Tagged: Compelling Arbitration

Express Waiver of Rights in Arbitration Provisions Called Into Question by Recent New Jersey Appellate Decision

In an opinion issued on February 8, 2023, the New Jersey Appellate Division carved out an exception to the New Jersey Supreme Court’s requirement in Atalese v. U.S. Legal Services Group, L.P. that arbitration provisions must contain clear and unambiguous waiver-of-rights language, holding that Atalese does not apply to sophisticated commercial parties with relatively equal bargaining power. An agreement that the County of Passaic entered into with Horizon Healthcare Services, Inc. contained a dispute resolution provision simply stating that “the parties shall submit the dispute to binding arbitration under the commercial rules of the American Arbitration Association.” After the trial court granted Horizon’s motion to compel arbitration based on this provision, the county appealed, arguing that the arbitration clause was unenforceable because it lacked an express waiver of access to the courts, as required by Atalese. The Appellate Division affirmed, relying on section 2 of the Federal Arbitration Act, which provides that a written arbitration provision “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” That provision, the Appellate Division reasoned, requires courts to apply standard contract principles, including “notions of unconscionability,” in order to determine whether mutual assent to the arbitration clause exists, thus rendering the arbitration clause enforceable. Importantly, whether such assent...

New Jersey Appellate Division Holds Semblance of Acknowledgement Needed for Internet-Based Terms and Conditions Arbitration Clause to Apply

In Wollen v. Gulf Streams Restoration and Cleaning LLC, the New Jersey Appellate Division, in a to-be-published opinion, reversed a trial court’s determination that a plaintiff was bound to an arbitration provision found on an internet-based company’s website. Specifically, the Appellate Court found that the plaintiff did not “knowingly and voluntarily agree to waive her right to resolve her disputes in court.” Defendant HomeAdvisor is an internet-based home improvement website that refers potential customers to third-party local service providers. A potential customer would log on to the HomeAdvisor website and create an online account in order to submit a service request. The customer was then required to provide information about the project before reaching the final webpage, which featured a button for the user to press requesting “free project cost information” from contractors in the area. An orange button with the words “View Matching Pros” was at the bottom of the page, with a line of text beneath it stating “[b]y submitting this request, you are agreeing to our Terms & Conditions.” The phrase “Terms & Conditions” was in blue and contained a hyperlink to a separate document entitled “HomeAdvisor Terms and Conditions.” However, a customer could click “View Matching Pros” without viewing the terms and conditions. Further, there was nothing to indicate that a...

Slow Down You’re Moving Too Fast: Third Circuit Directs District Court to Resolve Motion to Compel Arbitration Before Motion to Dismiss

In a recent decision, the Third Circuit made it abundantly clear that a motion to compel arbitration must be decided before a Rule 12(b)(6) motion to dismiss. Joshua Silfee filed a lawsuit against ERG Staffing Service, his former employer, in the Middle District of Pennsylvania, claiming the company’s payroll policies violated state law because workers were required to use a fee-carrying debit card. ERG filed a motion to compel arbitration pursuant to Section 4 of the Federal Arbitration Act, asserting that the arbitration agreement between Silfee and ERG’s payroll vendor precluded the suit against ERG. ERG also filed a Rule 12(b)(6) motion to dismiss Silfee’s complaint based on the merits of his state law claims against the company. The district court decided to delay consideration of ERG’s motion to compel arbitration and denied the company’s motion to dismiss the case. ERG appealed. The Third Circuit concluded that the district judge erred in delaying the arbitrability inquiry, explaining that arbitrability is a “gateway” issue and that, after a motion to compel arbitration is filed, a court “must refrain from further action until it determines arbitrability.” The Third Circuit noted that “[t]he seeds of the District Court’s confusion may have been sown by our decision in Guidotti,” where the court explained that a motion to compel arbitration...

Parties Must Clearly Agree to Delegate Arbitrability to an Arbitrator, Says the NJ Supreme Court

In its most recent pronouncement on arbitration clauses, the New Jersey Supreme Court confirmed that it is for the Court, and not an arbitrator, to determine whether the parties have agreed to arbitrate consumer fraud claims in the absence of a clear delegation clause to the contrary. In Morgan v. Sanford Brown Inst., the New Jersey Supreme Court reversed an order of the Appellate Division holding that arbitrability was for the arbitrator to decide, finding that under Atalese v. U.S. Legal Servs. Grp. and First Options of Chi., Inc. v. Kaplan, the agreement to delegate arbitrability to an arbitrator must, as with the other arbitration provisions, clearly inform the average consumer of the rights he or she is giving up.

Prolonged Litigation Can Constitute Implicit Waiver of Right to Arbitrate

The New Jersey Supreme Court has ruled that a party’s active participation in a lawsuit for 21 months, up to the eve of trial, constitutes an implicit waiver of its right to invoke an arbitration clause. The plaintiff in Cole v. Jersey City Medical Center was a certified registered nurse anesthetist providing anesthesiology services on behalf of third-party defendant Liberty Anesthesia Associates, LLC (“Liberty”) at the defendant medical center. The plaintiff’s employment with Liberty was governed by a contract containing an arbitration clause. Liberty terminated the plaintiff when the medical center detected that controlled substances had gone unaccounted for and plaintiff refused to submit to a drug test.

New Jersey Supreme Court Limits Emerging “Intertwinement” Theory of Compelling Arbitration

The New Jersey Supreme Court, in Hirsch v. Amper Financial Services, LLC ruled that “intertwined” parties and claims alone are insufficient to compel arbitration on grounds of equitable estoppel. The plaintiffs in Hirsch purchased two securitized Med Cap notes worth $550,000 through a financial advisor representing broker-dealer Securities America, Inc. (“SAI”). They ultimately lost their investment after an SEC investigation indicated that Med Cap was a Ponzi scheme. Pursuant to an arbitration clause in their purchase applications, plaintiffs initiated FINRA arbitration proceedings against SAI and the financial advisor. In tandem with their arbitration claims, plaintiffs filed a civil action against their accountant EisnerAmper, LLP—who had recommended the financial advisor—and Amper Financial Services, LLC (“AFS”) of which the financial advisor was managing partner and 50% shareholder. EisnerAmper and AFS impleaded SAI for indemnification and contribution. In response, SAI moved to compel arbitration, despite the fact that plaintiffs had not agreed to arbitrate claims with either EisnerAmper or AFS. EisnerAmper and AFS joined in SAI’s motion to compel arbitration, which the trial court granted.

Citing Concepcion, Ninth Circuit Holds that FAA Preempts Montana State Law that Invalidates Mandatory Arbitration Clause

In Mortensen v. Bresnan Communications, LLC, the plaintiffs filed a putative class action against Bresnan Communications alleging violations of various federal and Montana state laws in connection with targeted advertising that they received as customers of high-speed, broadband Internet service. When signing up for the service, the plaintiffs had entered into a subscriber agreement that contained a mandatory arbitration provision and designated the application of New York law to all disputes. Applying the U.S. Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, the Ninth Circuit found that the Federal Arbitration Act (“FAA”) preempted a Montana state law that the District Court had relied on to invalidate the mandatory arbitration clause.

Third Circuit: Challenges to Contract’s Validity Must Be Arbitrated, But Challenges to Contract’s Formation May Proceed in Court

In its recent decision in SBRMCOA, LLC v. Bayside Resort, Inc., the Third Circuit clarified when challenges to a contract containing an arbitration clause must be arbitrated and when they must be decided by a court. Emphasizing that the relevant distinction is between challenges to a contract’s validity, which are subject to arbitration, and challenges to a contract’s formation, which generally are not, the Court concluded that a claim that a contract was coerced must be arbitrated, but a claim that a contract was beyond a signatory’s authority or ultra vires requires judicial determination.

Third Circuit Finds Waiver of Right to Arbitrate After Ten Months of Litigation

In its recent opinion in In re: Pharmacy Benefit Managers Antitrust Litigation, the Third Circuit held that a defendant waived its right to arbitration after “actively” and “aggressively” litigating an antitrust dispute for ten months, even though no discovery had taken place. Emphasizing that no one factor is determinative, the Third Circuit’s holding is somewhat of a departure from prior cases finding waiver, which “uniformly featured significant discovery activity in the District Court.”

New Amendments to New Jersey Court Rules Will Make Orders Denying Arbitration Immediately Appealable

The amended Rules Governing the Courts of the State of New Jersey will take effect on September 4, 2012. Among the more important amendments are those concerning a party’s ability to appeal an arbitration order. Typically, only final orders that conclude a litigation as to all parties and all issues are immediately appealable. But, as a result of amendments made in 2010, the current version of Rule 2:2-3(a) expands the notion of a final order in the context of orders compelling arbitration, providing that “an order compelling arbitration, whether the action is dismissed or stayed, shall also be deemed a final judgment of the Court for appeal purposes.” The New Jersey Supreme Court in GMAC v. Pittella, 205 N.J. 572 (2011), expanded that Rule still further by holding that “orders compelling or denying arbitration are deemed final and appealable as of right as of the date entered.” To implement that decision, Rule 2:2-3(a) has been amended to state that “any order either compelling arbitration, whether the action is dismissed or stayed, or denying arbitration shall also be deemed a final judgment of the Court for appeal purposes.” An amendment to Rule 2:9-1(a) will permit the Trial Court to retain jurisdiction, pending appeal, over other parties and claims that remain in that court.