Amanda Kernahan filed a consumer fraud act class action against Home Warranty Administrator of Florida, Inc. and another company providing for care of home appliances and systems. The Appellate Division upheld the denial of summary judgment and a motion to compel arbitration. The courts found the waiver of the right to sue ineffective.

The plaintiff alleged 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.”

The defendants argue that the Appellate Division holding and Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014), on which it relies, conflict with the Federal Arbitration Act. Our Supreme Court has granted certification.

Defendants rely on Kindred Nursing Centers, L.P. v. Clark, 137 S. Ct. 1421 (2017). In an opinion by Justice Elena Kagan, the Supreme Court majority emphasizes that the Federal Arbitration Act preempts state statutes or decisions that burden arbitration agreements beyond ordinary contract principles. But they acknowledge that state court rulings that do not disfavor arbitration are to be upheld: “The Kentucky Supreme Court began its opinion by stating that the Wellner power of attorney was insufficiently broad to give Beverly [Wellner] the authority to execute an arbitration agreement for [plaintiff's decedent] Joe [Wellner]. If that interpretation of the document is wholly independent of the court's clear-statement rule, then nothing we have said disturbs it. But if that rule at all influenced the construction of the Wellner power of attorney, then the court must evaluate the document's meaning anew [on remand].”

Our Supreme Court and the Appellate Division have made clear that our law requires—across the board—express waiver of constitutional and statutory rights, as permitted by the FAA. That principle is acknowledged in Justice Kagan's opinion as noted above.

The core holding of Direct TV and its progeny such as Kindred Nursing is that the FAA favors arbitration and requires arbitration agreements be treated like other contracts. Our Supreme Court's jurisprudence law requires no less and no more. The FAA declares arbitration agreements to be enforceable except “upon such grounds as exist at law or in equity for the revocation of any contract.” The Kentucky court's holding fell because it interpreted Kentucky's Constitution so as to create a special rule that burdened arbitration but not other contracts. Justice Kagan's opinion dismissed the hypotheticals offered by the Kentucky court as a ruse to disguise the fact that it had adopted a rule that specially burdened arbitration agreements.

Our Supreme Court's holding in Atalese requiring express waiver of rights of action is no anomaly. It expresses long-standing principles of New Jersey law. In the 1960 landmark case of Henningsen v. Bloomfield Motors, the court found waivers of remedies. The court refused to enforce the adhesion contract. Justice John J. Francis explained: “[T]he basic tenet of freedom of competent parties to contract is a factor of importance. But in the framework of modern commercial life and business practices, such rules cannot be applied on a strict, doctrinal basis. The conflicting interests of the buyer and seller must be evaluated realistically and justly, giving due weight to the social policy evinced by the Uniform Sales Act, the progressive decisions of the courts engaged in administering it, the mass production methods of manufacture and distribution to the public, and the bargaining position occupied by the ordinary consumer in such an economy. The history of the law shows that legal doctrines, as first expounded, often prove to be inadequate under the impact of later experience. In such case, the need for justice has stimulated the necessary qualifications or adjustments.”

This history demonstrates that unlike the Kentucky court in the Clark case, our courts have treated arbitration contracts like they have treated others. Our Supreme Court should stand firm and uphold our long tradition of consumer-protective contract law.

Editorial Board members John Connell and Harriet Derman recused from this editorial.