New Jersey Supreme Court Rules Defendant Waived Right to Arbitration

Last week the New Jersey Supreme Court decided the case of Roach v. BM Motoring LLC, which Andrew Bell of the Locks Law Firm argued on behalf of amicus curiae The Consumers League of New Jersey (Andrew Bell, James Barry, and Michael Galpern on the brief).

Roach involved a consumer case arising out of fraud in the sale of two automobiles (one to each named plaintiff).  The contract for sale for both vehicles contained an arbitration clause which provided for the arbitration of “any and all claims, disputes or issues” and specified that the arbitration would be in accordance with the rules of the AAA and before a single arbitrator, who shall be a retired judge or attorney.  Plaintiffs filed arbitration claims with the AAA against the dealer.  The Dealer failed to pay the required arbitration fees in either case or otherwise respond, and the AAA declined to administer the claims due to the non-payment.  Plaintiffs then filed a joint complaint in the Law Division, and Defendant filed a motion to dismiss in favor of arbitration.  Defendants argued that the AAA was not an appropriate forum for the arbitration due to its excessive fees, and therefore the Plaintiffs’ demands for arbitration didn’t comport with the arbitration agreement.

Plaintiffs and The Consumers League of New Jersey argued that the arbitration clause implicitly designated the AAA as the arbitral forum, that Plaintiff’s choice of that forum was reasonable under the agreement, and entitled to deference and that Defendant’s conduct in refusing to pay the fees associated with the AAA arbitration proceeding constituted a material breach of the agreement, precluding Defendant from being able to compel arbitration between the parties later.

The Court in considering whether Defendant’s failure to pay the fees associated with the AAA proceeding constituted a “material breach” of the agreement adopted Section 241 of the Restatement (Second) of Contracts (1981), and specifically Subsection (e) of the Section which implicates the duty of good faith and fair dealing.

The Court first found that the arbitration clause permitted arbitration with the AAA, and that “plaintiff’s choice of forum is entitled to the preferential consideration.”  (The first time this standard has been applied to arbitrations in New Jersey).  The Court held that even were the terms of the clause susceptible to multiple interpretations, the clause should be construed against Defendant as the drafting party, especially in light of the fact that the agreement had “indicia of being a contract of adhesion…”

The Court then found that Defendant’s failure to pay the fees for the arbitration proceeding constituted a material breach of the agreement, and a breach of the duty of good faith and fair dealing with regard to the arbitration agreement.  The Court concluded that the material breach and the breach of good faith and fair dealing barred the Defendant from later moving to compel arbitration.  The Court noted that to hold otherwise would be to incentivize Defendants to ignore arbitration demands, and if the claimant did not abandon his claims to later move to compel arbitration.

This opinion is an important step in safeguarding consumers from businesses that use arbitration to drag out disputes, hoping that consumers will eventually drop their claims.