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Garrett-Scheier v. Muller Automotive Group, Inc.

2010 WL 1599419 (N.J. Super. Law Div. 2010) (Unpublished)

ARBITRATION; CONTRACTS; SEVERABILITY — Even if a contract with an arbitration provision does not contain a severability clause, a court will not invalidate an entire contract or even an entire arbitration clause despite the fact that a purported waiver of class actions is unenforceable.

A customer purchased a car from a dealer. The contract listed the total price of the vehicle, which included a fee for window etching, as well as taxes, title charges, registration fees, and documentary fees. The advertised price did not include the window etching fee. The customer sued the dealer for, among other things, violation of the Consumer Fraud Act because the dealer did not disclose the mandatory window etching fee in its advertisements. The contract also contained an arbitration clause in which the customer agreed to waive the right to sue in court and waived the right to file class action suits. The dealer argued that the Consumer Fraud claim had to be dismissed because the customer’s loss was illusory. It also argued that the customer’s other claims were required to be settled through arbitration.

The customer argued that the agreement to arbitrate was unconscionable and unenforceable. She argued that, based on a previous New Jersey Supreme Court case, a contract containing a waiver of class action claims is unenforceable. She also argued that since this contract did not contain a “severability clause,” which provides that if one provision is found unenforceable the rest of the agreement can be enforceable without it, then the entire arbitration clause was invalid. The Court disagreed, noting that since courts favor agreements to arbitrate, arbitration clauses should be construed liberally in favor of arbitration. The Court agreed with the customer’s argument that the contract was one of adhesion and that the arbitration clause could not be negotiated. It found that clauses requiring consumers to waive their right to file class actions are unenforceable.

The Court acknowledged that in cases like this one, where the monetary damages of each individual may be minimal, attorneys may not be willing to take on the cases unless they are part of a class action. Nonetheless, the Court refused to invalidate the entire arbitration clause even though the waiver of class actions provision was unenforceable and the contract did not contain a severability clause. It found that arbitration agreements, as a matter of federal arbitration law, are severable from the remainder of the contract. Therefore, the arbitration clause was enforceable even though the waiver of class action suits provision was unenforceable.

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