“Confusing,” “Contradictory,” and “Obscure” Provision of Consumer Contract Claimed to Mandate Arbitration is Held Not to Do So

Kernahan v. Home Warranty Administrator of Florida, Inc., 236 N.J. 301 (2019).  When the Supreme Court grants review based on a particular issue raised by the petitioner, but the petitioner subsequently abandons that issue, the Court has at least three options.  First, the Court can vacate its grant of certification, a path justified by the Court’s need to devote its time to more worthy cases.  Second, the Court can address the issue anyway, since the Court has already expended resources on the case and the issue.  Today’s opinion by Justice LaVecchia took a third course: the Court declined to address the issue on which it granted certification (and which amici continued to press even though the petitioners no longer did), but ruled on the remainder of the case.

The Court was unanimous in affirming the Appellate Division, which in turn had affirmed the Law Division.  Justice Albin, concurring, would have addressed the issue that led the Court to grant certification in the first place.

This case was a consumer class action.  Plaintiff had purchased a “home service agreement” from defendants.  Under that agreement, defendants were to arrange and pay for a certified contractor to repair or replace home appliances at plaintiff’s property in Florida.  Dissatisfied with defendants, plaintiff cancelled the contract, got a refund of the purchase price, and sued defendants under the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., the Truth in Consumer Contract, Notice and Warranty Act, N.J.S.A. 56:12-14 et seq., and the implied covenant of good faith and fair dealing.  Plaintiff asserted that defendants had misrepresented the length of the contract’s coverage and that a contract clause labeled “MEDIATION” deceptively did not inform her that she was waiving her right to a jury trial and to certain remedies.

Defendants moved to dismiss the case and send it to arbitration, based on language in the “MEDIATION” clause.  The Law Division denied that motion, and the Appellate Division affirmed.  Both of those courts found that the “MEDIATION” provision did not comply with Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014), since it did not inform plaintiff in clear terms that she was waiving her right to seek relief in a court, with a jury.

Defendants petitioned for and obtained Supreme Court review, arguing that Atalese should be overruled in light of a subsequent decision of the Supreme Court of the United States in Kindred Nursing Centers, L.P. v. Clark, 581 U.S. ___, 137 S.Ct. 1421 (2017).  Several business groups filed an amicus brief advocating that position as well.  But at oral argument, defendants “retreated” from that argument, as Justice LaVecchia put it.  The amici did not.  The Court chose not to address the issue “that, at this time, is advanced only by amici.”  The Court went on to affirm the results below, agreeing that the contract did not comply with Atalese because the “MEDIATION” clause did not “fairly convey to an ordinary person that arbitration would be the required method of dispute resolution.”

Justice Albin’s concurring opinion argued that the Court should have not have “bypassed the opportunity to put the issue on which it granted certification to rest.”  That issue, which remained live since it was “argued forcefully from different vantage points by the amici curiae before [the Court]…. will not go away.  Tomorrow is not a better time to resolve an issue on which courts need emphatic guidance.”  He cited cases in which the Court had declined to dismiss a matter on mootness grounds “if the issue in the appeal is an important matter of public interest.”  Additionally (though not referenced by Justice Albin), Bethlehem Tp. Bd. of Educ. v. Bethlehem Tp. Educ. Ass’n, 91 N.J. 38, 48-49 (1982), had stated that appellate courts have the right to address an issue raised only by an amicus.

Justice Albin went on to demonstrate compellingly that Atalese was not overruled by Kindred Nursing. He expressed confidence that the Court would endorse his view “when next presented with this issue.”  The Court would do well to do just that.

For today, however, the Court’s ruling was more limited and tied to the specific facts.  The contract, Justice LaVecchia said, applying de novo review, had multiple flaws that were fatal to defendants’ arbitration demand.  The reference to arbitration was buried in the paragraph captioned “MEDIATION.”  Its font size violated the Plain Language Act, N.J.S.A. 56:12-1 et seq., and the order of the sentences in the “MEDIATION” provision created confusion.  Finally, the clause invoked the American Arbitration Association’s “Commercial Mediation Rules,” leading to further confusion since, as Justice LaVecchia explained, mediation and arbitration are two very different things.

Justice LaVecchia summarized by saying that “[t]he provision’s language is debatable, confusing, and contradictory– and, in part, misleading.  The arbitration agreement’ touted by defendants is also obscure when this consumer contract is viewed as a whole.”  That narrow ruling today is correct as far as it went.  But it would have avoided future uncertainty if the Court had followed Justice Albin’s lead and disposed of the Kindred Nursing issue as it originally intended to do.