AMANDA KERNAHAN VS. HOME WARRANTY ADMINISTRATOR OF Â FLORIDA, INC. (L-7052-15, MIDDLESEX COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE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-1355-16T4
AMANDA KERNAHAN,
Plaintiff-Respondent,
v.
HOME WARRANTY ADMINISTRATOR
OF FLORIDA, INC. and CHOICE
HOME WARRANTY,
Defendants-Appellants.
____________________________
Submitted May 8, 2017 – Decided June 23, 2017
Before Judges Nugent and Currier.
On appeal from the Superior Court of New
Jersey, Law Division, Middlesex County, Docket
No. L-7052-15.
Archer & Greiner, P.C., attorneys for
appellants (Lori Grifa, of counsel; Ms. Grifa
and Josiah Contarino, on the briefs).
Keefe Law Firm and Carton & Rudnick, attorneys
for respondent (Stephen T. Sullivan, Jr., and
Jonathan Rudnick, on the brief).
PER CURIAM
Defendants, Home Warranty Administrator of Florida, Inc.
(Choice Florida) and Choice Home Warranty (Choice Home), appeal
from the denial of their motion for dismissal of the complaint,
contending that the arbitration provision contained in the
parties' agreement was enforceable. Because the arbitration
clause did not provide plaintiff Amanda Kernahan with adequate
notice that she was relinquishing her right to bring a consumer
fraud claim in court, we affirm.
In March and April 2015 plaintiff purchased a service
agreement (agreement) from each of the defendants. The agreements
provided for the repair or replacement of home appliances and
systems. Upon the consumer's request, defendants would arrange
for a service provider to repair or replace the systems and
appliances listed in the contracts.
Plaintiff cancelled the first contract in June 2015 and
received a refund of her full purchase price. She submitted claims
and received benefits in excess of $3000 on the Choice Home
agreement.
In November 2015, plaintiff filed a class action complaint
alleging violations of the New Jersey Consumer Fraud Act (CFA),
N.J.S.A. 56:8-1 to -204, and the New Jersey Truth in Consumer
Contract, Warranty and Notice Act (TCCWNA), N.J.S.A. 56:12-14 to
-18, as well as breach of the implied covenant of good faith and
fair dealing. Plaintiff alleged that the agreement misrepresented
the term of the contract. The cover page stated that the contract
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term was for three and a half years from "4/23/2015-10/23/2018."
On the second page of the agreement, however, under "COVERAGE
PERIOD," it stated that "[c]overage starts 30 days after acceptance
of application by Us and receipt of applicable contract fees and
continues for 365 days from that date." (emphasis added).
Plaintiff also asserted that a section of the Agreement
located on the last page entitled "MEDIATION" failed to advise her
that she was waiving her right to file a court action and have her
claims decided by a jury; instead she was required to present her
claims in an arbitration, at which the remedies of treble damages,
punitive damages, attorney's fees and costs were not available.
Defendants moved to dismiss the complaint, or alternatively,
to compel arbitration pursuant to the provision in the agreement.
On May 27, 2016, following oral argument, the judge issued an oral
decision from the bench. After setting forth the standard for the
dismissal of a complaint under Rule 4:6-2, the judge found that
plaintiff had sufficiently pleaded her causes of action to avoid
dismissal. In his consideration of the arbitration clause, the
judge found it did not comply with the requirements established
by the Supreme Court in Atalese v. U.S. Legal Servs. Grp., L.P.,
219 N.J. 430, 442 (2014), cert. denied, ___ U.S. ___, 135 S. Ct.
2804, 192 L. Ed. 2d 847 (2015). The motion judge determined that
the arbitration provision failed to apprise plaintiff of the
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required notice elements and of the rights she was waiving. The
motion to dismiss the complaint or compel arbitration was denied.
A subsequent motion for reconsideration was denied in a
written decision of November 18, 2016. In his decision, the judge
expanded on his reasons for the unenforceability of the arbitration
clause. He stated that the "provision is not written in a clear
and straightforward manner and is not satisfactorily distinguished
from other contract terms." The clause was on page five in a
five-page contract within a paragraph entitled "Mediation." The
judge noted that there was no language advising plaintiff that she
was waiving her right to bring her claims in court and proceed to
a jury trial.
On appeal, defendants contend that the arbitration provision
conforms with the requirements of Atalese and is enforceable. We
disagree.
The validity of an arbitration agreement is a question of
law; therefore, our review of the order denying arbitration is de
novo. Hirsch v. Amper Fin. Servs., LLC, 215 N.J. 174, 186 (2013)
(citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140
N.J. 366, 378 (1995)). "A trial court's interpretation of the law
and the legal consequences that flow from established facts are
not entitled to any special deference." Manalapan Realty, supra,
140 N.J. at 378 (citations omitted).
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Defendants contend that the arbitration provision in its
agreement is valid under Atalese and sufficiently informs
plaintiff that her sole remedy is arbitration. The clause states:
G. MEDIATION
In the event of a dispute over claims or
coverage You agree to file a written claim
with Us and allow Us thirty (30) calendar days
to respond to the claim. The parties agree
to mediate in good faith before resorting to
mandatory arbitration in the State of New
Jersey. Except where prohibited, if a dispute
arises from or relates to this Agreement or
its breach, and if the dispute cannot be
settled through direct discussions you agree
that:
1. Any and all disputes, claims and
causes of action arising out of or
connected with this Agreement shall
be resolved individually, without
resort to any form of class action.
2. Any and all disputes, claims and
causes of action arising out of or
connected with this Agreement
(including but not limited to
whether a particular dispute is
arbitrable hereunder) shall be
resolved exclusively by the
American Arbitration Association in
the state of New Jersey under its
Commercial Mediation Rules.
Controversies or claims shall be
submitted to arbitration regardless
of the theory under which they
arise, including without limitation
contract, tort, common law,
statutory, or regulatory duties or
liability.
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3. Any and all claims, judgments and
awards shall be limited to actual
out-of-pocket costs incurred to a
maximum of $1500 per claim, but in
no event attorneys fees.
4. Under no circumstances will you
be permitted to obtain awards for,
and you hereby waives [sic] all
rights to claim, indirect,
punitive, incidental and consequen-
tial damages and any other damages,
other than for actual out-of-pocket
expenses, and any and all rights to
have damages multiplied or other-
wise increased. All issues and
questions concerning the con-
struction, validity, interpretation
and enforceability of this
Agreement, shall be governed by, and
construed in accordance with, the
laws of the State of New Jersey,
U.S.A. without giving effect to any
choice of law or conflict of law
rules (whether of the State of New
Jersey or any other jurisdiction),
which would cause the application of
the laws of any jurisdiction other
than the State of New Jersey.
An agreement to arbitrate "must be the product of mutual
assent, as determined under customary principles of contract law."
Atalese, supra, 219 N.J. at 442 (citation omitted). Mutual assent
requires that the parties understand the terms of their agreement.
Ibid. Our Supreme Court has recognized that "[c]onsumers can
choose to pursue arbitration and waive their right to sue in court,
but should know that they are making that choice." Id. at 435.
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In considering whether an agreement includes a waiver of a
party's right to pursue a case in a judicial forum, "clarity is
required." Moore v. Woman to Woman Obstetrics & Gynecology,
L.L.C., 416 N.J. Super. 30, 37 (App. Div. 2010) (citing Fawzy v.
Fawzy, 199 N.J. 456, 469-70 (2009)). That is, the waiver "must
be clearly and unmistakably established," Garfinkel v. Morristown
Obstetrics & Gynecology Assocs., 168 N.J. 124, 132 (2001) (citation
omitted), and "should clearly state its purpose," Marchak v.
Claridge Commons, Inc., 134 N.J. 275, 282 (1993). And the parties
must have full knowledge of the legal rights they intend to
surrender. Knorr v. Smeal, 178 N.J. 169, 177 (2003) (citing W.
Jersey Title & Guar. Co. v. Ind. Trust Co., 27 N.J. 144, 153
(1958)). Although an arbitration clause need not identify "the
specific constitutional or statutory right guaranteeing a citizen
access to the courts" that is 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 in front
of a jury. Atalese, supra, 219 N.J. at 447. 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 unenforceable. Id. at 444, 448.
In Atalese, the Court provided several examples of language
sufficient to meet these expectations. Each example explicitly
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stated that arbitration was the sole remedy under the contract and
that the party was waiving the right to bring a suit in court.
For example, the Court referred to Martindale v. Sandvik, Inc.,
173 N.J. 76, 81-82 (2002), where the Court had previously "upheld
an arbitration clause because it explained that the plaintiff
agreed 'to waive [her] right to a jury trial' and that 'all
disputes relating to [her] employment . . . shall be decided by
an arbitrator.'" Atalese, supra, 219 N.J. at 444 (alteration in
original). See also Griffin v. Burlington Volkswagen, Inc., 411
N.J. Super. 515, 518 (App. Div. 2010); Curtis v. Cellco P'ship,
413 N.J. Super. 26, 31 (App. Div.), certif. denied, 203 N.J. 94
(2010).
The key, as the Court recognized, is clarity; the parties
must know at the time of formation that "there is a distinction
between resolving a dispute in arbitration and in a judicial
forum." Atalese, supra, 219 N.J. at 445. See also Rockel v. Cherry
Hill Dodge, 368 N.J. Super. 577, 583-87 (App. Div.), certif.
denied, 181 N.J. 545 (2004).
With these principles in mind, we have considered the language
in this arbitration provision and agree with the trial judge that
it failed to clearly and unambiguously inform plaintiff of her
waiver of the right to pursue her claims in a judicial forum. To
the contrary, the clause before us does not contain any waiver
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language at all. As the Supreme Court noted, "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." Atalese, supra, 219 N.J. at 442.
Just stating that arbitration is the "exclusive" remedy, as this
provision does, is not sufficient. It must be clear to the parties
that "arbitration is a substitute for the right to seek relief in
our court system," and by agreeing to this provision, the parties
have waived their right to a court action. Morgan v. Sanford
Brown Inst., 225 N.J. 289, 307-08 (2016). The deficiency renders
the arbitration clause unenforceable.
Affirmed.
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