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NAACP of Camden County East v. Foulke Management Corp.

421 N.J. Super. 404, 24 A.3d 777 (App. Div. 2011)

ARBITRATION; CLASS ACTIONS — Even though the United States Supreme Court has ruled that the Federal Arbitration Act preempts state laws that nullify class-action waivers on public policy grounds, that does not mean that a state court can’t reject such a provision when there was actually no meeting of the minds as to the whether a particular class action, arbitration waiver was part of a consumer’s agreement.

A consumer purchased a vehicle under a sales contract that recited that she acknowledged reading approximately 44 pages of documents. Those documents, in turn, had provisions under which the consumer agreed to waive her right to participate in any class action against the dealership and to have all disputes resolved through binding arbitration. The consumer later discovered that the dealership had overcharged certain fees.

The consumer sued, asserting consumer fraud claims. An amended complaint sought to bring the claims as a class action with the help of an advocacy organization. The dealership filed a pre-answer motion to dismiss the amended complaint. In it, it argued that the organization lacked standing and that the contract’s arbitration provisions barred the consumer from litigating her claims in court. The lower court concluded that the organization did not have standing. However, it detected a material dispute as to whether, given the projected monetary value of the consumer’s case, the class action waiver provisions in the contract would have an untenable chilling effect on the enforcement of consumer claims. Thus, the lower court provisionally denied the dealership’s motion to dismiss the amended complaint and ordered a plenary hearing to assess whether the consumer would be able to find a competent attorney to represent her in an arbitration on an individualized basis. This type of hearing is known as a Muhammad hearing. At the Muhammad hearing, witnesses were brought to addresses the viability of litigating the consumer’s claims against the dealership on an individualized basis based on the consumer’s projected, small damages under the CFA claim and taking into account her probable legal fees. After reviewing the evidence, the lower court held that the class action waiver provisions did not violate public policy and were enforceable. In particular, the lower court found that it was unlikely that the consumer couldn’t find an attorney, given the potential for fee-shifting if her claims were successful. Therefore, the consumer was barred from pursuing her claims as a class action lawsuit or by a class action arbitration. The matter was then referred to arbitration.

The consumer appealed, arguing that the lower court erred by enforcing the binding arbitration provisions, that the organization should not have been dismissed as a co-plaintiff for lack of standing, that the lower court erred in not taking into account the dealership’s prior misconduct, that the court should not have denied partial summary judgment to the consumer on two of her claims, that the court erred in finding her Law Against Discrimination (LAD) claim arbitratable, and that the lower court should have granted class certification.

While the appeal was pending, the United States Supreme Court issued its AT&T Mobility LLC v. Concepcion ruling. In Concepcion, the Supreme Court ruled that the Federal Arbitration Act (FAA) preempts state laws that nullify class-action waivers on public policy grounds. However, in the present case, the Appellate Division still invalidated the mandatory arbitration and class action waiver provisions in the vehicle sale. The Court distinguished this case from Concepcion by holding that the issue was not one of unconscionability, but whether the consumer had a sufficient understanding of the agreement for there to be a “meeting of the minds.”

This particular contract of sale consisted of seven documents, each filled with fine print. Three of the documents had arbitration and class action waiver language: the Retail Installment Contract (RIC), the Separate Arbitration Document, and the GAP Addendum (modifying the RIC). After a detailed analysis of the different terms and scope of the provisions in each of these documents, the Court held that there was no “meeting of the minds” and thus no contract as to these provisions. It ruled that binding arbitration clauses in consumer contracts that also bar class-action suits are subject to challenge if they are poorly worded and contain contradictory language. It further held that “the disparate arbitration provisions in this case were too confusing, too vague, and too inconsistent to be enforced.”

The Court then analyzed whether the contract was signed with mutual assent by examining all of the signed documents. As a result, it found inconsistencies and ambiguities in the documents regarding which arbitration rules should apply, what forum would be used, what statutes of limitations should apply, whether attorneys or retired judges would be used as arbitrators, and what fees and costs should be awarded to the prevailing party. Thus, the Court found that when the varied arbitration provisions were viewed under a totality of circumstances analysis, they were confusing and inconsistent. Consequently, they failed to put a reasonable consumer on fair notice of their intended meaning.

The Court next addressed the lower court’s ruling that the advocacy organization lacked standing. It vacated the ruling, holding that it was premature. The amended complaint asserted that the advocacy organization had an interest in preventing discrimination against African Americans and the advocacy organization argued that these practices were discriminatory under New Jersey’s Law Against Discrimination. To the Court, at such an early stage of the case, a court’s inquiry must be limited to the adequacy of the pleadings and its ruling should not be based on the ability of the plaintiff to prove its allegations. In its view, the lower court acted too quickly when it had concluded that the community organization lacked standing because it (the lower court) perceived that the consumer would be unable to develop proofs. Therefore, the organization was reinstated as a co-plaintiff in the litigation.


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