Annemarie Morgan v. Sanford Brown Institute(075074) , 225 N.J. 289 ( 2016 )

SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)
Annemarie Morgan v. Sanford Brown Institute (075074) (A-31-14)
Argued December 2, 2015 – Decided June 14, 2016
ALBIN, J., writing for a majority of the Court.
In this appeal involving an arbitration provision contained in the enrollment agreement for Sanford Brown
Institute, the Court considers whether the court or an arbitrator should determine the arbitrability of claims for
consumer fraud and other charges asserted in plaintiffs’ complaint.
Plaintiffs filed a lawsuit asserting that misrepresentations and deceptive business practices by defendant
Sanford Brown Institute and certain administrators caused them to enroll in Sanford Brown’s ultrasound technician
program. Plaintiffs claimed that they sustained financial loss and other injury as a result of defendants’ wrongful
conduct. Defendants filed a motion to compel arbitration of plaintiffs’ claims, but did not make it clear that they
wanted the arbitrator, rather than the court, to decide whether the parties agreed to arbitration. The trial court
declined to enforce the arbitration provision, finding it unenforceable because it did not inform plaintiffs that they
were waiving statutory remedies, and the provision conflicted with the remedies available under the New Jersey
Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -195.
The Appellate Division reversed, dismissed the complaint, and ordered arbitration. The panel held that the
trial court improperly failed to enforce the arbitration agreement’s delegation clause. The panel found that the
parties had clearly and unmistakably agreed that an arbitrator would determine whether the parties agreed to
arbitration, and that plaintiffs failed to specifically attack the delegation clause. The Appellate Division remanded
the matter for arbitration to enable the arbitrator to decide whether the claims asserted were subject to arbitration
under the agreement. However, the panel also made findings on the enforceability of certain provisions in the
arbitration clause. The panel concluded that the arbitration agreement is sufficiently clear and unambiguous to
provide plaintiffs with reasonable notice of the requirement to arbitrate all claims related to their enrollment
agreements, including the CFA claim.
The Court granted certification limited to the issue of “whether plaintiffs can be compelled to arbitrate all
claims related to their enrollment agreements, including their Consumer Fraud Act claims, under the terms of this
arbitration agreement.” 220 N.J. 265 (2015).
HELD: The arbitration provision and purported delegation clause in the enrollment agreement fail to comply with
the requirements of First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995), and Atalese v. U.S. Legal Servs.
Grp., 219 N.J. 430 (2014), cert. denied, 135 S. Ct. 2804 (2015). They also fail to satisfy the elements necessary for
the formation of a contract. Consequently, whether the parties agreed to arbitrate their dispute is an issue for
determination by the court. The Court holds that the arbitration and delegation provisions of the agreement are
unenforceable.
1. The standard of review by this Court of the validity of an arbitration agreement is de novo. The Court owes no
deference to the interpretative analysis of either the trial court or Appellate Division except as the Court may be
persuaded by the reasoning of these courts. The Court construes the arbitration provision anew and without
deference to the determinations of the trial court or the Appellate Division. (p. 14)
2. The parties to an arbitration agreement can agree to delegate to an arbitrator the issue of whether they agreed to
arbitrate a particular dispute. State law governs whether the parties formed a contract to arbitrate their disputes, and
agreed to delegate the issue of arbitrability to an arbitrator. The law presumes that a court, not an arbitrator, decides
any issue concerning arbitrability. To overcome the presumption of judicial resolution, there must be clear and
unmistakable evidence that the parties have agreed that the arbitrator will decide the question of arbitrability.
Silence or ambiguity in an agreement does not overcome the presumption that a court will decide arbitrability. (pp.
15-18)
3. The arbitration provision in this case does not contain a clearly identifiable delegation clause. The provision fails
to explain that an arbitrator will decide whether the parties agreed to arbitrate legal claims, including statutory
violations, and it does not explain that arbitration is a substitute for bringing a claim before a court or jury.
Additionally, defendants did not assert the delegation clause before the motion court, or argue that the court lacked
jurisdiction to decide arbitrability. The motion record reveals that both parties expected the court to decide the issue
of arbitrability. (pp. 19-21)
4. The arbitration agreement and purported delegation clause are subject to state-law contract principles. The
arbitration provision fails to comply with the dictates of Atalese because it fails to explain that arbitration is a
substitute for the right to seek relief in our judicial system. The meaning of arbitration is not self-evident, and the
arbitration provision is otherwise difficult to read. The agreement is not written in plain language that would clearly
inform the average consumer that he or she is giving up the right to seek relief in a judicial forum. This minimal
knowledge of the meaning and effect of arbitration, which was necessary to establish a meeting of the minds based
on a common understanding of the contract terms and enable the student plaintiffs to give informed assent, is absent
here. This flaw also extends to the purported delegation clause. The arbitration provision and the purported
delegation clause are unenforceable. (pp. 22-28)
5. Defendants did not make clear to the motion court that they were invoking a delegation clause and that the
decision whether the parties agreed to arbitration resided with the arbitrator, not the court. The obligation of a party
to mount a specific challenge to the validity of a delegation clause, as required by Rent-A-Center, 561 U.S. 63
(2010), presupposes a clearly identifiable delegation clause. Because the arbitration provision did not clearly and
unmistakably delegate arbitrability to the arbitrator, and did not plainly define arbitration as a substitute for a
judicial forum, plaintiffs cannot be faulted for failing to object to an inadequately defined delegation clause. (pp. 8-
10, 18, 28)
The judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial court
for proceedings consistent with this opinion.
JUSTICE PATTERSON, DISSENTING, would affirm the Appellate Division’s determination that the
United States Supreme Court’s decision in Rent-A-Center compels the conclusion that the parties’ dispute regarding
arbitrability should be decided by an arbitrator applying principles of New Jersey contract law. Justice Patterson
states that because plaintiffs, in the trial court, did not challenge the contract language that defendants invoked on
the question of arbitrability, they therefore waived their challenge to the delegation provision under Rent-A-Center.
Justice Patterson concludes that all issues in the matter, including plaintiffs’ claims that the arbitration provision is
unconscionable, should be determined in arbitration.
CHIEF JUSTICE RABNER, JUSTICES LaVECCHIA and SOLOMON, and JUDGE CUFF
(temporarily assigned), join in JUSTICE ALBIN’s opinion. JUSTICE PATTERSON filed a separate,
dissenting opinion. JUSTICE FERNANDEZ-VINA did not participate.
2
SUPREME COURT OF NEW JERSEY
A-31 September Term 2014
075074
ANNEMARIE MORGAN and TIFFANY
DEVER,
Plaintiffs-Appellants,
v.
SANFORD BROWN INSTITUTE,
CAREER EDUCATION CORPORATION,
INC.,
Defendants-Respondents,
and
MATTHEW DIACONT, GREG LNU,
SALVATORE COSTA, JANET YOUNG,
and KRISTA HOLDEN,
Defendants.
Argued December 2, 2015 – Decided June 14, 2016
On certification to the Superior Court,
Appellate Division.
Robert J. O’Shea, Jr., argued the cause for
appellants.
Louis Smith argued the cause for respondents
(Greenberg Traurig, attorneys; Mr. Smith and
Brian T. Feeney, a member of the
Commonwealth of Pennsylvania and Connecticut
bars, on the briefs).
James A. Barry argued the cause for amicus
curiae New Jersey Association for Justice
(Locks Law Firm, attorneys; Mr. Barry,
Michael A. Galpern, Andrew P. Bell, and
Charles Riley, on the brief).
1
Mark Miller argued the cause for amicus
curiae Pacific Legal Foundation.
Gavin J. Rooney, Joseph A. Fischetti and Amy
C. Gromek submitted a brief on behalf
of amici curiae New Jersey Civil Justice
Institute and Chamber of Commerce of the
United States of America.
JUSTICE ALBIN delivered the opinion of the Court.
Last term, we held that an arbitration provision in a
consumer contract that fails to explain in some minimal way that
arbitration is a substitute for a consumer’s right to pursue
relief in a court of law is unenforceable. Atalese v. U.S.
Legal Servs. Grp., 219 N.J. 430, 436 (2014), cert. denied, __
U.S. __, 135 S. Ct. 2804, 192 L. Ed. 2d 847 (2015). Under the
Federal Arbitration Act (FAA), 9 U.S.C.A. §§ 1-16, state law
governs whether parties to a consumer contract have agreed to
arbitrate their disputes. The formation of an agreement to
arbitrate under state law requires that a consumer have some
understanding that, by accepting arbitration, she is
surrendering her common-law and constitutional right of access
to the courthouse. Because the term “arbitration” is not self-
defining, an arbitration agreement must inform a consumer in
some manner that she is waiving her right to seek relief in the
judicial system.
Plaintiffs filed a lawsuit claiming that the
2
misrepresentations and deceptive business practices of defendant
Sanford Brown Institute and certain defendant administrators led
them both to enroll in Sanford Brown’s ultrasound technician
program. The enrollment agreement signed by plaintiffs
contained an arbitration provision that nowhere mentions that
the two students were surrendering their right to resolve their
legal claims in a judicial forum. The issue in this case is
whether a judge or an arbitrator will decide whether the parties
agreed to arbitrate the consumer-fraud and other claims raised
in plaintiffs’ complaint.
Defendants filed a motion to compel arbitration, but did
not make clear that they wanted the arbitrator, rather than the
court, to decide whether the parties agreed to arbitration. The
trial court declined to submit the lawsuit to arbitration
because the arbitration provision did not inform plaintiffs that
they were waiving statutory remedies and because the provision
conflicted with the remedies available under the New Jersey
Consumer Fraud Act, N.J.S.A. 56:8-1 to -195.
The Appellate Division concluded that the trial court
failed to enforce the arbitration agreement’s clause delegating
to the arbitrator the issue of whether the parties agreed to
arbitration and remanded for arbitration. The appellate panel
found that “the parties ‘clearly and unmistakably’ agreed an
arbitrator would determine issues of arbitrability” and that
3
plaintiffs failed to “specifically attack[] the delegation
clause.”1 The panel therefore determined that “arbitrability
[was] for the arbitrator to decide.”
We reverse. In doing so, we recognize that both the trial
court and Appellate Division did not have the benefit of Atalese
at the time they rendered their decisions.
An agreement to delegate arbitrability to an arbitrator,
like an arbitration agreement itself, must satisfy the elements
necessary for the formation of a contract under state law.
First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.
Ct. 1920, 1924, 131 L. Ed. 2d 985, 994 (1995). The putative
delegation clause does not explain that arbitration is a
substitute for the right to seek relief in court -- information
necessary for the formation of a valid contract.
As important, the arbitration provision in Sanford Brown’s
enrollment agreement does not contain a clearly identifiable
delegation clause.2 Indeed, defendants never asserted with any
1 Arbitrability is whether the parties have agreed to submit to
an arbitrator or a court the authority to decide whether a
dispute is subject to arbitration. First Options of Chi., Inc.
v. Kaplan, 514 U.S. 938, 942-43, 115 S. Ct. 1920, 1923-24, 131
L. Ed. 2d 985, 992 (1995).
2 A delegation clause is a clause in an arbitration agreement
that assigns to the arbitrator the decision whether a dispute is
subject to arbitration. Rent-A-Ctr., W., Inc. v. Jackson, 561
U.S. 63, 68-69, 130 S. Ct. 2772, 2777, 177 L. Ed. 2d 403, 411
(2010).
4
clarity before the motion court that they were relying on a
delegation clause. Unless the parties have clearly delegated to
an arbitrator the decision whether the parties agreed to
arbitration, the issue is for a court to resolve. Ibid. Last,
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 130 S. Ct.
2772, 177 L. Ed. 2d 403 (2010), does not suggest that a party is
obliged to specifically challenge a delegation provision that
cannot be clearly identified in an arbitration agreement.
The arbitration provision here does not conform to the
dictates of First Options or Atalese. Accordingly, the
arbitration provision and its putative delegation clause are not
enforceable. We remand to the trial court for proceedings
consistent with this opinion.
I.
A.
In May 2013, plaintiffs Annemarie Morgan and Tiffany Dever
filed a civil action in Superior Court against defendants
Sanford Brown Institute and its parent company, Career Education
Corporation. Plaintiffs also named as defendants Sanford
Brown’s chief executive officer, admission and financial aid
officers, and clinical director. The complaint alleged that
defendants, either collectively or individually, committed (1) a
violation of the Consumer Fraud Act, (2) breach of contract, (3)
breach of warranties, and (4) negligent misrepresentation.
5
Sanford Brown is a private, for-profit educational
institution with a campus in Trevose, Pennsylvania, that offers
medical-related training programs. In 2009, plaintiffs signed
enrollment agreements for admission into Sanford Brown’s 2010
ultrasound technician program.
In the complaint, plaintiffs claimed that defendants
misrepresented the value of the school’s ultrasound technician
program and the quality of its instructors, instructed students
on outdated equipment and with inadequate teaching materials,
provided insufficient career-service counseling, and conveyed
inaccurate information about Sanford Brown’s accreditation
status. The complaint further alleged that Sanford Brown
employed high-pressure and deceptive business tactics that
resulted in plaintiffs financing their education with high-
interest loans, passing up the study of ultrasound at a
reputable college, and losing career advancement opportunities.
Without answering the complaint, defendants filed a motion
in Superior Court to compel arbitration and to dismiss
plaintiffs’ claims pursuant to Rule 4:6-2.3 Defendants appended
to the motion the four-page enrollment agreements signed by
plaintiffs before their admission into the ultrasound program.
3 Before the motion court, Sanford Brown claimed that the
individual defendants had not been served with the complaint.
The individual defendants are not a party to this appeal.
6
The Sanford Brown enrollment agreement included payment terms
for tuition and fees, disclaimers, and an arbitration provision.
Plaintiffs’ signatures appear on the second page of their
agreements, as do the signatures of Sanford Brown’s “Admissions
Representative” and “Authorized School Official.”
Immediately above the signature line is the following text in
italicized ten-point Times New Roman font: “THIS CONTRACT CONTAINS A
BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.”
The arbitration provision at issue appears on page four in
thirty-five unbroken lines of nine-point Times New Roman font.
The relevant part of the arbitration provision is reproduced
here in its original font and font size:4
Agreement to Arbitrate -- Any disputes, claims, or controversies between the parties to this
Enrollment Agreement arising out of or relating to (i) this Enrollment Agreement; (ii) the
Student’s recruitment, enrollment, attendance, or education; (iii) financial aid or career
service assistance by SBI; (iv) any claim, no matter how described, pleaded or styled,
relating, in any manner, to any act or omission regarding the Student’s relationship with
SBI, its employees, or with externship sites or their employees; or (v) any objection to
arbitrability or the existence, scope, validity, construction, or enforceability of this
Arbitration Agreement shall be resolved pursuant to this paragraph (the “Arbitration
Agreement”). Choice of Arbitration Provider and Arbitration Rules -- Unless the parties
agree to an alternative, the arbitration shall be administered by the American Arbitration
Association (“AAA”) or the National Arbitration Forum (“NAF”). The arbitration shall be
before a single arbitrator. . . . Choice of Law -- The arbitrator shall apply federal law to
the fullest extent possible, and the substantive and procedural provisions of the Federal
Arbitration Act (9 U.S.C. §§ 1-16) shall govern this Arbitration Agreement and any and all
issues relating to the enforcement of the Arbitration Agreement and the arbitrability of
claims between parties. Costs, fees, and expenses of arbitration -- Each party shall bear
the expense of its own counsel, experts, witnesses, and preparation and presentation of
proofs. All fees and expenses of the arbitrator and administrative fees and expenses of the
arbitration shall be borne equally by the parties unless otherwise provided by the rules of
the AAA or the NAF governing the proceeding, or by specific ruling by the arbitrator, or
by agreement of the parties. Relief and Remedies -- The arbitrator shall have the authority
to award monetary damages and may grant any non-monetary remedy or relief available
by applicable law and rules of the arbitration forum governing the proceeding and within
4 For ease of reading, the arbitration provision is reproduced in
full in Courier New, twelve-point font in the addendum. In the
original enrollment agreement, each line of text is
approximately six inches long, whereas the excerpted lines above
are approximately four inches long.
7
the scope of this Enrollment Agreement. The arbitrator will have no authority to alter any
grade given to the Student or to require SBI to change any of its policies or procedures.
The arbitrator will have no authority to award consequential damages, indirect damages,
treble damages or punitive damages, or any monetary damages not measured by the
prevailing party’s economic damages. The arbitrator will have no authority to award
attorney’s fees except as expressly provided by this Enrollment Agreement or authorized
by law or the rules of the arbitration forum. . . . Arbitrator’s Award -- At the request of
either party, the arbitrator shall render a written award briefly setting forth his or her
essential findings and conclusions. Judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction. Severability and right to waive -- If any part
or parts of this Arbitration Agreement are found to be invalid or unenforceable by a
decision of a tribunal of competent jurisdiction, then such specific part or parts shall be of
no force and effect and shall be severed, but the remainder of this Arbitration Agreement
shall continue in full force and effect. Any or all of the limitations set forth in this
Arbitration Agreement may be specifically waived by the party against whom the claim is
asserted. Such waiver shall not waive or effect any other portion of this Arbitration
Agreement. Survival of provisions of this agreement -- This Arbitration Agreement will
survive the termination of the Student’s relationship with SBI.
B.
In support of their motion to compel arbitration,
defendants filed a supporting brief and a reply brief and
engaged in an oral colloquy with the court. Although defendants
urged the court to dismiss the complaint and send plaintiffs’
dispute to arbitration, defendants did not assert with any
clarity that the arbitrator, not the judge, should decide
whether the parties agreed to arbitration. In other words,
defendants did not truly contest the court’s power to decide
arbitrability. They did not argue that the arbitration
provision contained a “delegation clause,” as they did before
the Appellate Division and this Court. Nor did they cite to
Rent-A-Center for the proposition that plaintiffs failed to
challenge the arbitration provision’s putative delegation
clause, as they did before the Appellate Division and this
Court.
8
Indeed, defendants’ proposed order did not ask the motion
court to submit to an arbitrator whether the parties agreed to
arbitration. The proposed order merely sought to compel
plaintiffs “to submit the present dispute to arbitration.”
Plaintiffs generally argued that the arbitration provision
was unconscionable and therefore void because its terms were at
odds with the Consumer Fraud Act’s allowance of treble damages
and attorney’s fees.
The motion court denied defendants’ motion to compel
arbitration. The court explained that the arbitration provision
did not contain language stating that plaintiffs agreed to waive
their “federal or statutory remedies.” The court also concluded
that the arbitration provision was at odds with the Consumer
Fraud Act because the provision disallowed attorney’s fees to
plaintiffs if they were the prevailing parties and because it
limited the full range of damages permitted under the Act.
C.
The Appellate Division reversed the trial court, dismissing
plaintiffs’ complaint and directing that plaintiffs’ claims be
sent to arbitration in accordance with the enrollment
agreements. The panel accepted defendants’ contention that the
trial court ignored the arbitration provision’s “delegation
clause.” It determined that plaintiffs had not “specifically
attacked the delegation clause,” and, in the absence of such a
9
challenge, the delegation clause had to be treated as valid,
citing Rent-A-Center, supra, 561 U.S. at 72, 130 S. Ct. at 2779,
177 L. Ed. 2d at 413.
The panel further held that “the parties ‘clearly and
unmistakably’ agreed an arbitrator would determine issues of
arbitrability” based on language in the enrollment agreement,
which reads: “[A]ny objection to arbitrability or the
existence, scope, validity, construction, or enforceability of
this Arbitration Agreement shall be resolved pursuant to this
paragraph.” Accordingly, the panel concluded that the trial
court erred by not submitting the issue of arbitrability to
arbitration.
Although the panel decided that the arbitrator, not a
court, should rule on arbitrability, the panel nevertheless
proceeded to make its own legal findings on the enforceability
of certain terms in the arbitration clause. The panel struck
down as unconscionable that part of the arbitration clause
prohibiting the arbitrator from awarding treble damages, as
permitted by the Consumer Fraud Act. It also found that the
arbitration clause’s severability provision “addresses the
motion judge’s understandable concern of possible conflict with
the [Consumer Fraud Act].” The panel concluded by stating “that
the arbitration agreement is sufficiently clear, unambiguously
worded, and drawn in suitably broad language to provide
10
plaintiffs with reasonable notice of the requirement to
arbitrate all claims related to their enrollment agreements,
including their [Consumer Fraud Act] claims.”
We granted plaintiffs’ petition for certification “limited
to the issue of whether plaintiffs can be compelled to arbitrate
all claims related to their enrollment agreements, including
their Consumer Fraud Act claims, under the terms of this
arbitration agreement.” Morgan v. Sanford Brown Inst., 220 N.J.
265, 265-66 (2015). We also granted the motions of the New
Jersey Association for Justice, the Pacific Legal Foundation,
and the New Jersey Civil Justice Institute and Chamber of
Commerce of the United States of America to participate as amici
curiae.
II.
A.
Plaintiffs contend that they did not know that the
arbitration provision denied them their right of access to a
judicial forum and to a jury trial. They insist that the
arbitration provision was shrouded in ambiguity and did not
provide the information necessary for an effective knowing and
voluntary waiver of rights. In particular, plaintiffs claim
that the arbitration provision is unenforceable under Atalese
because the enrollment agreement failed to explain that
arbitration was a substitute for their right to seek relief in
11
court. In making those arguments, plaintiffs do not distinguish
between the validity of the arbitration agreement as a whole and
the putative delegation clause. Plaintiffs reason that the
withheld waiver-of-rights information foreclosed a meeting of
minds, which is essential for the formation of a valid contract.
Last, plaintiffs submit that the arbitration provision is void
because its terms are inimical to remedies provided under the
Consumer Fraud Act, which include treble damages and attorney’s
fees to a prevailing claimant.
Amicus curiae the New Jersey Association for Justice argues
that the enrollment agreement’s arbitration provision does not
meet the dictates of the Plain Language Act, N.J.S.A. 56:12-2.
According to the Association, the arbitration provision not only
fails to inform “prospective students that they are waiving any
rights,” as mandated by Atalese, supra, 219 N.J. at 436, but
also is confusing and misleading about the breadth of
arbitration. The Association states that defendants did not
establish by clear and unmistakable evidence that the parties
intended to delegate arbitrability, as required by Rent-A-
Center, supra, 561 U.S. at 72, 130 S. Ct. at 2779, 177 L. Ed. 2d
at 413, and First Options, supra, 514 U.S. at 944, 115 S. Ct. at
1924, 131 L. Ed. 2d at 994. The Association submits that the
enrollment agreement “fails to evidence a mutual assent on the
part of the parties to arbitrate and is therefore
12
unenforceable.”
B.
Defendants claim that the enrollment agreement’s
arbitration provision includes a delegation clause, which
authorizes the arbitrator to decide whether the parties agreed
to arbitration. Defendants assert that plaintiffs’ failure to
challenge the delegation clause specifically requires that
arbitrability must be decided by the arbitrator, citing Rent-A-
Center, supra, 561 U.S. at 72, 130 S. Ct. at 2779, 177 L. Ed. 2d
at 413. The arbitrator’s authority, according to defendants,
extends to deciding whether the arbitration provision is
enforceable under Atalese. Defendants also argue that Atalese
is distinguishable from the present case because the Atalese
arbitration provision did not contain a delegation clause.
Last, defendants submit that the arbitration clause is clear and
unambiguous and that a reasonable consumer would understand that
she was waiving her right to sue Sanford Brown in court over any
dispute arising from the enrollment agreement.
Amicus curiae Pacific Legal Foundation argues that the
delegation clause “[h]ere, as in Rent-A-Center, provides that
the parties agree to arbitrate threshold issues concerning the
arbitrability of ‘any claims,’ including but not limited to
statutory claims.” Accordingly, the Foundation urges that we
uphold the validity of the delegation clause, which plaintiffs
13
failed to attack, and leave any challenges about arbitrability
to the arbitrator.
Amici curiae New Jersey Civil Justice Institute and Chamber
of Commerce of the United States jointly contend that New Jersey
case law, by describing an arbitration agreement as a waiver of
rights and then by requiring that the waiver be “clear and
unambiguous,” disfavors arbitration and therefore violates the
Federal Arbitration Act and applicable United States Supreme
Court precedents. They urge the Court to align New Jersey law
with federal precedent and “enforce [arbitration] agreements
under general principles of contract (i.e., offer and
acceptance) rather than under the restrictive standard
applicable to waivers of substantive rights.”
III.
Our standard of review of the validity of an arbitration
agreement, like any contract, is de novo. Atalese, supra, 219
N.J. at 446 (citing Hirsch v. Amper Fin. Servs., LLC, 215 N.J.
174, 186 (2013)). We owe no deference to the interpretative
analysis of either the trial court or Appellate Division, except
as we may be persuaded by the reasoning of those courts. See
id. at 445-46 (citing Kieffer v. Best Buy, 205 N.J. 213, 222-23
(2011)). We therefore construe the arbitration provision with
fresh eyes. Kieffer, supra, 205 N.J. at 223.
IV.
14
A.
The key issue in this case is who decides whether the
parties agreed to arbitrate disputes arising from the enrollment
agreement: a court or an arbitrator.
Parties to an arbitration agreement can agree to delegate
to an arbitrator the issue of whether they agreed to arbitrate a
particular dispute. Rent-A-Ctr., supra, 561 U.S. at 68-69, 130
S. Ct. at 2777, 177 L. Ed. 2d at 411. Thus, a delegation clause
in an arbitration agreement can provide that an arbitrator,
rather than a judge, will decide such “threshold issues” as
whether the parties agreed to arbitrate a legal claim brought by
a plaintiff. See id. at 68, 130 S. Ct. at 2777, 177 L. Ed. 2d
at 411.
State law governs not only whether the parties formed a
contract to arbitrate their disputes, but also whether the
parties entered an agreement to delegate the issue of
arbitrability to an arbitrator. First Options, supra, 514 U.S.
at 944, 115 S. Ct. at 1924, 131 L. Ed. 2d at 993. The Federal
Arbitration Act simply requires that arbitration agreements be
placed “on an equal footing with other contracts” and enforced
according to their terms. Rent-A-Ctr., supra, 561 U.S. at 67,
130 S. Ct. at 2776, 177 L. Ed. 2d at 410 (citing Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 S. Ct. 1204,
1207, 163 L. Ed. 2d 1038, 1042 (2006); Volt Info. Scis. v. Bd.
15
of Trs., 489 U.S. 468, 478, 109 S. Ct. 1248, 1255, 103 L. Ed. 2d
488, 499-500 (1989)). Under the FAA, an arbitration agreement,
like any contract, may be held invalid “upon such grounds as
exist at law or in equity for the revocation of any contract.”
9 U.S.C.A. § 2;5 see also Rent-A-Ctr., supra, 561 U.S. at 68, 130
S. Ct. at 2776, 177 L. Ed. 2d at 410 (stating that arbitration
agreements, like other contracts, “may be invalidated by
‘generally applicable contract defenses, such as fraud, duress,
or unconscionability’” (quoting Doctor’s Assocs., Inc. v.
Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 1656, 134 L. Ed.
2d 902, 909 (1996))). The purpose of the FAA is “to make
arbitration agreements as enforceable as other contracts, but
not more so.” Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 404 n.12, 87 S. Ct. 1801, 1806 n.12, 18 L. Ed. 2d
1270, 1277 n.12 (1967).
Although the FAA expresses a national policy favoring
arbitration, the law presumes that a court, not an arbitrator,
decides any issue concerning arbitrability. First Options,
supra, 514 U.S. at 944, 115 S. Ct. at 1924, 131 L. Ed. 2d at
5 Section 2 of the FAA provides that “[a] written provision in .
. . a contract evidencing a transaction involving commerce to
settle by arbitration a controversy thereafter arising out of
such contract or transaction . . . shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.” 9 U.S.C.A. § 2.
16
994. In First Options, the United States Supreme Court stated
that to overcome the judicial-resolution presumption, there must
be “clea[r] and unmistakabl[e]” evidence “that the parties
agreed to arbitrate arbitrability.” Ibid. (alterations in
original) (quoting AT&T Techs., Inc. v. Commuc’ns Workers, 475
U.S. 643, 649, 106 S. Ct. 1415, 1418, 89 L. Ed. 2d 648, 656
(1986) (“Unless the parties clearly and unmistakably provide
otherwise, the question of whether the parties agreed to
arbitrate is to be decided by the court, not the arbitrator.”)).
Silence or ambiguity in an agreement does not overcome the
presumption that a court decides arbitrability. Ibid.
The issue in First Options was whether a stock-trading firm
had agreed with clients to arbitrate the issue of arbitrability.
Id. at 940-41, 115 S. Ct. at 1922-23, 131 L. Ed. 2d at 991-92.
The Supreme Court determined that, based on the record, the firm
could not “show that the [clients] clearly agreed to have the
arbitrators decide (i.e., to arbitrate) the question of
arbitrability.” Id. at 946, 115 S. Ct. at 1925, 131 L. Ed. 2d
at 994. Because the clients “did not clearly agree to submit
the question of arbitrability to arbitration,” the arbitrability
of the “dispute was subject to independent review by the
courts.” Id. at 947, 115 S. Ct. at 1925-26, 131 L. Ed. 2d at
995.
Rent-A-Center did not alter the framework of First Options.
17
Rent-A-Center, supra, involved an employment contract, which
contained an arbitration provision with a clear and unmistakable
delegation clause. 561 U.S. at 65-66, 130 S. Ct. at 2775, 177
L. Ed. 2d at 408-09. The Supreme Court reaffirmed the central
holding of First Options that “[c]ourts should not assume that
the parties agreed to arbitrate arbitrability unless there is
clea[r] and unmistakabl[e] evidence that they did so.” Id. at
69 n.1, 130 S. Ct. at 2777 n.1, 177 L. Ed. 2d at 411 n.1
(alterations in original) (quoting First Options, supra, 514
U.S. at 944, 115 S. Ct. at 1924, 131 L. Ed. 2d at 993). The
clarity of the delegation clause in Rent-A-Center was not in
dispute.
Rent-A-Center merely stated that a party, in opposition to
a motion to compel arbitration before a trial court, must mount
a specific challenge to the validity of a delegation clause.
Id. at 72, 130 S. Ct. at 2779, 177 L. Ed. 2d at 413. But Rent-
A-Center presupposed a clearly identifiable delegation clause
that would be apparent to the parties. The employment contract
in Rent-A-Center stated that “[t]he Arbitrator, and not any
federal, state, or local court or agency, shall have exclusive
authority to resolve any dispute relating to the interpretation,
applicability, enforceability or formation of this Agreement.”
Ibid. (alteration in original).
Given the clear and unmistakable language evidencing an
18
agreement to delegate arbitrability in Rent-A-Center, the
Supreme Court held that unless the employee “challenged the
delegation provision specifically,” the provision is valid and
enforceable under the FAA, “leaving any challenge to the
validity of the [a]greement as a whole for the arbitrator.” Id.
at 72, 130 S. Ct. at 2779, 177 L. Ed. 2d at 413. The Court
pointedly noted that “[t]he issue of the agreement’s ‘validity’”
was in dispute, not “whether any agreement between the parties
‘was ever concluded.’” Id. at 70 n.2, 130 S. Ct. at 2778 n.2,
177 L. Ed. 2d at 412 n.2 (quoting Buckeye Check Cashing, supra,
546 U.S. at 444 n.1, 126 S. Ct. at 1208 n.1, 163 L. Ed. 2d at
1043 n.1). The issue in this case is whether the parties formed
a contract -- that is, whether the parties concluded an
agreement. In contrast, the primary issue in Rent-A-Center
dealt with the validity of an employment contract that the
plaintiff claimed was unconscionable.
B.
Unlike in Rent-A-Center, the arbitration provision in this
case does not have a clearly identifiable delegation clause.
The “Agreement to Arbitrate” in Sanford Brown’s enrollment
agreement reads, in part: “Any disputes, claims, or
controversies . . . arising out of or relating to (i) this
Enrollment Agreement; (ii) the Student’s recruitment,
enrollment, attendance, or education; (iii) financial aid or
19
career service assistance by SBI; (iv) any claim . . . or (v)
any objection to arbitrability . . . shall be resolved pursuant
to this paragraph.” (Emphasis added). The paragraph does not
explain that an arbitrator will decide whether the parties
agreed to arbitrate legal claims, including statutory
violations; nor does it explain that arbitration is a substitute
for bringing a claim before a court or jury. The purported
delegation clause bears no resemblance to the one in Rent-A-
Center.
Significantly, defendants did not raise the issue of a
delegation clause or even once cite Rent-A-Center before the
motion court. Defendants did not argue to the motion court that
it lacked jurisdiction to decide whether the parties agreed to
arbitration because that role was for the arbitrator alone.
Instead, defendants filed a brief with the motion court stating
that it should “order Plaintiffs to submit their claims to
arbitration.” In support of the argument that the court should
decide arbitrability, defendants stated that “a motion to compel
arbitration under the FAA merely requires the court to determine
whether there is a valid and enforceable arbitration agreement
between the parties, and whether the claims at issue fall within
the substantive scope of that agreement,” quoting Medtronic AVE,
Inc. v. Advanced Cardiovascular Systems, Inc., 247 F.3d 44, 54-
55 (3d Cir. 2001) (emphasis added). Defendants make much of the
20
fact that plaintiffs did not challenge the purported delegation
clause, yet defendants never clearly asserted the existence of
one. From a review of the motion-court record, it appears that
both parties expected the motion court to decide whether the
claims made by plaintiffs in their consumer-fraud action were
subject to arbitration. The motion court did not have
telepathic powers to grasp the delegation-clause issue that
defendants raised for the first time so definitively before the
Appellate Division and this Court. The motion court cannot be
expected to address an issue that was not plainly raised before
it.6
6 The portion of defendants’ oral colloquy before the motion
court quoted by the dissent is not inconsistent with the parts
of the brief cited above. Defendants stated:
And indeed when you look at the scope of this
agreement it covers any objection to
arbitrability, or the existence, scope,
validity, construction or enforceability of
this arbitration agreement shall be resolved
pursuant to this paragraph, so very broadly
channels disputes like those that have been
raised by the plaintiffs in this case for the
arbitrator to decide.
That language fails to make clear that defendants wanted an
arbitrator -- not the motion court -- to decide whether the
parties had agreed to arbitrate the claims raised in plaintiffs’
lawsuit. Defendants did not argue that a delegation clause, by
whatever name, stripped the court of jurisdiction to decide the
issue. Defendants merely stated that “disputes like those that
have been raised by the plaintiffs” were “for the arbitrator to
decide.” That suggests defendants were looking for a ruling
from the court that the lawsuit was subject to arbitration. In
21
C.
The arbitration provision in the Sanford Brown enrollment
agreement suffers from the same flaw found in the arbitration
provision in Atalese -- it does not explain in some broad or
general way that arbitration is a substitute for the right to
seek relief in our court system. That flaw -- non-compliance
with the dictates of Atalese -- extends to the purported
delegation clause, which “is simply an additional, antecedent
agreement the party seeking arbitration” looks to enforce. See
Rent-A-Ctr., supra, 561 U.S. at 70, 130 S. Ct. at 2777-78, 177
L. Ed. 2d at 411.
The arbitration agreement and purported delegation clause in
the present case are subject to state-law contract principles.
First Options, supra, 514 U.S. at 944, 115 S. Ct. at 1924, 131
L. Ed. 2d at 993. An enforceable agreement requires mutual
assent, a meeting of the minds based on a common understanding
of the contract terms. Atalese, supra, 219 N.J. at 442. The
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
any event, defendants failed clearly to assert that they were
relying on a delegation clause.
22
have one’s claim adjudicated in a court of law.”7 Ibid.
The right to a civil jury trial is guaranteed by the New
Jersey Constitution, N.J. Const. art. I, ¶ 9, and conferred by
the New Jersey Consumer Fraud Act, see Allstate N.J. Ins. Co. v.
Lajara, 222 N.J. 129, 147, 151 (2015) (citing Zorba Contractors,
Inc. v. Hous. Auth., 362 N.J. Super. 124, 138-39 (App. Div.
2003)). Our state-law jurisprudence makes clear “that when a
contract contains a waiver of rights -- whether in an
arbitration or other clause -- the waiver ‘must be clearly and
unmistakably established.’” Atalese, supra, 219 N.J. at 444
(quoting Garfinkel v. Morristown Obstetrics & Gynecology
Assocs., 168 N.J. 124, 132 (2001)). Under state contract law,
no greater burden is placed on an arbitration agreement than
other agreements waiving constitutional or statutory rights.
7 One statistical study concluded “that consumers have no idea
what they are agreeing to when they enter into contracts
containing arbitration clauses” and that many consumers believe
that access to “court will be available to them, if only as a
last resort.” Jeff Sovern, Elayne E. Greenberg, Paul F. Kirgis,
& Yuxiang Liu, “Whimsy Little Contracts” with Unexpected
Consequences: An Empirical Analysis of Consumer Understanding
of Arbitration Agreements, 75 Md. L. Rev. 1, 63 (2015). Another
study by the Consumer Financial Protection Bureau similarly
concluded that a majority of credit-card consumers whose
agreements contained arbitration clauses did not understand that
they could not file suit in court. Consumer Fin. Prot. Bureau,
Arbitration Study Report to Congress, Pursuant to Dodd-Frank
Wall Street Reform and Consumer Protection Act § 1028(a), § 3 at
3 (2015),
http://files.consumerfinance.gov/f/201503_cfpb_arbitration-
study-report-to-congress-2015.pdf.
23
Atalese, supra, 219 N.J. at 443-44, 447 (collecting non-
arbitration-clause cases requiring clear and unambiguous
contractual language to achieve waiver of rights).
No magical language is required to accomplish a waiver of
rights in an arbitration agreement. Our courts have upheld
arbitration clauses that have explained in various simple ways
“that arbitration is a waiver of the right to bring suit in a
judicial forum.” Id. at 444. See Martindale v. Sandvik, Inc.,
173 N.J. 76, 81-82 (2002) (upholding arbitration clause stating
that “all disputes relating to [the party’s] employment . . .
shall be decided by an arbitrator” and that party “waiv[ed]
[her] right to a jury trial”); Curtis v. Cellco P’ship, 413 N.J.
Super. 26, 31, 33 (App. Div.), certif. denied, 203 N.J. 94
(2010) (upholding arbitration agreement, which stated that
parties “agree to settle disputes . . . only by arbitration” and
not by “suing in court” and explained that “rules in arbitration
are different,” “no judge or jury” is present, and “review is
limited”); Griffin v. Burlington Volkswagen, Inc., 411 N.J.
Super. 515, 518, 520 (App. Div. 2010) (enforcing arbitration
clause stating that parties, by agreeing to arbitration, waived
“their rights to maintain other available resolution processes,
such as a court action or administrative proceeding, to settle
their disputes”).
D.
24
The Sanford Brown enrollment agreement and arbitration
provision do not explain, in broadly worded language or any
other manner, that plaintiffs are waiving their right to seek
relief in court for a breach of the enrollment agreement or for
a statutory violation. See Atalese, supra, 219 N.J. at 446.
The Sanford Brown enrollment agreement, moreover, is not
“written in plain language that would be clear and
understandable to the average consumer that she is” giving up
the right to pursue relief in a judicial forum. Ibid. New
Jersey law requires that “a consumer contract . . . be written
in a simple, clear, understandable and easily readable way.”
N.J.S.A. 56:12-2.8
8 In judging whether a consumer contract meets this standard,
courts must “take into consideration the guidelines set forth in
[N.J.S.A. 56:12-10].” N.J.S.A. 56:12-2. N.J.S.A. 56:12-10, in
part, provides:
a. To insure that a consumer contract shall
be simple, clear, understandable and easily
readable, the following are examples of
guidelines that a court . . . may consider in
determining whether a consumer contract as a
whole complies with this act:
(1) Cross references that are
confusing;
(2) Sentences that are of greater length
than necessary;
(3) Sentences that contain double
negatives and exceptions to exceptions;
(4) Sentences and sections that are in
a confusing or illogical order;
(5) The use of words with obsolete
meanings or words that differ in their
legal meaning from their common ordinary
25
The body of the Sanford Brown enrollment agreement is in
nine-point font, including the more than 750-word arbitration
clause set forth in thirty-five unbroken lines, as reproduced
earlier in this opinion. The best that can be said about the
arbitration provision is that it is as difficult to read as
other parts of the enrollment agreement.
In conclusion, the arbitration provision and purported
delegation clause do not meet the requirements of First Options
and Atalese and do not satisfy the elements necessary for the
formation of a contract, and therefore are unenforceable.
V.
We note that, here, the Appellate Division opinion was
internally inconsistent. If the panel correctly found that the
meaning;
(6) Frequent use of Old English and
Middle English words and Latin and French
phrases.
b. The following are examples of guidelines
that a court . . . may consider in determining
whether the consumer contract as a whole
complies with this act:
(1) Sections shall be logically divided
and captioned;
(2) A table of contents or alphabetical
index shall be used for all contracts
with more than 3,000 words;
(3) Conditions and exceptions to the
main promise of the agreement shall be
given equal prominence with the main
promise, and shall be in at least 10
point type.
26
enrollment agreement delegated the arbitrability of disputes to
the arbitrator, then an arbitrator should have determined
whether those disputes were to be resolved in an arbitral or
judicial forum. By ruling on the validity of the arbitration
provision’s treble damages clause and finding that it conflicted
with the Consumer Fraud Act -- however correct that may be --
the panel exercised a power that it declared resided in the
arbitrator in the first instance. Nevertheless, for the reasons
already expressed, we disagree with the Appellate Division’s
conclusion that the arbitration provision contained a clear and
unmistakable delegation clause.
VI.
We offer some advice that may avoid in the future the kind
of litigation that has spurred this case. A party seeking to
enforce a delegation clause in an arbitration agreement should
make clear to the motion court that the decision whether the
parties agreed to arbitration resides with the arbitrator, not
the court.
The party opposing enforcement of the arbitration agreement
must lodge a specific challenge to the delegation clause. The
failure to do so will require that the issue of arbitrability be
determined by the arbitrator.
VII.
In summary, the arbitration provision and purported
27
delegation clause in Sanford Brown’s enrollment agreement failed
to explain in some sufficiently broad way or otherwise that
arbitration was a substitute for having disputes and legal
claims resolved before a judge or jury. This minimal knowledge
of the meaning of arbitration was necessary for the student
plaintiffs to give informed assent to arbitration and to waive
their rights to pursue relief in a judicial forum. Without such
assent, an arbitration agreement was not formed under New Jersey
law.
The arbitration provision did not clearly and unmistakably
delegate arbitrability to the arbitrator. Plaintiffs cannot be
faulted for not objecting to an inadequately limned delegation
clause that, in addition, did not define arbitration as a
substitute for a judicial forum. We hold that the arbitration
agreement is unenforceable. We therefore reverse the judgment
of the Appellate Division and remand to the trial court for
proceedings consistent with this opinion.
28
ADDENDUM
The arbitration provision included in Sanford Brown’s
enrollment agreement states in full:
Agreement to Arbitrate -- Any disputes,
claims, or controversies between the parties
to this Enrollment Agreement arising out of or
relating to (i) this Enrollment Agreement;
(ii) the Student’s recruitment, enrollment,
attendance, or education; (iii) financial aid
or career service assistance by SBI; (iv) any
claim, no matter how described, pleaded or
styled, relating, in any manner, to any act or
omission regarding the Student’s relationship
with SBI, its employees, or with externship
sites or their employees; or (v) any objection
to arbitrability or the existence, scope,
validity, construction, or enforceability of
this Arbitration Agreement shall be resolved
pursuant to this paragraph (the “Arbitration
Agreement”). Choice of Arbitration Provider
and Arbitration Rules -- Unless the parties
agree to an alternative, the arbitration shall
be administered by the American Arbitration
Association (“AAA”) or the National
Arbitration Forum (“NAF”). The arbitration
shall be before a single arbitrator. If
brought before the AAA, the AAA’s Commercial
Arbitration Rules, and applicable
supplementary rules and procedures of the AAA,
in effect at the time the arbitration is
brought, shall be applied. If brought before
the NAF, the NAF’s Code of Procedure in effect
at the time the arbitration is brought shall
be applied. Copies of the AAA’s Rules or the
NAF’s Code may be obtained from SBI’s Campus
President. Information about the arbitration
process also can be obtained from: AAA at
www.adr.org or 1-800-778-7879; NAF at
www.arbforum.com or 1-952-516-6400 or toll-
free at 1-800-474-2371. Location of
arbitration -- All in-person hearings and
conferences in the arbitration shall take
place in a locale near SBI unless the Student
and SBI agree otherwise. Language -- The
29
language of the arbitration shall be in
English. Any party desiring or requiring a
different language shall bear the expense of
an interpreter. Choice of Law -- The
arbitrator shall apply federal law to the
fullest extent possible, and the substantive
and procedural provisions of the Federal
Arbitration Act (9 U.S.C. §§ 1-16) shall
govern this Arbitration Agreement and any and
all issues relating to the enforcement of the
Arbitration Agreement and the arbitrability of
claims between parties. Costs, fees, and
expenses of arbitration -- Each party shall
bear the expense of its own counsel, experts,
witnesses, and preparation and presentation of
proofs. All fees and expenses of the
arbitrator and administrative fees and
expenses of the arbitration shall be borne
equally by the parties unless otherwise
provided by the rules of the AAA or the NAF
governing the proceeding, or by specific
ruling by the arbitrator, or by agreement of
the parties. Relief and Remedies -- The
arbitrator shall have the authority to award
monetary damages and may grant any non-
monetary remedy or relief available by
applicable law and rules of the arbitration
forum governing the proceeding and within the
scope of this Enrollment Agreement. The
arbitrator will have no authority to alter any
grade given to the Student or to require SBI
to change any of its policies or procedures.
The arbitrator will have no authority to award
consequential damages, indirect damages,
treble damages or punitive damages, or any
monetary damages not measured by the
prevailing party’s economic damages. The
arbitrator will have no authority to award
attorney’s fees except as expressly provided
by this Enrollment Agreement or authorized by
law or the rules of the arbitration forum.
Class and consolidated actions -- There shall
be no right or authority for any claims within
the scope of this Arbitration Agreement to be
arbitrated or litigated on a class basis or
for the claims of more than one Student to be
arbitrated or litigated jointly or
30
consolidated with any other Student’s claims.
Arbitrator’s Award -- At the request of either
party, the arbitrator shall render a written
award briefly setting forth his or her
essential findings and conclusions. Judgment
on the award rendered by the arbitrator may be
entered in any court having jurisdiction.
Severability and right to waive -- If any part
or parts of this Arbitration Agreement are
found to be invalid or unenforceable by a
decision of a tribunal of competent
jurisdiction, then such specific part or parts
shall be of no force and effect and shall be
severed, but the remainder of this Arbitration
Agreement shall continue in full force and
effect. Any or all of the limitations set
forth in this Arbitration Agreement may be
specifically waived by the party against whom
the claim is asserted. Such waiver shall not
waive or effect any other portion of this
Arbitration Agreement. Survival of provisions
of this agreement -- This Arbitration
Agreement will survive the termination of the
Student’s relationship with SBI.
CHIEF JUSTICE RABNER, JUSTICES LaVECCHIA and SOLOMON, and
JUDGE CUFF (temporarily assigned), join in JUSTICE ALBIN’s
opinion. JUSTICE PATTERSON filed a separate, dissenting opinion.
JUSTICE FERNANDEZ-VINA did not participate.
31
SUPREME COURT OF NEW JERSEY
A-31 September Term 2014
075074
ANNEMARIE MORGAN and TIFFANY
DEVER,
Plaintiffs-Appellants,
v.
SANFORD BROWN INSTITUTE,
CAREER EDUCATION CORPORATION,
INC.,
Defendants-Respondents,
and
MATTHEW DIACONT, GREG LNU,
SALVATORE COSTA, JANET YOUNG,
and KRISTA HOLDEN,
Defendants.
JUSTICE PATTERSON, dissenting.
If this appeal were to entail nothing more than an
application of the state law contract principles set forth in
Atalese v. U.S. Legal Services Group, 219 N.J. 430, 436 (2014),
cert. denied, __ U.S. __, 135 S. Ct. 2804, 192 L. Ed. 2d 847
(2015), I would join the majority. In my view, that
determination would be a simple one; the arbitration clause in
dispute would not meet the standard that this Court articulated
in Atalese.
1
This appeal, however, does not turn on an application of
state contract law. Instead, it raises a discrete procedural
question: whether plaintiffs preserved or waived their argument
that the parties’ arbitration agreement did not clearly and
unmistakably assign to an arbitrator, rather than a court, the
authority to decide whether the parties’ dispute is arbitrable.
That question is governed not by state law, but by federal law.
In Rent-A-Center, W., Inc. v. Jackson, the United States Supreme
Court held that an appellate court may entertain a challenge to
a provision of an arbitration agreement that purports to assign
questions of arbitrability to an arbitrator, only if the
challenge to that provision was asserted before the trial court.
561 U.S. 63, 74-76, 130 S. Ct. 2772, 2780-81, 177 L. Ed. 2d 403,
414-15 (2010). On this issue of federal law, the United States
Supreme Court’s decision is binding on this Court.
As the majority concedes, plaintiffs did not interpose a
challenge to the provision relied upon by defendants before the
trial court in this case. Ante at ___ (slip op. at 21, 28).
Indeed, they made no such contention before the Appellate
Division, or in their petition for certification to this Court.
In my view, that undisputed procedural history resolves this
appeal under Rent-A-Center.
The majority offers two arguments as to why plaintiffs’
failure to challenge the delegation provision before the trial
2
court should not defeat their claims. First, the majority
posits that under Rent-A-Center, a plaintiff need only challenge
a delegation provision before the trial court if that provision
contains “clear and unmistakable language evidencing an
agreement to delegate arbitrability,” and that the language of
the parties’ contract falls short of that mark. Ante at ___
(slip op. at 18-19). That limitation on the procedural bar
imposed in Rent-A-Center, supra, is nowhere to be found in the
Supreme Court’s holding; indeed, it directly contravenes that
holding, as it is articulated in both Justice Scalia’s majority
opinion and Justice Stevens’ dissent. See 561 U.S. at 72, 130
S. Ct. at 2779, 177 L. Ed. 2d at 413; id. at 76, 130 S. Ct. at
2781, 177 L. Ed. 2d at 415 (Stevens, J., dissenting). Moreover,
the limitation postulated by the majority is inherently
illogical; it would require an appellate court to determine the
ultimate merits of a challenge to a delegation provision in
order to decide whether or not the plaintiff’s failure to assert
that challenge before the trial court results in a waiver. In
my view, our role is not to reformulate the holding of Rent-A-
Center for purposes of this case, but to apply it. I am,
therefore, unpersuaded by the majority’s argument.
Second, the majority unaccountably contends that
defendants’ counsel failed to assert before the motion court
defendants’ claim that under the parties’ arbitration agreement,
3
questions of arbitrability were delegated to an arbitrator, not
to the court. That assertion is simply inaccurate. In their
briefs to the trial court in support of their motion to compel
arbitration, defendants set forth the relevant portions of the
arbitration agreement, including the provision purporting to
demonstrate the parties’ agreement to arbitrate issues of
arbitrability. Moreover, during oral argument before the trial
court, defendants’ counsel not only argued that the provision in
dispute mandated that an arbitrator decide the question of
arbitrability, but read the language of that provision to the
court. Defendants’ counsel also asked the court to refrain from
deciding any issue in the case, including the issue of
arbitrability. Neither plaintiff nor amicus curiae New Jersey
Association for Justice (NJAJ) has ever suggested that
defendants failed to raise the relevant issue before the trial
court, and the record belies any such suggestion.
I concur with many of the contract principles articulated
by the majority. In the procedural setting of this case,
however, I cannot reconcile the majority’s reasoning with the
United States Supreme Court’s decision in Rent-A-Center. In my
view, the Appellate Division properly determined that an
arbitrator, not a court, should decide the merits of plaintiffs’
claims. Accordingly, I would affirm the judgment of the
Appellate Division, and I respectfully dissent.
4
I.
This case is governed by the Federal Arbitration Act (FAA),
9 U.S.C.A. §§ 1-16, enacted “to abrogate the then-existing
common law rule disfavoring arbitration agreements ‘and to place
arbitration agreements upon the same footing as other
contracts.’” Martindale v. Sandvik, Inc., 173 N.J. 76, 84
(2002) (quoting Gilmer v. Interstate/Johnson Lane Corp., 500
U.S. 20, 24, 111 S. Ct. 1647, 1651, 114 L. Ed. 2d 26, 36
(1991)). The FAA, and the federal case law that construes it,
preempt any state law that would invalidate an arbitration
agreement in a contract affecting interstate commerce. See 9
U.S.C.A. § 2 (asserting enforceability of arbitration provisions
in “contract[s] evidencing . . . transaction[s] involving
commerce”); Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765, 785
(1983) (“The effect of . . . [S]ection [2] is to create a body
of federal substantive law of arbitrability, applicable to any
arbitration agreement within the coverage of the [FAA].”); Young
v. Prudential Ins. Co. of Am., 297 N.J. Super. 605, 616 (App.
Div.) (“The FAA preempts any state law purporting to invalidate
an arbitration agreement involving interstate commerce.”),
certif. denied, 149 N.J. 408 (1997). Thus, federal law, not
state law, controls the question raised in this appeal.
5
Under the FAA, a contract provision providing for
arbitration of controversies between the parties “shall be
valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract.”
9 U.S.C.A. § 2. The FAA sets forth procedures for the
determination of arbitrability mandated by 9 U.S.C.A. § 2:
A party aggrieved by the alleged failure,
neglect, or refusal of another to arbitrate
under a written agreement for arbitration may
petition any United States district court . .
. for an order directing that such arbitration
proceed in the manner provided for in such
agreement. . . . The court shall hear the
parties, and upon being satisfied that the
making of the agreement for arbitration or the
failure to comply therewith is not in issue,
the court shall make an order directing the
parties to proceed to arbitration in
accordance with the terms of the agreement.
[9 U.S.C.A. § 4.]
As a general principle, whether the parties have agreed at
all to submit their dispute to arbitration “is typically an
‘issue for judicial determination.’” Granite Rock Co. v. Int’l
Bhd. of Teamsters, 561 U.S. 287, 296, 130 S. Ct. 2847, 2855, 177
L. Ed. 2d 567, 576 (2010) (quoting Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79, 83, 123 S. Ct. 588, 591, 154 L. Ed.
2d 491, 497 (2002)); see also Prima Paint Corp. v. Flood &
Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S. Ct. 1801, 1806, 18
L. Ed. 2d 1270, 1277 (1967) (holding “if the claim . . . goes to
6
the ‘making’ of the agreement to arbitrate[,] . . . the . . .
court may proceed to adjudicate it”).
That principle was applied by the United States Supreme
Court in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
944-45, 115 S. Ct. 1920, 1924, 131 L. Ed. 2d 985, 994 (1995).
In First Options, the party seeking a ruling that the question
of arbitrability should be referred to an arbitrator, instead of
a court, did not point to any language in the parties’ agreement
that delegated the question of arbitrability to the arbitrator;
instead, it relied on the opposing party’s conduct in having
argued the question of arbitrability before the arbitrator. 514
U.S. at 946, 115 S. Ct. at 1925, 131 L. Ed. 2d at 994. The
Supreme Court rejected the claim that the parties’ conduct
evinced an intent that an arbitrator determine whether their
underlying dispute was arbitrable. Id. at 946-47, 115 S. Ct. at
1925-26, 131 L. Ed. 2d at 994-95. In language cited by the
majority in this appeal, the Supreme Court held:
When deciding whether the parties agreed to
arbitrate a certain matter (including
arbitrability), courts generally (though with
a qualification we discuss below) should apply
ordinary state-law principles that govern the
formation of contracts. . . . The relevant
state law here, for example, would require the
court to see whether the parties objectively
revealed an intent to submit the arbitrability
issue to arbitration.
[Id. at 944, 115 S. Ct. at 1924, 131 L. Ed. 2d
at 993 (citations omitted).]
7
The “important qualification” identified in First Options
applies “when courts decide whether a party has agreed that
arbitrators should decide arbitrability.” Ibid. In contrast to
its recognition of a presumption in favor of arbitration that
generally governs the merits of the arbitrability issue, the
United States Supreme Court held that “[c]ourts should not
assume that the parties agreed to arbitrate arbitrability unless
there is ‘clea[r] and unmistakabl[e]’ evidence that they did
so.” Ibid. (alteration in original) (quoting AT&T Techs., Inc.
v. Communs. Workers of Am., 475 U.S. 643, 649, 106 S. Ct. 1415,
1418, 89 L. Ed. 2d 648, 656 (1986)).
The Supreme Court’s decision in First Options provides the
backdrop to the decision most directly relevant to this appeal,
Rent-A-Center. There, in contrast to the setting of First
Options, the defendant cited language in the arbitration
agreement that, it claimed, assigned the question of
arbitrability to an arbitrator. Rent-A-Center, supra, 561 U.S.
at 65-66, 130 S. Ct. at 2775, 177 L. Ed. 2d at 408-09. Before
the trial court, the plaintiff challenged the arbitration
agreement on the grounds that it was unconscionable, but did not
dispute the import of the provision on which the defendant
relied. Id. at 72-73, 130 S. Ct. at 2779-80, 177 L. Ed. 2d at
413. Reversing the district court’s determination that the
8
parties’ dispute was arbitrable, the Court of Appeals for the
Ninth Circuit held that notwithstanding a contractual provision
that assigns the question of arbitrability to the arbitrator,
the plaintiff’s claim of unconscionability should be determined
by the court. Jackson v. Rent-A-Center, W., Inc., 581 F.3d 912,
918-19 (9th Cir. 2009), rev’d, 561 U.S. at 76, 130 S. Ct. at
2781, 177 L. Ed. 2d at 415 (2010).
In a five-to-four decision, the Supreme Court reversed the
Ninth Circuit’s determination. Rent-A-Center, supra, 561 U.S.
at 76, 130 S. Ct. at 2781, 177 L. Ed. 2d at 415. Writing for
the majority, Justice Scalia construed the arbitrability
provision at issue -– termed the “delegation provision” by the
parties -– to be a separate, distinct agreement, severable from
the remainder of the parties’ contract. Id. at 71-72, 130 S.
Ct. at 2778-79, 177 L. Ed. 2d at 412-13.9 In light of that
conclusion, the Supreme Court majority stated the holding that,
in my view, determines this appeal. It held that, unless the
plaintiff “challenged the delegation provision specifically, we
1 Responding to Justice Stevens’ disagreement with the majority’s
view on the question of severability, Justice Scalia stated that
“[t]he issue of the agreement’s ‘validity’ is different from the
issue whether any agreement between the parties ‘was ever
concluded,’ and . . . we address only the former.” Rent-A-
Center, supra, 561 U.S. at 70 n.2, 130 S. Ct. at 2778 n.2, 177
L. Ed. 2d at 412 n.2 (quoting Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 444 n.1, 126 S. Ct. 1204, 1208 n.1, 163
L. Ed. 2d 1038, 1043 n.1 (2006)).
9
must treat it as valid under [9 U.S.C.A.] § 2, and must enforce
it under [9 U.S.C.A.] §§ 3 and 4, leaving any challenge to the
validity of the Agreement as a whole for the arbitrator.” Id.
at 72, 130 S. Ct. at 2779, 177 L. Ed. 2d at 413. The Court
stated that although the plaintiff had generally attacked the
arbitration provision as “procedurally and substantively
unconscionable,” he had asserted no challenge “specific to the
delegation provision.” Id. at 73-74, 130 S. Ct. at 2780, 177 L.
Ed. 2d at 413-14. The Supreme Court noted that, in the
proceedings before it, the plaintiff contended for the first
time that “that the delegation provision itself is substantively
unconscionable” because he received no “quid pro quo” for his
agreement, but dismissed that argument, holding that the
plaintiff had “brought this challenge to the delegation
provision too late, and we will not consider it.” Id. at 75-76,
130 S. Ct. at 2781, 177 L. Ed. 2d at 415.
Justice Stevens, writing for the dissenting justices,
pointedly criticized the majority’s holding. Observing that
neither party had urged the Court to adopt a waiver rule,
Justice Stevens articulated that holding as follows:
Neither petitioner nor respondent has urged us
to adopt the rule the Court does today: Even
when a litigant has specifically challenged
the validity of an agreement to arbitrate he
must submit that challenge to the arbitrator
unless he has lodged an objection to the
particular line in the agreement that purports
10
to assign such challenges to the arbitrator -
- the so-called “delegation clause.”
[Id. at 76, 130 S. Ct. at 2781, 177 L. Ed. 2d
at 415 (Stevens, J., dissenting) (emphasis in
original).]
Justice Stevens asserted that the Supreme Court majority
could have resolved the issue in favor of the plaintiff by
applying the First Options standard –- whether the arbitration
agreement “clearly and unmistakably” expressed the parties’
intent to submit questions of arbitrability to the arbitrator.
Id. at 80, 130 S. Ct. at 2784, 177 L. Ed. 2d at 418. He noted
that under Prima Paint, a challenge to the legality of an
arbitration agreement would be determined by the arbitrator, so
long as that challenge was based on “some reason unrelated to
the arbitration provision.” Id. at 86, 130 S. Ct. at 2787, 177
L. Ed. 2d at 421-22. Justice Stevens rejected the majority
opinion as an unwarranted and unduly exacting extension of the
Court’s prior holding in Prima Paint:
Before today, however, if respondent instead
raised a challenge specific to “the validity
of the agreement to arbitrate” -- for example,
that the agreement to arbitrate was void under
state law -- the challenge would have gone to
the court. . . . But the Court now declares
that Prima Paint’s pleading rule requires
more: A party must lodge a challenge with
even greater specificity than what would have
satisfied the Prima Paint Court. A claim that
an entire arbitration agreement is invalid
will not go to the court unless the party
challenges the particular sentences that
delegate such claims to the arbitrator, on
11
some contract ground that is particular and
unique to those sentences.
[Ibid. (citing Buckeye, supra, 546 U.S. at
444, 126 S. Ct. at 1208, 163 L. Ed. 2d at
1042-43) (emphasis in original).]
Thus, although they sharply disputed the wisdom of the rule
stated in Rent-A-Center, the Supreme Court majority and
dissenting opinions concurred on the scope of that rule.
Compare id. at 72, 130 S. Ct. at 2779, 177 L. Ed. 2d at 413,
with id. at 76, 130 S. Ct. at 2781, 177 L. Ed. 2d at 415
(Stevens, J., dissenting). If a party does not specifically
challenge, before the trial court, a provision in an arbitration
agreement that purports to assign the question of arbitrability
to an arbitrator, that challenge is deemed by the appellate
court to be waived, and the arbitration agreement is enforced
under Section 2 of the FAA. See id. at 75-76, 130 S. Ct. at
2781, 177 L. Ed. 2d at 415.
Importantly, the party who did not assert a challenge
before the trial court does not forego his or her right to
challenge the arbitrability of the dispute. See id. at 71, 130
S. Ct. at 2778, 177 L. Ed. 2d at 412 (indicating that although
court will not intervene, dispute will be resolved by
arbitrator). However, he or she must dispute that issue before
the arbitrator, not the court. Ibid. The arbitrator then
determines whether the parties entered into an agreement to
12
arbitrate, as a matter of state contract law. See First
Options, supra, 514 U.S. at 944, 115 S. Ct. at 1924, 131 L. Ed.
2d at 993. Thus, the state law contract principles invoked by
the majority in this case will play a dispositive role, whether
or not an application of Rent-A-Center mandates that an
arbitrator, rather than a court, determine the dispute over
arbitrability. See, e.g., Apache Bohai Corp. LDC v. Texaco
China BV, 480 F.3d 397, 408 n.13 (5th Cir. 2007) (“Arbitrators
‘should apply the basic principles of contract law to which the
parties have referred’ in their choice of law clause.”
(citation omitted)); Delta Funding Corp. v. Harris, 466 F.3d
273, 274 (3d Cir. 2006) (highlighting “identified general
principles of New Jersey contract law that . . . arbitrator[s]
can apply to the agreement[s]”); Solvay Pharms., Inc. v. Duramed
Pharms., Inc., 442 F.3d 471, 485 (6th Cir. 2006) (acknowledging
“[state] contract law governs how the arbitrators should have
constructed the documents”).
I respectfully submit that the Supreme Court’s decision in
Rent-A-Center compels the conclusion reached by the Appellate
Division in this case: that the question of arbitrability must
be decided by an arbitrator. As the majority necessarily
acknowledges, plaintiffs did not challenge before the trial
court the contract language that defendants invoked on the
question of arbitrability. Ante at ___ (slip op. at 21, 28).
13
Plaintiffs’ theories at that stage were entirely distinct from a
challenge to the arbitrability language on which defendants
relied. They argued that defendants had failed to disclose the
two pages on which the arbitration agreement appeared to
plaintiffs before they signed their agreement, and that the
arbitration agreement as a whole was void as inconsistent with
public policy and New Jersey law, specifically the Consumer
Fraud Act (CFA), N.J.S.A. 56:8-1 to -200, and principles of
equity. Plaintiffs made essentially the same contentions before
the Appellate Division and this Court, contesting the
application of federal law to this case.10
Accordingly, under the rule stated by the United States
Supreme Court in Rent-A-Center, plaintiffs clearly waived their
challenge to the delegation provision, and the question of
arbitrability should be determined by an arbitrator, applying
principles of New Jersey contract law.
II.
The majority posits two arguments in support of its
conclusion that notwithstanding Rent-A-Center, plaintiffs’
challenge to the delegation provision was preserved. First, the
majority narrows the Rent-A-Center test to find a waiver only if
2 It appears that it was amicus curiae NJAJ, not plaintiffs, that
first raised the contention adopted by the majority here -- that
the arbitrability provision was not clear and unmistakable, and
was therefore unenforceable under First Options and Atalese.
14
the disputed language in the arbitration agreement is found to
be clear and unmistakable. Ante at ___ (slip op. at 18-19).
Second, the majority claims that defendants failed to assert,
before the trial judge, that the question of arbitrability
should be sent to an arbitrator. Ante at ___ (slip op. at 3, 8,
20-21). For the reasons that follow, I find both arguments
meritless.
Faced with the undisputed fact that plaintiffs did not do
what Rent-A-Center required them to do to preserve their
challenge for appeal, the majority contends that the rule stated
in Rent-A-Center does not extend to this case. See ante at ___
(slip op. at 18-21). Without citation to Rent-A-Center, the
majority states that the Supreme Court “presupposed a clearly
identifiable delegation clause that would be apparent to the
parties.” Ante at ___ (slip op. at 18). It reasons that
because the delegation provision in Rent-A-Center met the “clear
and unmistakable” standard of First Options, whereas the
disputed provision in this case does not, the Rent-A-Center
waiver rule does not govern this case. Ante at ___ (slip op. at
18-21).
That argument plainly misstates the United States Supreme
Court’s holding, which includes none of the limiting language
that the majority postulates. The rule of Rent-A-Center is not
restricted to cases involving contract language that is
15
ultimately found to meet the “clear and unmistakable” standard
of First Options, as the disputed language in Rent-A-Center did.
Instead, the Supreme Court majority stated that, unless the
plaintiff “challenged the delegation provision specifically”
before the trial court that provision is treated as valid under
Section 2 of the FAA. Rent-A-Center, supra, 561 U.S. at 72, 130
S. Ct. at 2779, 177 L. Ed. 2d at 413.11 It offered no caveats or
exceptions to that general rule.
That conclusion is underscored by Justice Stevens’ vigorous
dissent. In his critique of the United States Supreme Court
majority’s holding, Justice Stevens did not characterize that
holding to require waiver only in the event that the
arbitrability provision “clearly and unmistakably” assigns the
dispute to an arbitrator. See Rent-A-Center, supra, 561 U.S. at
3 In an effort to distinguish Rent-A-Center, the majority
characterizes the issue raised by plaintiffs before the trial
court to be “whether the parties formed a contract -- that is,
whether the parties concluded an agreement,” whereas “the
primary issue in Rent-A-Center dealt with the validity of an
employment contract that the plaintiff claimed was
unconscionable.” Ante at ___ (slip op. at 19) (emphasis in
original). In fact, as the majority acknowledges elsewhere in
its opinion, plaintiffs contended before the trial court that
“the arbitration provision was unconscionable and therefore void
because its terms were at odds with the [CFA]’s allowance of
treble damages and attorney’s fees.” Ante at ___ (slip op. at
9). Plaintiffs’ challenge to the arbitration provision as
contrary to New Jersey law and public policy is, like the
unconscionability argument raised in Rent-A-Center, supra, a
challenge to the validity of the contract, not its formation.
See 561 U.S. at 66, 130 S. Ct. at 2775, 177 L. Ed. 2d at 409.
16
76, 130 S. Ct. at 2781, 177 L. Ed. 2d at 415 (Stevens, J.,
dissenting). On the contrary, Justice Stevens faulted the
majority for requiring “an objection to the particular line in
the agreement that purports to assign such challenges to the
arbitrator -- the so-called ‘delegation clause.’” Ibid.
(emphasis added). Clearly, Justice Stevens viewed the majority
opinion to require a challenge before the trial court of any
delegation clause that “purports” to assign the issue of
arbitrability to the arbitrator –- whether the provision is
ultimately found to be clear or ambiguous, enforceable or void.
Ibid. Accordingly, the majority and dissenting opinions agreed
on the scope of the Rent-A-Center rule: it applies to all
disputed clauses that purport to assign the arbitrability
question to an arbitrator, not only to those that are ultimately
vindicated as “clear and unmistakable.” See id. at 72, 130 S.
Ct. at 2779, 177 L. Ed. 2d at 413; id. at 76, 130 S. Ct. at
2781, 177 L. Ed. 2d at 415 (Stevens, J., dissenting). Thus, I
respectfully submit, the majority in this appeal has simply
misstated the Supreme Court’s holding.
Indeed, by virtue of the limitation on the Rent-A-Center
holding suggested by the majority, the question of waiver would
turn on the ultimate merits of the appeal. If, as here, a party
does not challenge a delegation provision at trial, but that
issue is contested before an appellate court, the majority would
17
find a waiver only if the provision were found to be “clear and
unmistakable.” Ante at ___ (slip op. at 18-19). That crucial
determination would not be made by an arbitrator, because no
arbitrator would yet be involved in the case. It would not be
made by the trial judge, before whom no challenge had been
asserted. It is the appellate court that would, in the first
instance, decide the dispositive issue in the case, in order to
determine whether the absence of a challenge before the trial
court effected a waiver of that challenge on appeal. The
ultimate merits of the challenge would drive the question of
waiver: if the appellate court agreed that the provision is
unclear, then a party’s failure to raise the issue would have no
consequence; if not, the appellate court would find that the
party had waived the challenge. I respectfully submit that the
majority’s proposed rule invites an appellate court to place the
proverbial cart before the horse, and to apply a substantive,
merits-based test to the procedural question of waiver.
The majority’s second contention -- that defendants failed
to assert before the trial court that questions of arbitrability
should be assigned to the arbitrator –- is no more persuasive.
Ante at ___ (slip op. at 3, 8, 20-21). Neither plaintiff nor
amicus curiae NJAJ ever contended that defendants had failed to
raise the delegation provision in the trial court –- and for
good reason. In their brief in support of their motion to
18
compel arbitration, defendants provided the relevant portions of
the arbitration agreement, including a reprint of subsection
(v), the provision which directs that “any objection to
arbitrability” be resolved by an arbitrator. Further,
defendants’ reply brief to the trial court specifically
highlights that “[plaintiffs’] attack on the Enrollment
Agreements is a non-starter because, as the Supreme Court held
in [Prima Paint], attacks on the contract containing an
arbitration provision are for the arbitrator -– not the court -–
to decide.” Defendants argued that although plaintiffs have
challenged the validity of the Enrollment Agreements, they have
not specifically objected to the parties’ agreement that
arbitrability issues be decided by an arbitrator.
Moreover, at the hearing on defendants’ motion to compel
arbitration, defense counsel clearly argued before the motion
court that any dispute, including arbitrability, is for the
arbitrator to decide. The transcript of that hearing includes
the following statements by defendants’ counsel:
The second point is the arguments that they
are making are arguments that need to be
directed towards the arbitrator, not Your
Honor, because the arguments that they make,
they bring up fraud, they bring up duress in
a conclusory manner, these are arguments that
are attacking the arbitration agreement -–
that are attacking the contract as a whole,
and under federal law, under New Jersey law,
which follows the same principle, when you are
raising an argument that attacks the entire
19
agreement, those are arguments that must be
advanced to the arbitrator after the matter
has been compelled into arbitration. And
indeed when you look at the scope of this
agreement it covers any objection to
arbitrability, or the existence, scope,
validity, construction or enforceability of
this arbitration agreement shall be resolved
pursuant to this paragraph, so very broadly
channels disputes like those that have been
raised by the plaintiffs in this case for the
arbitrator to decide.
With those words, defendants’ attorney alerted the court to
his clients’ position that the parties’ arbitration agreement
contained a clause that assigned all issues involving
“arbitrability,” as well as the “existence, scope, validity,
construction or enforceability” of the agreement, to the
arbitrator. Defendants’ counsel urged the court to “look at the
scope” of the agreement, and actually recited the relevant
portions of the agreement to the trial judge. Our case law
properly finds issues to be preserved by virtue of assertions by
counsel that state a position much less clearly than what was
argued here. See, e.g., State v. Arthur, 184 N.J. 307, 345-46
n.8 (2005) (Albin, J., dissenting) (arguing party’s briefs
“sufficiently touch[ing] the issue” successfully preserves
question for review); Ferreira v. Rancocas Orthopedic Assocs.,
178 N.J. 144, 165 n.3 (2003) (recognizing liberal construction
of pleadings for purposes of preserving claims); State v. Velez,
335 N.J. Super. 552, 556-58 (App. Div. 2000) (finding counsel
20
raised issue of racial profiling by generally describing
practice, although he did not use term “racial profiling”).
Defendants easily satisfied the standard that has traditionally
applied to questions of waiver.
The majority finds three deficiencies in defendants’
counsel’s presentation of the issue to the trial court. First,
the majority emphasizes that defendants’ counsel did not use the
term “delegation clause.” Ante at ___ (slip op. at 8). As
confirmed by the majority and dissenting opinions in Rent-A-
Center, however, the terms “delegation clause” and “delegation
provision” were used by the parties and the Supreme Court as
convenient terminology to denote the contract language. See
Rent-A-Center, supra, 561 U.S. at 68, 130 S. Ct. at 2777, 177 L.
Ed. 2d at 410-11; id. at 76, 82, 130 S. Ct. at 2781, 2785,
177 L. Ed. 2d at 415, 419 (Stevens, J., dissenting).12 The
Supreme Court majority stated, “[a]dopting the terminology used
by the parties, we will refer to [the disputed provision] as the
delegation provision.” Rent-A-Center, supra, 561 U.S. at 68,
130 S. Ct. at 2777, 177 L. Ed. 2d at 410-11. Justice Stevens
called the contract language the “so-called ‘delegation
clause.’” Id. at 76, 130 S. Ct. at 2781, 177 L. Ed. 2d at 415.
Thus, contrary to the majority’s suggestion, the term
4 Neither term appears in the Ninth Circuit opinion. See
generally Rent-A-Center, supra, 581 F.3d 912.
21
“delegation clause” was not a term of art with independent
significance that defendants were required to invoke in order to
preserve the issue for appeal, but a shorthand label for the
disputed provision. Defendants’ counsel, who read the entire
provision to the trial court, was not obliged to use that label
for the provision in order to preserve his clients’ argument for
appeal.
Second, the majority finds significance in the fact that
defense counsel did not “even once cite Rent-A-Center before the
motion court.” Ante at ___ (slip op. at 20). It is not
surprising that defendants did not cite Rent-A-Center before the
motion court; any such citation would have been premature. When
the parties in this case appeared before the trial court, the
waiver issue had yet to arise, and there was no reason for
defendants to cite Rent-A-Center at that stage.
Finally, the majority contends that defendants failed to
argue before the motion court “that it lacked jurisdiction to
decide whether the parties agreed to arbitration because that
role was for the arbitrator alone.” Ante at ___ (slip op. at
20). The very motion made by defendants -– a motion to compel
arbitration and dismiss the complaint, or, in the alternative,
to stay the action pending arbitration -– was a challenge to the
court’s jurisdiction to decide the parties’ entire dispute,
including the arbitrability of that dispute. When defendants’
22
counsel told the motion court that plaintiffs’ contentions “are
arguments that must be advanced to the arbitrator after the
matter has been compelled into arbitration,” and that the
question of arbitrability, among other issues, was “for the
arbitrator to decide,” he was respectfully advising the trial
court that it lacked jurisdiction to resolve those issues.13
The majority has abandoned the lenient standard that has
historically governed the question of whether an attorney has
raised an issue before the trial court, and replaced it with a
formulaic roster of specific terms that must be used by counsel
to preserve an argument for appeal. I respectfully submit that
the majority’s new benchmark for attorneys is impractical and
unwarranted.
In sum, I concur with the Appellate Division panel’s
conclusion that pursuant to the United States Supreme Court’s
decision in Rent-A-Center, the parties’ dispute regarding
arbitrability should be decided by an arbitrator.14 I would
5 Notwithstanding defendants’ specific request that the motion
judge refer arbitrability and other issues to the arbitrator,
the majority opines that “[d]efendants filed a motion to compel
arbitration, but did not make clear that they wanted the
arbitrator, rather than the court, to decide whether the parties
agreed to arbitration.” Ante at ___ (slip op. at 3).
6 I do not concur in the portion of the Appellate Division
panel’s opinion that analyzed the parties’ agreement,
notwithstanding the panel’s conclusion that an arbitrator should
decide the question of arbitrability.
23
affirm the judgment of the Appellate Division panel, and I
respectfully dissent.
24
SUPREME COURT OF NEW JERSEY
NO. A-31 SEPTEMBER TERM 2014
ON CERTIFICATION FROM Appellate Division, Superior Court
ANNEMARIE MORGAN and TIFFANY DEVER,
Plaintiffs-Appellants,
v.
SANFORD BROWN INSTITUTE, CAREER
EDUCATION CORPORATION, INC.,
Defendants-Respondents,
and
MATTHEW DIACONT, GREG LNU,
SALVATORE COSTA, JANET YOUNG, and
KRISTA HOLDEN,
Defendants.
DECIDED June 14, 2016
Chief Justice Rabner PRESIDING
OPINION BY Justice Albin
CONCURRING/DISSENTING OPINION BY
DISSENTING OPINION BY Justice Patterson
REVERSE AND
CHECKLIST DISSENT
REMAND
CHIEF JUSTICE RABNER X
JUSTICE LaVECCHIA X
JUSTICE ALBIN X
JUSTICE PATTERSON X
JUSTICE FERNANDEZ-VINA -----------------
JUSTICE SOLOMON X
JUDGE CUFF (t/a) X
TOTALS 5 1