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In all construction projects, the written agreement between the landowner and the contractor is the brightline to everyone’s rights and responsibilities. Today, home improvement contractors and new home builders are producing contracts that require the landowner to resolve all disputes through arbitration, including claims under New Jersey’s Consumer Fraud Act (CFA), as well as other consumer protection laws. For the reasons developed below, all arbitration clauses must be reviewed with close scrutiny to determine the enforceability of those clauses in the context of a CFA lawsuit.

In analyzing issues of this type, it must be recognized that although arbitration is a preferred method of resolving of this nature, the judicial favor given to arbitration clauses is not limitless. Here are the major issues.

I. APPLICABILITY

The starting point for a determination of this issue begins in a case presented to New Jersey’s Supreme Court approximately nine years ago. That case was titled, Garfinkel v. Morristown Obstetrics & Gynecology Ass’n. There the court was required to determine if an employee/claimant involved in a work-place dispute waived the statutory rights given to him under New Jersey’s Law Against Discrimination (LAD), under the terms of an arbitration clause that provided as follows:

Except as otherwise expressly set forth in Paragraphs 14 or 15 hereof, any controversy or claim arising out of, or relating to, this Agreement or the breach therefor, shall be settled by arbitration in Morristown, New Jersey, in accordance with the rules then obtaining of the American Arbitration Association, and judgment [sic] upon any reward [sic] rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof.

In balancing the competing principles that influenced the question associated with that case, the court concluded that the contract language used by the employer was not specific enough to signal to the employer that he was waiving his statutory rights under LAD. In reaching that result, the court observed that:

The court will not assume that employees intend to waive those rights unless their agreements so provide in unambiguous terms. That said we do not suggest that a party need refer specifically to the LAD or list every imaginable statute by name to effectuate a knowing and voluntary waiver of rights. To pass muster, however, a waiver-of-rights provision should at least provide that the employee agrees to arbitrate all statutory claims arising out of the employment relationship or its termination. It should also reflect the employee’s general understanding of the type of claims included in the waiver, i.e. workplace discrimination claims. Along those lines, the court in Alamo aptly observed:

The better course would be the use of language reflecting that the employee, in fact, knows that other options such as federal and state administrative remedies and judicial remedies exist; that the employee also knows by signing the contract, those remedies are forever precluded; and that, regardless of the nature of the employee’s complaint, he or she knows that it can only be resolved by arbitration.

The court’s decision was entirely consistent with its prior pronouncements to the effect that “a party’s waiver of statutory rights must be clearly and unmistakably established and contractual language alleged to constitute a wavier will not be read expansively,” and other time-warn principles that state that “[a] clause depriving a citizen of access to the courts should clearly state its purpose, especially where the choice is to arbitrate disputes rather than litigate them,” as well as the court’s continued recognition that in issues of this nature “a court should construe ambiguous language against the interest of the party that drafted it.”

Later in 2004, an Appellate Division addressed the application of an arbitration clause in the context of a CFA claim. In the opening page of the opinion, the court discussed the obvious tension between the legal principals favoring arbitration and the public policy requiring an expansive interpretation of the CFA, which was conceived to make the CFA the strongest consumer fraud statute in the nation. Ultimately, the court applied the reasoning of the Supreme Court in Garfunkel to conclude that “[t]he delicate balance between the policies of the CFA and the policy in favor of arbitration requires that the consumer be given reasonable notice of such provisions (i.e. waiver of a claim) that the provision contains a clear waiver of statutory rights and that the arbitration agreement be phrased in unambiguous terms.” In addition, the court noted that the location of the clause, and the size of the print were factors to be considered in addressing issues in that case. In the closing paragraph of its opinion, the court made reference to a case titled Gras v. Associated First Capital Corp., and specifically concluded that “any attempt to impose arbitration through an arbitration agreement less clear and less noticeable than that considered in Gras is not likely to pass muster.”
To better understand the impact of the Court’s ruling, the arbitration clause in the Gras case provided that:


READ THE ARBITRATION AGREEMENT CAREFULLY, IT LIMITS CERTAIN OF YOUR RIGHTS, INCLUDING YOUR RIGHT TO MAINTAIN A COURT ACTION.

The arbitration agreement also described the costs of arbitration, the selection of arbitrators, the method of initiating arbitration, the location of the arbitration, and the enforcement of the arbitration decision.

The agreement specifically described the disputes covered by arbitration and stated in pertinent part:

• [t]his agreement applies to all claims and disputes between [plaintiffs] and [Associates]. This includes, without limitation, all claims and disputes arising out of, in connection with, or relating to:
• your loan with us today;
• any previous loan from us and any previous retail installment sales contract or loan assigned to us;
• all the documents relating to this or any previous loan or retail installment sales contract;
• any insurance purchased in connection with this or any previous loan or retail installment sales contract;
• any claim or dispute based on a federal or state statute; (Emphasis of the court).

It would seem rather immutable from what has been stated above that in order for any claimant to effectively waive any statutory cause of action, especially a CFA claim, the arbitration agreement must have, at the very least, a clause that specifically advises the claimant that he has waived those statutory rights, with conspicuous language that sets-off the waiver clause from the remaining provisions of the contract.

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