An appellate division appeal involving arbitration – 1567 South Realty, LLC and Butler Nissan v. Strategic Contract Brands – was decided this week. 

The decision clarified that the controversial arbitration-specific doctrine announced in Atalese v. U.S. Legal Services Group does not apply in cases involving commercial entities with equal bargaining power.

Butler Nissan and Strategic Contract Brands (D/B/A AutoStone Floor Systems) had entered into a contract for AutoStone to install new flooring at the Nissan dealership.

A dispute arose as to the quality of the work, Nissan refused to pay, and AutoStone responded by filing a construction lien against the Butler Nissan property.

The complaint seeking removal of the construction lien also alleged violations of the Consumer Fraud Act.

The New Jersey Consumer Fraud Act can apply to business to business transactions when the purchasing entity is acting as a “consumer” to purchase goods and services for its own use, rather than for resale.  But there has been some dispute over whether the protections of the “Atalese doctrine” similarly apply to such commercial transactions.

The contract included an arbitration agreement that provided for arbitration of any controversy or dispute that “arises out of or related to AutoStone’s performance under this contract” and incorporated the rules of the AAA.

The panel of Judges Hoffman and Firko distinguished the case from the circumstances in Atalese, which had involved “an average member of the public,” and where “one party possessed superior bargaining power and was the more sophisticated party.”

The panel therefore concluded that while there was “no language explaining what arbitration is and how it serves as a replacement for judicial relief,” the arbitration provision “states the arbitration would be conducted under a specified set of rules, the AAA, which sophisticated parties could consult if needed.”

Query whether, in the age of smart phones, even a mere unsophisticated consumer could do likewise.

Nevertheless, the outcome of this decision is sound, and it serves to clarify a point that has, unfortunately, been clouded by some uncertainty.

If you would like to discuss this decision, or NJCJI’s work on arbitration more generally, please contact Alida Kass.