, L.P. v. Clark, 137 S.Ct. 1421 (2017).

“In short, Atalese encourages clear contracts, written in plain language, and a knowing decision-making process by all parties to a contract,” said the association in its amicus brief. “It places no special burden on arbitration provisions and, in fact, cites favorably many instances where those provisions have been valid and enforceable.”

The Supreme Court’s holding, affirming the Appellate Division’s decision, questioned the mutuality of assent in the home warranty contract at issue because the “provision confusing and unpredictably shift[ed] between the terms ‘arbitration’ and ‘mediation’ and the procedures for the two types of proceedings.”

“In New Jersey, we have a Plain Language Act that imposes certain simple principles on consumer contracts generally—to wit, they must use plain language that is commonly understood by the wide swath of people who compromise the consuming public,” said the Supreme Court in its majority opinion authored by Justice Jaynee LaVecchia. A separate, concurring opinion was submitted by Justice Barry Albin.

The contract in Kernahan was titled “Mediation,” but referenced as the exclusive remedy arbitration by the American Arbitration Association (AAA). The Supreme Court pointed this out, as well as the “small size of the print” that made it burdensome to read and in violation of the font size requirements of the Plain Language Act. It further commented on the substance of the provision, which terms it found contradictory because of references to AAA’s Commercial Mediation Rules.

A number of other groups submitted amicus curiae briefs on both sides of the issue. In addition to the NJSBA, the New Jersey Association for Justice argued in favor of affirming the Appellate Division’s decision. The amici in support of reversal were the New Jersey Business and Industry Association, the Commerce and Industry Association of New Jersey and the New Jersey Chamber of Commerce.

The NJSBA brief was written by George W. Conk and Timothy E. Dinan. Conk argued the matter before the Supreme Court on behalf of the association.