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Does the Federal Arbitration Act, including its exemption of workers in interstate commerce, preempt the New Jersey Arbitration Act?

That question is at the heart of arguments presented before the New Jersey Supreme Court on Monday in a pair of cases that yielded recent conflicting rulings, Colon v. Strategic Delivery Solutions and Arafa v. Health Express Corporation.

Ravi Sattiraju, an employment attorney in Middlesex County who represents the plaintiffs in both Colon and Arafa, presented first in Colon, where truck drivers are asserting wage-and-hour claims.

"This court has held that a fundamental tenant of contract law is that courts will not make a different or better contract than the parties themselves have seen fit to enter into," Sattiraju said in his opening remarks. "In this case, that is exactly what the Appellate Division did by inserting the FAA into this agreement. They do not like the result of application of the FAA so they are trying to impose a different law that was not agreed upon."

The Appellate Division, in a published ruling on June 4, 2019, sent the Colon v. Strategic Delivery Solutions case back to a trial court for a determination on whether the plaintiffs were engaged in interstate commerce and therefore exempt from arbitration under §1 of the FAA. The panel in Colon said that though the FAA doesn't apply, the New Jersey Arbitration Act applies and requires arbitration.

Sattiraju told the justices: "They [the panel] are trying to rewrite the contract because they don't like the result.

"It's not that the FAA doesn't apply. It's that the FAA does apply and its terms specify that this category of workers cannot arbitrate their claims," Sattiraju said. "Companies do not like the result so they want to rewrite this contract to invoke the NJAA, which they argue will provide for arbitration as they seek."

An amicus, the New Jersey Association for Justice, argued in support of the plaintiffs in both cases, represented by William D. Wright of the Wright Law Firm in Stafford Township.

"This court should not find mutual assent where there was none," Wright said. "To substitute different governing laws and rewrite the parties' agreement because it is more fundamentally desirable to do so runs afoul of our longstanding general contract jurisprudence," Wright said.

"Under the limited facts of this case, the FAA conflicts with and therefore preempts the NJAA," Wright said.

When it came time for his turn, Patrick McGovern of Genova Burns in Newark, who represents Strategic Delivery Solutions and an individual named defendant Myriam Baretto, countered Sattiraju.

"The Appellate Division did not rewrite the contract," McGovern said. "The Appellate Division enforced the contract the parties wrote.

"The parties clearly agreed that if a provision such as the FAA reference could not be enforced, then New Jersey law should apply, and the parties intent to arbitrate is best carried out by making New Jersey law and the NJAA—which is in synchronicity with the FAA—govern the agreements," McGovern said.

"Plaintiffs claim that there is no evidence in the record of any clear intent of the parties to reform their agreements to arbitrate under the NJAA. As we have just demonstrated, the parties' intent to reform the agreement could not be clearer," said McGovern.

McGovern said he believes the Appellate Division did the right thing and that the "meeting of the minds" between parties that has been held requisite to a valid arbitration agreement in New Jersey does not extend to which laws apply to the circumstances.

"Our case differed from Arafa," McGovern said. "That is exactly what the Appellate Division found. The panel did not rewrite the agreement. It reinforced the arbitration agreement."

"Our position is that the FAA is not preempted except where the statute is anti-arbitration," McGovern said. "Here, the FAA does not apply."

The FAA exemption that applied to the plaintiffs in the Arafa and Colon cases was spelled out by the U.S. Supreme Court in a January 2019 ruling, New Prime v. Oliveira. The court's unanimous decision said the exception to the FAA for "contracts of employment" for certain workers in interstate transportation includes workers categorized as independent contractors.

But in Colon, the panel of Judges Richard Hoffman, Karen Suter and Lisa Firko said that if the FAA did not apply, the New Jersey Arbitration Act requires arbitration.

On Monday, Chief Justice Stuart Rabner asked Sattiraju: "Could the agreement have been rewritten so that if the FAA does not apply, the New Jersey law applies? Are there other mechanisms under the law?"

Justice Jaynee LaVecchia interjected: "It seems to be floating around that under the FAA … a class of workers might not be eligible for an arbitration agreement. The FAA does not make that kind of statement. We have to determine if there is evidence of mutual assent. Congress simply said a class of employees are not subject to FAA language, not arbitration agreements."

Added Justice Anne Patterson: "So when Congress says this group is out, that does not mean you cannot arbitrate."

Sattiraju said the New Jersey Arbitration Act does not apply in Colon if it is not specifically referenced in any agreement between workers and management.

"The Appellate Division's error can perhaps be reduced to a single sentence: 'the parties should have understood that the NJAA would apply to their agreement,'" Sattiraju said. "This sentence and the idea behind it runs counter to this court's extensive jurisprudence on contract formation principles underlying arbitration agreements."

In Arafa v. Health Express, the Appellate Division held in an unpublished June 5, 2019, decision that a mandatory arbitration agreement does not apply to wage-and-hour claims by truck drivers who deliver pharmaceutical products around New Jersey under §1 of the Federal Arbitration Act, which exempts certain workers from arbitration if their jobs involve foreign or interstate commerce. The named plaintiff in Arafa was classified as an independent contractor but he claimed his employer failed to pay him for all the hours he worked and withheld money from him.

An Appellate Division panel consisting of Judges Carmen Messano, Douglas Fasciale and Lisa Rose, relying on New Prime, ruled the plaintiff's employment contract was exempt from the FAA and "all other arbitration issues are moot."

Similar to his argument in Colon, Sattiraju said no arbitration can proceed, as there was never a meeting of the minds.

"This provision fails because … it did not describe this as a waiver of rights," Sattiraju said. "The fundamental issue is what was agreed to in this agreement.

"There was no meeting of the minds here. There was no mutual assent as to having the NJAA apply to this agreement," he added.

Representing the defendant in Arafa was Ivan Novich of Littler Mendelson in Newark.

"The core issue in this case is whether the court should enforce a saving clause in an arbitration agreement that the parties agreed and entered into in order to enforce the arbitration agreement," Novich said. "The parties agreed that if any provision was later deemed unenforceable, it should be severed from the agreement and the remainder of the agreement should be enforced. That's what the parties agreed to here. That's what the contract calls for."

Novich added: "At the time the parties entered into this arbitration agreement, the Federal Arbitration Act applied to independent contractors who were interstate transportation workers. That was the law in 2016. …  In 2019, the law changed with the U.S. Supreme Court's decision in New Prime, but that was three years after the parties entered into the arbitration agreement, and two years after the parties ended their relationship."

Novich said there was no evidence to support that Section 1 of the FAA preempts the NJAA.

"The FAA is a pro-arbitration statute," Novish said. "It doesn't prohibit arbitration. The exemption from the FAA in Section 1 does not act as a preemption provision."

"The parties agreed that any portion of their agreement later determined to be unenforceable would be severed from their agreement. That was the mutual assent of the parties at the relevant time," Novich said.

Added Novich: "There is strong public policy in New Jersey in favor of arbitration, but you cannot treat arbitration contracts different from other contracts."

"The heart of this agreement is arbitration. We don't discriminate against arbitration agreements. We sever out a provision and treat them different from other arbitration contracts."

Justice Barry Albin queried Novich: "If Congress did not want its own law to apply, why would it allow the 50 other states' [laws] to apply? Why would it want to upend what it had conceived?"

"It's about application," said Novich "It's a mechanism to deal with other issues with transportation workers, but not to preempt state law. It was to push back on states' aggressive efforts on arbitration."