Readers may have questioned the Appellate Division's opinion in Goffe v. Foulke Management Corp., 454 N.J. Super. 260 (App. Div. 2018), holding that allegations of fraud concerning contracts for used car transactions could vitiate the arbitration clauses in the contracts and remanding for discovery regarding the formation issues raised by Plaintiffs. After all, the United States Supreme Court had held, in Prima Paint Corp. v. Flood and Conklin Mfg. Co., 388 U.S. 395 (1967), that arbitration clauses were “severable” from the contracts in which they were incorporated; thus, unless allegations of fraud went specifically to the arbitration clause, the arbitrator should decide fraud issues relating to the entire contract. It seemed somewhat unusual that the Appellate Division did not mention severability or cite Prima Paint or any more recent cases discussing the severability doctrine.

Reversing the Appellate Division on June 6, __ N.J. __, 2019 N.J. LEXIS 791, the New Jersey Supreme Court followed Prima Paint and the more recent discussion of the issue in Buckeye Check Cashing, Inc. v. Cardengna, 546 U.S. 440 (2006). We welcome the course correction.

We also commend the Supreme Court's clarification of the limitations of Prima Paint and its progeny. That is, where the arbitration clause itself admittedly satisfied the requirement of mutual assent under New Jersey law, whether the underlying contract ever came into existence still remained an issue to be decided by the court. Footnote 1 in Buckeye (cited by Goffe) explained the distinction: “The issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded.” As examples of the second issue, it suggested whether the contract was signed and whether the signor lacked authority or appropriate mental capacity for contract assent, all of which were to be decided by the court. Issues of unconscionability and fraud were of the first variety—and thus were for the arbitrator. In Goffe, the Supreme Court held that whether the underlying contract had been rescinded, or was not enforceable because the seller failed to provide the buyer a copy as required by the Consumer Fraud Act, were not for the court to decide, since they did not go to whether a contract had been “concluded” (to use the language of the FAA). These issues had to be resolved in the arbitration.

The New Jersey Supreme Court also clarified when discovery may be required in order to resolve a motion to compel arbitration. Plaintiffs had requested, and the Appellate Division required, discovery regarding the execution of the sales documents because, they said, this went to the enforceability of the arbitration provision. Unlike the case on which the Appellate Division relied, Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764 (3d Cir. 2013), however, these concerns went to the contract as a whole, not the arbitration agreement and, therefore, were not subject to pre-arbitration discovery. The court's formal adoption of Guidotti, as properly limited, should help lower courts resolve these motions.