Plaintiff is Over the Moon, as the Third Circuit Applies New Jersey’s Arbitration Cases to Defeat Defendant’s Demand for Arbitration

Moon v. Breathless, Inc., ___ F.3d ___ (3d Cir. 2017).  At least since 2014, when the Supreme Court of New Jersey decided Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430 (2014) (discussed here), New Jersey law has been clear that contractual arbitration clauses must explicitly state that a party is waiving a jury trial as to statutory claims in order to be effective when that party seeks to bring a statute-based claim n court.  Subsequent examples have abounded, including this one and this one.

Today, in an opinion by Judge Greenaway, the Third Circuit applied that New Jersey law to an exotic dancer who sued the defendant “Men’s Club” under federal and New Jersey wage and hour statutes.  The District Court had granted summary judgment ordering arbitration, but the Third Circuit, applying de novo review, reversed and held that arbitration was inappropriate.

There were two issues.  The first was whether a court or an arbitrator should decide whether the wage and hour claims were arbitrable.  The panel found that the parties intended for a court to decide that.  That led to the second issue, which was whether the parties had agreed to arbitrate the claims at issue.  Judge Greenaway determined that the parties’ agreement did not contemplate arbitration of the issues raised by plaintiff.

The first issue was easy.  Judge Greenaway noted that under Morgan v. Sanford Brown Inst., 225 N.J. 289 (2016), “the law presumes that a court, not an arbitrator, decides any issue concerning arbitrability,” and that presumption can be overcome only by “clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”  Here, the arbitration clause was silent about arbitrability.  Moreover, defendant had “conceded in the trial court that courts must decide issues of arbitrability.”  (Though Judge Greenaway did not comment on that fact, in light of that concession it is difficult to see how defendant could ethically have offered a contrary argument at the appellate level).  Thus, the issue of whether there should be arbitration was for the court to decide.

Turning to that issue, Judge Greenaway summarized New Jersey law as requiring three things before an arbitration clause can be held to cover a statutory right.  “First, it must identify the general substantive area that the arbitration clause covers….  Second, it must reference the types of claims waived by the provision…..  Third, it must explain the difference between arbitration and litigation….”  The panel compared the arbitration clause here, which was limited to “a dispute between Dancer and Club under this agreement,” as opposed to being more broadly applicable to claims “related to her employment,” with the clauses in Atalese and two prior Supreme Court of New Jersey decisions, and found that “the arbitration clause here does not cover Moon’s statutory claims.”

Defendant, unwisely, “ignore[d] Atalese‘s substance entirely,” as Judge Greenaway dryly observed in a footnote.  It should not be necessary to say that good appellate attorneys cannot pretend that a leading precedent from the highest Court does not exist.  But that is one key takeaway from this decision.  Defendant’s other arguments did not persuade the panel.  The District Court’s grant of summary judgment in favor of arbitration was reversed, and the case was remanded to the District Court for further proceedings.



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