Maria Aguirre v. Cdl Last Mile Solutions, LLC ( 2024 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3346-22
A-3372-22
MARIA AGUIRRE,
ANDREA PALACIOS,
and LORENA VARAS,
Plaintiffs-Respondents,
v.
CDL LAST MILE SOLUTIONS,
LLC, ANTHONY CURCIO, and
KATTY PONCE,
Defendants-Appellants,
and
SUBCONTRACTING
CONCEPTS, LLC, d/b/a SCI,
Defendant.
______________________________
MARIA AGUIRRE,
ANDREA PALACIOS,
and LORENA VARAS,
Plaintiffs-Respondents,
v.
CDL LAST MILE SOLUTIONS,
LLC, ANTHONY CURCIO, and
KATTY PONCE,
Defendants,
and
SUBCONTRACTING
CONCEPTS, LLC, d/b/a SCI,
Defendant-Appellant.
______________________________
Argued January 9, 2024 – Decided February 26, 2024
Before Judges Natali and Puglisi.
On appeal from the Superior Court of New Jersey, Law
Division, Bergen County, Docket No. L-1172-23.
Theodore M. Eder argued the cause for appellants CDL
Last Mile Solutions, LLC, Anthony Curcio and Katty
Ponce, in A-3346-22 (Weber Gallagher Simpson
Stapleton Fires & Newby LLP, attorneys; Theodore M.
Eder, of counsel and on the briefs).
Peter Paul Perla, Jr., argued the cause for appellant
Subcontracting Concepts, LLC d/b/a SCI, in A-3372-
22 (PRB Attorneys at Law, LLC, attorneys; Peter Paul
Perla, Jr., of counsel and on the briefs).
Scott Simpson (Menken Simpson & Rozger LLP) of the
New York bar, admitted pro hac vice, argued the cause
for respondents (Newman, Simpson & Cohen, LLP,
attorneys; Scott Simpson, Raya F. Saksouk (Menken
A-3346-22
2
Simpson & Rozger LLP) of the New York bar, admitted
pro hac vice, Jason J. Rozger, Daniel Jay Cohen, and
Daniel C. Stark, on the briefs).
PER CURIAM
In this consolidated appeal, defendants CDL Last Mile Solutions, LLC
(CDL), Anthony Curcio, and Katty Ponce (collectively, the CDL defendants),
and defendant Subcontracting Concepts, LLC d/b/a SCI (SCI), challenge two
Law Division orders that denied their respective motions to compel arbitration
and to dismiss the putative class action complaint filed by plaintiffs Maria
Aguirre, Andrea Palacios, and Lorena Varas. We affirm for the following
reasons.
First, we conclude New Jersey law applies, rather than New York law as
identified in the agreements, because (a) New Jersey has a materially greater
interest than New York in the arbitrability of disputes related to the agreements
at issue here, (b) New Jersey law would apply absent any choice of law
provision, and (c) New York law is contrary to New Jersey's fundamental public
policy of ensuring any waiver of the right to a jury trial is knowing, intelligent,
and voluntary. On that point, we conclude the arbitration agreements here are
unenforceable because they fail to adequately "explain that the plaintiff[s] [are]
giving up [their] right to bring [their] claims in court or have a jury resolve the
A-3346-22
3
dispute," as required by Atalese v. U.S. Legal Services Group, L.P., 219 N.J.
430, 447 (2014).
As we further detail below, we do not reach the applicability of the
interstate employment contract exemption to the Federal Arbitration Act (FAA),
9 U.S.C. §§ 1-16, because, even assuming the FAA applies, it permits states to
regulate contracts, including those containing arbitration provisions, using
generally applicable state law such as that set forth in Atalese. Finally, in light
of our decision finding the arbitration agreement unenforceable, we conclude
the class action waiver, which by its express terms applies only to arbitration
proceedings, is inapplicable under these circumstances.
I.
We begin by reciting the relevant facts in the motion record. CDL is a
Delaware LLC, specializing in "logistics and last-mile delivery services." It is
headquartered in New York and operates a warehouse in Bergen County.
Plaintiffs, residents of New Jersey, work as delivery drivers for CDL, make
deliveries exclusively in New Jersey, and report to the Bergen County
warehouse.
SCI is a Delaware LLC, headquartered in New York, that "provides third-
party administrative support for courier and logistics companies." Since 2012,
A-3346-22
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SCI has provided services to CDL, including payroll processing and delivery
driver onboarding.
Defendant Curcio is the owner, manager, and president of CDL and a New
York resident. Defendant Ponce is a CDL dispatcher at the Bergen County
warehouse who is alleged to have "authority to hire, fire, and discipline . . .
drivers" and "to assign or reassign their delivery routes."
On March 2, 2023, plaintiffs filed a putative class action complaint
seeking damages, injunctive and declaratory relief, and attorneys' fees and costs.
The complaint alleges the class includes at least one hundred people, identified
as "all delivery drivers who performed work for [d]efendants in the [s]tate of
New Jersey from March 2, 2017, until [d]efendants cease their unlawful acts ."
Plaintiffs claimed, first, defendants misclassified the class members as
independent contractors to avoid paying overtime wages in violation of the New
Jersey Wage and Hour Law, N.J.S.A. 34:11-56a4(b) (WHL), and second,
defendants unlawfully deducted from the class members' wages in violation of
the New Jersey Wage Payment Law, N.J.S.A. 34:11-4.4 (WPL).
Plaintiffs further alleged drivers hired to work for CDL are "required to
sign an independent contractor agreement with SCI," entitled "Owner/Operator
Agreement" (the Agreements). CDL is not a party to the Agreements and while
A-3346-22
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not directly named, is referred to in the Agreements as the "logistics broker" or
"customer." The Agreements signed by each plaintiff contain the following
arbitration clause:
In the event of any dispute, claim, question, or
disagreement arising from or relating to this agreement
or the breach thereof, or service agreement between
Owner/Operator and SCI's clients or any permiss[i]ble
statutory disputes, the parties hereto shall use their best
efforts to settle the dispute, claim, question, or
disagreement. . . . If resolution of the dispute is not
reached within [sixty] days . . . disputes that are within
the jurisdictional maximum for small claims will be
settled in small claims court where the Owner/Operator
resides.
All other disputes, claims, questions, or differences
beyond the jurisdictional maximum for small claims
courts and have not passed the statute of limitations
within the locality of the Owner/Operator's residence
will be finally settled by arbitration under the policies
of the Federal Arbitration Act and New York State's
Arbitration provisions. . . .
Neither you nor SCI shall be entitled to join or
consolidate claims in arbitration by or against other
individuals or entities, or arbitrate any claim as a
representative member of a class . . . .
[(Emphasis supplied).]
The Agreements also state they "shall be governed by the laws of the State
of New York." At the end of each of the Agreements, just above the signature
area, an all-caps notice informs: "THIS CONTRACT CONTAINS A BINDING
A-3346-22
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ARBITRATION PROVISION AND CLASS-ACTION WAIVER WHICH
AFFECTS YOUR LEGAL RIGHTS AND MAY BE ENFORCED BY THE
PARTIES." A separate "Independent Contractor Acknowledgement Form"
requires acknowledgement of the following:
You understand you may opt out of the Arbitration
provisions within the Owner Operator Agreement by
notifying SCI in writing, within ten (10) days of the
date below . . . . The writing should contain the name
and contact information of each person opting out, and
a clear statement indicating you are opting out of
arbitrate [sic]. By not opting out you are subject to the
dispute resolution provisions contained in the Owner
Operator Agreement.
The CDL defendants and SCI each moved to dismiss under Rule 4:6-2 and
to compel arbitration. The CDL defendants contended the court should apply
New York law, consistent with the choice of law provision, in determining the
enforceability of the arbitration clause in the Agreements, but also argued the
clause would be enforceable under either New York or New Jersey law. SCI
argued the court should apply the FAA as provided in the Agreements , as the
exemption for employment contracts involving interstate commerce set forth in
A-3346-22
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9 U.S.C. § 1 did not apply. 1 In the alternative, it joined the CDL defendants in
contending New York law should control.
Plaintiffs responded by arguing New Jersey law applied, as New York law
concerning enforceability of arbitration agreements was contrary to New Jersey
public policy regarding what is required to establish a waiver of the right to a
jury trial. Under New Jersey law, plaintiffs argued, the Agreements did not
include "clear and unambiguous language" explaining the right being waived
and therefore were unenforceable.
On June 27, 2023, the court issued two nearly-identical orders denying the
CDL defendants' and SCI's motions to compel arbitration and to dismiss the
complaint, accompanied by a rider in which it detailed its reasoning. First, the
court explained "[c]ourts should generally apply state-law contract principles to
determine whether the parties agreed to arbitrate." It then applied New Jersey
law to the question of enforceability of the arbitration clause.
Under Atalese, 219 N.J. at 447, it noted while "no prescribed set of words
must be included in an arbitration clause to accomplish a waiver of rights," a
valid clause "must explain that the plaintiff is giving up her right to bring her
1
9 U.S.C. § 1 provides, in part, "nothing [in the FAA] shall apply to contracts
of employment of . . . any other class of workers engaged in foreign or interstate
commerce."
A-3346-22
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claims in court or have a jury resolve the dispute." Here, the court found "the
arbitration clause is devoid of any language that would put the plaintiffs, without
extensive knowledge of arbitration, on notice that they were waiving their right
to a jury trial or having their disputes settled in court by signing the agreement."
It noted the language of the clause "does not 'unmistakably' establish that
arbitration involves waiver to a jury trial."
The court reasoned, as stated in Atalese, 219 N.J. at 442, "an average
member of the public may not know—without some explanatory comment—that
arbitration is a substitute for the right to have one's claim adjudicated in a court
of law." Further, the court found "Atalese establishes that 'arbitration' is not
self-defining, and the provision in this case goes no further in defining the term."
It also determined the admonition at the end of the contract "does nothing to
broaden the scope of the class-arbitration waiver itself" as it failed to provide "a
clear explanation of what rights the plaintiffs were waiving."
The court rejected defendants' argument that the Agreements "did not need
to explicitly state that the arbitration provision would waive the plaintiffs' right
to a jury trial because plaintiffs were acting as representatives of their business
when signing the contract, rather than as individuals." It found the plaintiffs
were individual delivery drivers and use of a separate legal entity "does not
A-3346-22
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imply that they possess the business acumen to comprehend the implications of
arbitration." Additionally, the court noted "there is no case law to support the
notion that businesses are not entitled to the same clarity in arbitration
provisions as individuals."
In conclusion, the court found "New Jersey case law requiring an
unambiguous waiver of the right to go to court and have a jury decide your
dispute had existed for years, yet the arbitration clauses in the three most recent
contracts signed by the plaintiffs are devoid of these fundamental requirements."
Because an arbitration clause lacking these requirements is unenforceable under
Atalese, 219 N.J. at 436, the court determined the plaintiffs could not be
compelled to arbitrate and the class-action waivers tied directly to the arbitration
clause were moot.
The court thereafter submitted a written amplification pursuant to Rule
2:5-1(d), in which it further explained its decision to apply New Jersey law. It
noted defense counsel cited in their moving papers, and the parties discussed at
oral argument, an unpublished federal district court case involving "a contract
enormously similar to the contracts in the case at hand," Easterday v. USPack
A-3346-22
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Logistics, LLC, No. 15-07559 (D.N.J. Dec. 4, 2020).2 After reviewing the
federal judge's and magistrate's decisions in that case, the court "chose to follow
the Third Circuit's precedent in Roadway [Package System, Inc. v. Kayser, 257
F.3d 287, 288-89 (3d Cir. 2001)] wherein the Third Circuit found general choice
of law provisions shed little light on what law will govern arbitration
provisions." Therefore, it reasoned, "the choice of law provision in the contracts
in this case is not instructive as to the choice of law for the arbitration clauses."
The court explained it also found a conflict existed between New York
and New Jersey law "with regards to the enforceability of arbitration provisions
when the provisions are silent as to waiving the right to a jury trial." After
conducting a choice of law analysis using the most significant relationship test,
the court "found the contacts overwhelmingly relate to New Jersey." It thus
concluded New Jersey law applied. These consolidated appeals followed.
II.
We review an order compelling or declining to compel arbitration de
novo. Goffe v. Foulke Mgmt. Corp., 238 N.J. 191, 207 (2019). As the
enforceability of arbitration provisions is a question of law, no deference is owed
2
Easterday is a non-precedential, unpublished opinion and as such, does not
inform our decision. See R. 1:36-3.
A-3346-22
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to the trial court's interpretation. Ibid. In such a review, we remain "mindful of
the strong preference to enforce arbitration agreements, both at the state and
federal level." Hirsch v. Amper Fin. Svcs., LLC, 215 N.J. 174, 186 (2013).
Similarly, we review de novo choice-of-law determinations. Cont'l Ins. Co. v.
Honeywell Int'l., Inc., 234 N.J. 23, 46 (2018).
Before us, both the CDL defendants and SCI contend the court erred in
denying their motions to dismiss and compel arbitration. In support, they reprise
their arguments: (1) the FAA or New York law, as provided in the Agreements,
should control; (2) the Agreements are enforceable under federal, New York, or
New Jersey law; and (3) the Agreements' class action waiver is also applicable.
As an initial matter, we conclude the court's reliance on Roadway
Package, 257 F.3d at 288-89, was misplaced. In that case, the Third Circuit
concluded "the presence of a generic choice-of-law clause tells us little (if
anything) about whether contracting parties intended to opt out of the FAA's
default standards and incorporate ones borrowed from state law." Id. at 296. In
this case, however, the Agreements contain not only a generic choice-of-law
clause, but specify New York law applies to arbitration as well. Nevertheless,
"it is well-settled that appeals are taken from orders and judgments and not from
opinions, oral decisions, informal written decisions, or reasons given for the
A-3346-22
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ultimate conclusion." Hayes v. Delamotte, 231 N.J. 373, 387 (2018) (quoting
Do-Wop Corp. v. City of Rahway, 168 N.J. 191, 199 (2001)).
Our analysis begins with a determination as to which state's law controls.
The CDL defendants contend the court must apply New York law, consistent
with the Agreements' choice of law provision. In this regard, they correctly
note, under North Bergen Rex Transportation v. Trailer Leasing Co., 158 N.J.
561, 568-69 (1999), New Jersey courts uphold a contract's choice of law
provision unless:
(a) the chosen state has no substantial relationship to
the parties or the transaction and there is no other
reasonable basis for the parties' choice, or (b)
application of the law of the chosen state would be
contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the
determination of the particular issue and which . . .
would be the state of the applicable law in the absence
of an effective choice of law by the parties.
[Ibid.]
Here, the CDL defendants argue a substantial relationship to New York
exists because it is undisputed CDL and SCI are New York companies.
Additionally, they contend application of New York law would not be contrary
to any fundamental policy of New Jersey. In support, they rely upon Grandvue
Manor, LLC v. Cornerstone Contracting Corp., 471 N.J. Super. 135 (App. Div.
A-3346-22
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2022), which they argue demonstrates any difference between New York and
New Jersey law is "slight." The CDL defendants also note "a party may not be
compelled to arbitrate a dispute unless there is evidence which affirmatively
establishes that the parties clearly, explicitly, and unequivocally agreed to
arbitrate the dispute" under In re AT&S Transp., LLC v. Odyssey Logistics &
Tech. Corp., 803 N.Y.S.2d 118 (App. Div. 2005), a standard they characterize
as "exactly the same as New Jersey." Even assuming a difference in the law of
the two states, the CDL defendants assert such difference "does not rise to the
level of being offensive or repugnant to the public policy of New Jersey." SCI
joins the CDL defendants, noting "[i]t is well-settled that a parties' choice of law
provision must be honored" under North Bergen Rex Transportation, 158 N.J.
at 568.
Plaintiffs respond by arguing the court properly found the New York
choice-of-law provision "was void as against New Jersey public policy" which
aims to protect "'average' individuals in asymmetric negotiations (particularly
when a waiver of rights is involved.)" They contend New York "does not require
courts to conduct a substantive inquiry into whether the arbitration agreement
contains a fair and effective waiver of rights in the sense contemplated by
Atalese." Further, they maintain New Jersey has a materially greater interest in
A-3346-22
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this matter than New York, as plaintiffs live in New Jersey, report to a New
Jersey warehouse, make deliveries exclusively in New Jersey, signed the
Agreements in New Jersey, suffered injuries in New Jersey, and their claims
involve vindication of their rights as New Jersey workers under the New Jersey
WHL and WPL. In contrast, they contend the only connections to New York
are CDL's, SCI's, and Curcio's residences there. We agree.
Generally, "when parties to a contract have agreed to be governed by the
laws of a particular state, New Jersey courts will uphold the contractual choice
if it does not violate New Jersey's public policy." Grandvue, 471 N.J. Super. at
142 (quoting Instructional Sys., Inc. v. Computer Curriculum Corp., 130 N.J.
324, 341 (1992)). New Jersey follows the approach set forth in section 187 of
the Restatement (Second) of Conflict of Laws and will apply the law of the state
chosen by the parties unless:
(a) the chosen state has no substantial relationship to
the parties or the transaction and there is no other
reasonable basis for the parties' choice, or
(b) application of the law of the chosen state would be
contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the
determination of the particular issue and which would
be the state of the applicable law in the absence of an
effective choice of law by the parties.
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[Grandvue, 471 N.J. Super. at 142 (quoting
Instructional Sys., 130 N.J. at 341-42).]
Here, New York has a substantial relationship to the parties because CDL,
Curcio, and SCI are residents of that state. See Instructional Sys., 130 N.J. at
342 (finding section 187(a) inapplicable because California had a substantial
relationship to the parties as defendant was headquartered there). Thus, section
187(a) is inapplicable and for New Jersey law to apply, (1) New Jersey must
have "a materially greater interest than [New York] in the determination of" the
Agreements' arbitrability, (2) New Jersey law must be applicable in the absence
of an effective choice of law, and (3) the application of New York law must be
"contrary to a fundamental policy" of New Jersey. Grandvue, 471 N.J. Super.
at 142 (quoting Instructional Sys., 130 N.J. at 342).
We are convinced, based on the facts in the motion record, New Jersey
has a "materially greater interest" with respect to disputes under the Agreements
than New York. Ibid. (quoting Instructional Sys., 130 N.J. at 342). Indeed,
New York has little to no connection to this matter beyond CDL's, SCI's, and
Curcio's residences there. Meanwhile, plaintiffs live and work in New Jersey,
CDL operates a warehouse in New Jersey, the Agreements were executed in
New Jersey, and plaintiffs' claims implicate the New Jersey WHL and WPL and
involve alleged wage injuries suffered in New Jersey. These same facts,
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combined with plaintiffs' choice of New Jersey as forum, strongly support the
application of New Jersey law absent the choice of law provision.
Further, we are also satisfied the application of New York law here would
be "contrary to a fundamental policy" of New Jersey. Ibid. (quoting
Instructional Sys., 130 N.J. at 342). It is undisputed both New Jersey and New
York favor arbitration as a means of dispute resolution. See Flanzman v. Jenny
Craig, Inc., 244 N.J. 119, 133 (2020) (noting "the affirmative policy of [New
Jersey], both legislative and judicial, favors arbitration as a mechanism of
resolving disputes" (quoting Martindale v. Sandvik, Inc., 173 N.J. 76, 92
(2002))); Ferrarella v. Godt, 15 N.Y.S.3d 180, 183 (App. Div. 2015) (holding
"[t]he announced policy of [New York] favors and encourages arbitration as a
means of conserving the time and resources of the courts and the contracting
parties" (quoting In re Nationwide Gen. Ins. Co. v. Inv'rs. Ins. Co. of Am., 332
N.E.2d 333, 335 (N.Y. 1975))).
New Jersey has a long standing policy of protecting the right to access its
courts. Article I, paragraph 9 of the New Jersey Constitution provides "[t]he
right of trial by jury shall remain inviolate." "Although rights may be waived,
courts 'indulge every reasonable presumption against waiver of fundamental
constitutional rights.'" Mazdabrook Commons Homeowners' Ass'n v. Khan, 210
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N.J. 482, 505 (2012) (quoting Johnson v. Zerbst, 304 U.S. 458, 464 (1938)). "To
be valid, waivers must be knowing, intelligent, and voluntary." Ibid.In that vein, our Supreme Court in Atalese intended "to assure that the
parties know that in electing arbitration as the exclusive remedy, they are
waiving their time-honored right to sue." 219 N.J. at 444 (quoting Garfinkel v.
Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 132 (2001)).
Accordingly, as we detail further below in section III, the Court held an
enforceable arbitration clause "at least in some general and sufficiently broad
way, must explain that the plaintiff is giving up her right to bring her claims in
court or have a jury resolve the dispute." Id. at 447.
In contrast, to determine whether the parties agreed to arbitrate, New York
courts "perform the initial screening process designed to determine in general
terms whether the parties have agreed that the subject matter under dispute
should be submitted to arbitration." Grandvue, 471 N.J. Super. at 144 (quoting
Nationwide, 332 N.E.2d at 335). The court's inquiry ends "[o]nce it appears that
there is, or is not a reasonable relationship between the subject matter of the
dispute and the general subject matter of the underlying contract." Ibid.
(quoting Nationwide, 332 N.E.2d at 335); see also Ferrarella, 15 N.Y.S.3d at
183 (holding "[o]nce it is determined that the parties have agreed to arbitrate the
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subject matter in dispute, the court's role has ended"). Further, "New York
courts interfere 'as little as possible with the freedom of consenting parties ' to
submit disputes to arbitration." Ibid. (quoting In re 166 Mamaroneck Ave. Corp.
v. 151 E. Post Rd. Corp., 575 N.E.2d 104, 107 (N.Y. 1991)).
Protecting individuals' rights to sue and to a jury trial, and ensuring any
waiver of those rights is knowing, intelligent, and voluntary are unquestionably
fundamental policies of New Jersey. Contrary to New Jersey law in this respect,
New York law does not specifically require an arbitration clause explain that
agreement thereto involves waiving the right to a jury trial, and defendants have
cited no precedent to the contrary. Therefore, we are satisfied application of
New York law in this circumstance would be contrary to a fundamental policy
of New Jersey and accordingly apply New Jersey law.
We are convinced Grandvue does not compel a different result. First,
contrary to the CDL defendants' contention, in that case we affirmed the trial
court's application of New Jersey law, not New York law. Grandvue, 471 N.J.
Super. at 142, 146. Next, while we acknowledge certain superficial similarities
between the facts of Grandvue and those before us, at bottom we conclude these
circumstances are distinguishable. Grandvue involved a contract for
construction of a $10 million home in New York, id. at 139-40, while the
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Agreements here concern the terms of delivery services provided by plaintiffs
in New Jersey. As we detail below in section III, plaintiffs here are not the
"sophisticated" parties involved in Grandvue. Id. at 146.
III.
Next, the CDL defendants and SCI maintain the arbitration provision of
the Agreements is enforceable even under New Jersey law and controls the
disputes at issue. In support, they note the court must examine "whether the
agreement to arbitrate all, or any portion of a dispute is 'the product of mutual
assent, as determined under customary principles of contract law,'" under Arafa
v. Health Express Corp., 243 N.J. 147, 171 (2020). Further, defendants assert
the court must "preserve the parties' intent to arbitrate" under Arafa and the New
Jersey Arbitration Act, N.J.S.A. 2A:23B-1 to -36 (NJAA). They argue the
arbitration clause in the Agreements "clearly and unambiguously describe[s] the
entire dispute resolution process," and plaintiffs were given the opportunity to
opt-out of arbitration. Further, the CDL defendants assert plaintiffs are
sophisticated negotiators who operate their own businesses, and there was no
evidence plaintiffs did not understand what they were waiving.
Plaintiffs respond the arbitration clause in the Agreements fails to meet
the requirements of Atalese as it "do[es] not distinguish between arbitration and
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litigation," "explain what arbitration is," "indicate how arbitration is differ ent
from a proceeding in a court of law," or mention the words jury or waiver, except
in the context of the class action waiver. Relying upon Moon v. Breathless Inc.,
868 F.3d 209, 214 (3d Cir. 2017), they argue an enforceable arbitration
agreement must (1) "identify the substantive areas it purports to cover," (2)
"reference the types of claims waived," and (3) "explain the difference between
arbitration and litigation using clear and unambiguous language to inform the
parties of their legal rights and their intent to surrender those rights." Plaintiffs
argue the arbitration clause in the Agreements here fails all three prongs, as it
does not explain which areas and claims are covered, nor does it clearly explain
the rights to be waived.
Plaintiffs also dispute the CDL defendants' claim of their sophistication,
contending they are delivery drivers performing manual labor with "extremely
limited control over [their] work." Even though some plaintiffs may work
through their own business entity, they contend this does not change the nature
of the work they perform or their relationships to CDL and SCI. Additionally,
they note their agreement to "two intrinsically unconscionable contract terms,"
requiring them to waive "their statutory rights to attorney's fees and punitive
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damages," demonstrates their lack of sophistication and the disparity in
bargaining power between plaintiffs and SCI. We agree with plaintiffs.
The NJAA "is nearly identical to the FAA and enunciates the same
policies favoring arbitration." Arafa, 243 N.J. at 167. "[T]he NJAA will apply
unless preempted even without being explicitly referenced in an arbitration
agreement." Id. at 169. However, "[a]rbitration's favored status does not mean
that every arbitration clause, however phrased, will be enforceable." Atalese,
219 N.J. at 441.
"An agreement to arbitrate, like any other contract, 'must be the product
of mutual assent, as determined under customary principles of contract law.'"
Id. at 442 (quoting NAACP of Camden Cnty. E. v. Foulke Mgmt. Corp., 421
N.J. Super. 404, 424 (App. Div. 2011)). Accordingly, to be enforceable, an
arbitration agreement must clearly state that the parties are agreeing to arbitrate
and are giving up the right to pursue a claim in court. In that regard, our
Supreme Court has explained:
Mutual assent requires that the parties have an
understanding of the terms to which they have agreed.
"An effective waiver requires a party to have full
knowledge of his [or her] legal rights and intent to
surrender those rights." Knorr v. Smeal, 178 N.J. 169,
177 (2003). "By its very nature, an agreement to
arbitrate involves a waiver of a party's right to have [his
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or] her claims and defenses litigated in court." NAACP
of Camden Cnty. E., 421 N.J. Super. at 425.
[Ibid. (citations reformatted).]
Like other waivers of statutory or constitutional rights, the Court noted
"because arbitration involves a waiver of the right to pursue a case in a judicial
forum, 'courts take particular care in assuring the knowing assent of both parties
to arbitrate, and a clear mutual understanding of the ramifications of that
assent.'" Id. at 442-43 (quoting NAACP of Camden Cnty. E., 421 N.J. Super. at
425). "Although an arbitration clause need not identify 'the specific
constitutional or statutory right guaranteeing a citizen access to the courts' that
are being waived, it must 'at least in some general and sufficiently broad way'
convey that parties are giving up their right to bring their claims in court or have
a jury resolve their dispute." Barr v. Bishop Rosen & Co., Inc., 442 N.J. Super.
599, 606 (App. Div. 2015) (quoting Atalese, 219 N.J. at 447); see also Moon,
868 F.3d at 214 (distilling New Jersey jurisprudence and concluding valid
arbitration agreement must "identify the substantive area that the arbitration
clause covers," "reference the types of claims waived," and "explain the
difference between arbitration and litigation"). "An arbitration agreement that
fails to 'clearly and unambiguously signal' to parties that they are surrendering
their right to pursue a judicial remedy renders such an agreement
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unenforceable." Barr, 442 N.J. Super. at 606 (quoting Atalese, 219 N.J. at 444,
448).
As we explained in County of Passaic v. Horizon Healthcare Services,
Inc., 474 N.J. Super. 498, 503-04 (App. Div. 2023), the concern described in
Atalese regarding those who might not be "aware of the fact that an agreement
to arbitrate may preclude the right to sue in a court or invoke the inestimable
right of trial by jury . . . vanishes when considering individually-negotiated
contracts between sophisticated parties—often represented by counsel at the
formation stage—possessing relatively similar bargaining power." In other
words, "an express waiver of the right to seek relief in a court of law to the
degree required by Atalese is unnecessary when parties to a commercial contract
are sophisticated and possess comparatively equal bargaining power." Id. at
504.
We are satisfied, applying Atalese and its progeny, the arbitration clause
in the Agreements is unenforceable. Although the clause implies some claims
will be resolved in "small claims court" while others will go to arbitration, it
falls short of the "clear and unambiguous" explanation of rights waived required
by Atalese, 219 N.J. at 445. The Agreements do not explain what the
"jurisdictional maximum for small claims" is, what arbitration is, or that by
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agreeing to it, plaintiffs gave up their right to litigate their claims in court. As
our Supreme Court recognized, "[t]he meaning of arbitration is not self-evident
to the average consumer, who will not know, 'without some explanatory
comment[,] that arbitration is a substitute for the right to have one's claim
adjudicated in a court of law.'" Morgan v. Sanford Brown Inst., 225 N.J. 289,
308 (2016) (second alteration in original) (quoting Atalese, 219 N.J. at 442).
While the Agreements describe the procedure arbitration will follow, such
as the number of arbitrators on the panel and where it will occur, they do not
define arbitration and lack the crucial disclosure that it will replace litigation or
a jury trial. An average consumer or delivery driver is not likely to understand,
absent further explanation, what arbitration is, how it differs from litigation in
court or that it involves no judge or jury, nor are they likely able to distinguish
which claims fall within the "jurisdictional maximum for small claims" to be
litigated in court. The ability to opt-out of arbitration does nothing to further
clarify its meaning.
We find defendants' reliance on Arafa misplaced as each of the two
arbitration agreements involved in that case clearly complied with Atalese.
Arafa, 243 N.J. at 171-72. Specifically, one agreement stated "[t]he parties
voluntarily agree to waive any right to a trial by jury in any suit filed hereunder
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and agree to adjudicate any dispute pursuant to" further detailed arbitration
clauses, and the other provided "BY AGREEING TO ARBITRATE ALL SUCH
DISPUTES, THE PARTIES TO THIS AGREEMENT AGREE THAT ALL
SUCH DISPUTES WILL BE RESOLVED THROUGH BINDING
ARBITRATION BEFORE AN ARBITRATOR AND NOT BY WAY OF A
COURT OR JURY TRIAL." Id. at 155, 158 (emphasis supplied, caps in
original). Here, the Agreements fail to explain that agreeing to arbitration means
waiving the right to a jury trial, or even to mention the words "jury trial" at all .
Finally, the record reflects the Agreements were not the product of a
sophisticated negotiation, contrary to defendants' contentions. It appears none
of the plaintiffs were represented by counsel, nor did the terms of the
Agreements substantially differ among the plaintiffs, suggesting the Agreements
were similar to "take-it-or-leave-it" contracts of adhesion. See Muhammad v.
Cnty. Bank of Rehoboth Beach, 189 N.J. 1, 15 (2006) (noting "the essential
nature of a contract of adhesion is that it is presented on a take-it-or-leave-it
basis, commonly in a standardized printed form, without opportunity for the
'adhering' party to negotiate except perhaps on a few particulars" (quoting
Rudbart v. N. Jersey Dist. Water Supply Comm'n., 127 N.J. 344, 353 (1992))).
This also indicates unequal bargaining power between the parties. Accordingly,
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the Agreements are closer to consumer contracts, as in Atalese, than commercial
contracts, as in County of Passaic or Grandvue.
The parties in County of Passaic were a municipality and a health
insurance company with a seventeen-year relationship involving multiple
contracts. 474 N.J. Super. at 501, 504. Both were represented by counsel, and
the record in that case reflected negotiation of several contracts. Id. at 504-05.
Thus, we concluded the parties were sophisticated and possessed relatively
equal bargaining power. Id. at 501, 504. Similarly, in Grandvue, we deemed
the contractor corporation and couple who, through an LLC, contracted for
construction of a $10 million home were sophisticated. 471 N.J. Super. at 139-
40, 146. Further, unlike the Agreements before us, the arbitration clause we
upheld in that case clearly delineated that the parties had a choice between
arbitration or "[l]itigation in a court of competent jurisdiction." Id. at 140.
Plaintiffs are clearly not the type of parties we had in mind in County of
Passaic, 474 N.J. Super. at 503-04. The record is devoid of evidence
demonstrating any of them were represented by counsel or engaged in individual
negotiation of the Agreements. The record demonstrates plaintiffs are
individual delivery drivers who perform manual labor for CDL under CDL's
rules. That one of the plaintiffs worked through an LLC does not change the
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nature of the work she performed or the disparity in bargaining power between
plaintiffs and SCI.
Because the Agreements were not the product of a sophisticated
negotiation and the arbitration clause therein does not clearly and
unambiguously explain the parties are waiving their rights to bring their claims
in court or to have a trial by jury, the court correctly found the arbitration
agreement is unenforceable.
IV.
SCI contends the court erred by failing to analyze the Agreements'
arbitration clauses under the FAA. It notes the FAA exemption in 9 U.S.C. § 1does not apply here because the Agreements are not contracts of employment or
interstate commerce as "[p]laintiffs did not provide their delivery services to
SCI." Plaintiffs assert they are transportation workers engaged in interstate
commerce and thus clearly fall within the section 1 exemption. They also
contend the term "contracts of employment" as used in the section 1 exemption
includes independent contractors under New Prime Inc. v. Oliveira, 586 U.S. __,
139 S. Ct. 532 (2019).
Under Shetiwy v. Midland Credit Management, 959 F. Supp. 2d 469, 473
(S.D.N.Y. 2013), SCI argues a court determining arbitrability under the FAA
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must consider "(1) whether the parties have entered into a valid agreement to
arbitrate, and, if so, (2) whether the dispute at issue comes within the scope of
the arbitration agreement." SCI concludes if both parts of the test are answered
in the affirmative, as here, the court has no discretion and must order arbitration.
We are not persuaded.
Although the FAA "contains no express pre-emptive provision, nor does
it reflect a congressional intent to occupy the entire field of arbitration," it
generally "preempts state laws that treat arbitration agreements differently from
other contracts." Grandvue, 471 N.J. Super. at 145 (quoting Arafa, 243 N.J. at
164-65). Accordingly, an arbitration clause "cannot be invalidated by state-law
'defenses that apply only to arbitration or that derive their meaning from the fact
that an agreement to arbitrate is at issue.'" Atalese, 219 N.J. at 441 (quoting
AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)).
However, the FAA "specifically permits states to regulate contracts,
including contracts containing arbitration agreements[,] under general contract
principles." Grandvue, 471 N.J. Super. at 145 (alteration in original) (quoting
Arafa, 243 N.J. at 165). In other words, "New Jersey may 'regulate agreements,
including those that relate to arbitration, by applying its contract-law principles
that are relevant in a given case.'" Skuse v. Pfizer, Inc., 244 N.J. 30, 47 (2020)
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(quoting Leodori v. Cigna Corp., 175 N.J. 293, 302 (2003)). "[S]tate contract-
law principles generally govern a determination whether a valid agreement to
arbitrate exists." Waskevich v. Herold Law, P.A., 431 N.J. Super. 293, 298
(App. Div. 2013) (quoting Hojnowski v. Vans Skate Park, 187 N.J. 323, 342
(2006)).
The Supreme Court's opinion in Atalese does not in any way conflict with
the FAA as it "does not disfavor or discriminate against arbitration agreements,"
but rather "reaffirmed principles long embedded in [New Jersey] jurisprudence."
Kernahan v. Home Warranty Adm'r of Fla., Inc., 236 N.J. 301, 330 (2019)
(Albin, J., concurring).3 As Justice Albin explained, the United States Supreme
Court's FAA jurisprudence "do[es] not bar an undemanding state-law
requirement that allows consumers a minimal understanding that in choosing
arbitration they will not have access to a judicial forum." Id. at 334. Thus, in
light of our conclusion the Agreements do not comply with the general contract
principles set forth in Atalese, we need not, and do not, decide whether the FAA
applies to the Agreements.
3
In Kernahan, 236 N.J. at 328, Justice Albin specifically considered and
rejected the argument that Atalese conflicted with the United States Supreme
Court's holding in Kindred Nursing Centers L.P. v. Clark, 581 U.S. 246, 248
(2017), a position not advanced by defendants here in their briefs or at oral
argument.
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We are satisfied Arafa does not compel a different result. In that case, the
plaintiffs argued (1) there had been no "meeting of the minds" with respect to
arbitration because the terms of the agreement provided it would be governed
by solely the FAA, but the agreement was exempt from the FAA under 9 U.S.C.
§1, and (2) the court could not apply the NJAA in place of the FAA absent
express intent of the parties to do so. Arafa, 243 N.J. at 160-61. The Court was
therefore required to examine the FAA exemption to resolve the issues before
it. Id. at 166. Further, we note each of the arbitration agreements at issue in
Arafa expressly informed the parties their assent thereto constituted a waiver of
their right to a trial by jury, as required under Atalese. Id. at 172.
V.
Finally, the CDL defendants assert "the FAA preempts states from
invalidating class action waiver clauses contained within arbitration agreements
on public policy or unconscionability grounds." Plaintiffs respond the class
action waiver was limited to arbitration and is thus unenforceable. We agree
with plaintiffs.
The Agreements state "[n]either you nor SCI shall be entitled to join or
consolidate claims in arbitration by or against other individuals or entities, or
arbitrate any claim as a representative member of a class or in a private attorney
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general capacity." (Emphasis added). Nothing in this language is ambiguous—
it clearly states the limitation applies to arbitration, with no reference to
litigation in court. In light of our decision finding the arbitration agreement
unenforceable, we conclude the class action waiver is inapplicable under these
circumstances.
To the extent we have not addressed any of the parties' arguments, it is
because we conclude they lack sufficient merit to warrant extended discussion
in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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