New Jersey Supreme Court Associate Justice Fabiana Pierre-Louis penned an opinion Wednesday reversing the Appellate Division's bright-line rule invalidating all class action waivers not accompanied by arbitration provisions.

The state high court considered the specific class action waiver at issue in this case, as well as the Appellate Division's holding that class action waivers in consumer contracts that do not contain mandatory arbitration provisions are contrary to public policy and therefore unenforceable, according to the opinion.

The complaint filed in Pace v. Hamilton Cove alleged that an apartment complex, located in Weehawken, New Jersey, engaged in an unconscionable business practice in violation of the Consumer Fraud Act and that the tenants suffered an ascertainable loss by overpaying for their apartments. Hamilton Cove argued that, in their lease agreements, the plaintiffs waived their right to file a class action, according to the opinion.

In advertisements, brochures and oral statements to prospective tenants, the complex promised "elevated 24/7 security" for the Weehawken location, where property crime rates are higher than average. On moving in, the tenants claimed, they did not receive the amenities they were promised.

In the Appellate Division's opinion released last May, Judge Richard J. Geiger wrote that assuming the facts alleged by plaintiffs are true, a class action is clearly favored in this matter and adopted a bright-line rule that "a waiver of the right to maintain a class action is unenforceable absent a mandatory arbitration agreement."

At oral arguments in January, defense counsel Christopher A. Rojao of McCarter & English asked the state high court to reverse the Appellate Division's ruling. Rojao also requested that the court hold that the enforceability of these waivers turns on a case-specific analysis.

Arguing for the plaintiffs, Miriam S. Edelstein of Costello & Mains urged the court to affirm both the Appellate Division and trial court orders denying Hamilton Cove's motion to dismiss the class allegations.

"In this case, because plaintiffs clearly and unambiguously waived their right to maintain a class action and the lease contract is not unconscionable as a matter of law, we hold that it is enforceable," Pierre-Louis wrote for the court.

Pierre-Louis said that class action waivers are distinct from arbitration provisions even though the two are often paired. She said that class actions advance several important policy goals, not that they cannot be waived. The justice also noted that the Appellate Division did not discuss the role the text of the Fair Labor and Standards Act played in the decisions the lower court cited to support its decision.

"But the fact that certain legislation may expressly confer a right to file a class action, thereby forestalling attempts to contract around class actions, strongly supports the premise that class action waivers can be enforceable and not the proposition that they are always unenforceable outside the arbitration context," Pierre-Louis said.

She supported her contention by citing a 2019 decision by the U.S. Court of Appeals for the Eleventh Circuit, Davis v. Oasis Legal Fin. Operating, which affirmed a district court decision striking down a class action waiver outside the arbitration context. That decision reasoned that the waiver contravened "the Georgia Legislature's intent to preserve class actions as a remedy for those aggrieved by payday lenders."

As for whether the class action waiver in the lease agreement in this case was deemed unconscionable, Pierre-Louis applied the factors established by the New Jersey Supreme Court in 1992 in Rudbart v. N. Jersey District Water Supply Commission, to determine whether to enforce a contract of adhesion as a matter of public policy.

"Under Rudbart's fourth factor, we must determine whether the class action waiver operates as an exculpatory clause, such that it prevents plaintiffs from pursuing their statutory consumer protection rights and shields defendants from compliance with the law," Pierre-Louis said.

The justice said that the plaintiffs would have the court believe they had only two options—bring a class action or not institute it at all. Pierre-Louis said that nothing in the record "supports that dilemma."

"In sum, because plaintiffs knowingly and voluntarily waived their right to bring a class action by assenting to their respective leases and the class action waiver contained therein is not unconscionable, the lease is enforceable," Pierre-Louis said.

Pierre-Louis was joined by Chief Justice Stuart Rabner and Associate Justices Anne M. Patterson, Lee A. Solomon, Rachel Wainer Apter and Michael Noriega. Associate Justice Douglas M. Fasciale did not participate.

"We are pleased with the New Jersey Supreme Court's unanimous decision today regarding the enforceability of class action waivers outside of the arbitration context," Rojao said in a statement emailed to the Law Journal. "We are grateful for the court's attention to this important legal issue and for the court's well-reasoned opinion that provides guidance for future cases."

Jeffrey S. Jacobson, a partner with Faegre Drinker Biddle & Reath, who argued the cause for amicus curiae New Jersey Civil Justice Institute contended, in part, that the Appellate Division decision made New Jersey an outlier among states that have considered the issue. In a statement emailed to the Law Journal, Jacobson said, "The court struck the right balance—you have to analyze a class action waiver the same way you would analyze any waiver under New Jersey law."

Edelstein did not immediately return a request for comment.