On December 2, the New Jersey Supreme Court held oral arguments in an arbitration case that is shaping up to be a follow-up to last year’s groundbreaking ruling in U.S. Legal Services Group, L.P. v. Atalese. It was clear from the oral arguments that our state’s high court is not done tinkering with the rules governing arbitration.
What’s this case about?
When the plaintiffs enrolled at Sanford Brown, a for-profit institute of higher education, they signed an “Enrollment Agreement” which stipulated that all disputes would be resolved via arbitration. Plaintiffs later filed a lawsuit alleging violations of the New Jersey Consumer Fraud Act (CFA), breach of contract, breach of warranties, and negligent misrepresentation. Sanford Brown sought to have the case arbitrated as stipulated in the Enrollment Agreement. The plaintiffs argue that their Consumer Fraud Act claims should not be governed by the arbitration agreement because the agreement limits some of the remedies available to them.
The trial court agreed with the plaintiffs, but the Appellate Division reversed, holding that the severability provision also contained in the Enrollment Agreement cut off the provisions limiting remedies but preserved the arbitration provisions as a whole.
The New Jersey Civil Justice Institute and the United States Chamber of Commerce filed a joint amicus curiae brief to the New Jersey Supreme Court urging the court to uphold the arbitration agreement at issue, and affirm that arbitration is an effective, and even favored, means of dispute resolution.
New Jersey courts, including the state supreme court, have been issuing rulings that disfavor arbitration agreements, implying it is inferior to traditional court proceedings. We argue that New Jersey has no choice but to conform its law to the controlling federal authority favoring arbitration.
The New Jersey Supreme Court held oral arguments in Morgan v. Sanford Brown Inst. on December 2. Rather than focusing on the question of whether the Consumer Fraud Act claims can be arbitrated, the justices took a broader view. There was much discussion of the delegation clause in the enrollment agreement signed by the students, and debate over how the court’s Atalese opinion and the U.S. Supreme Court’s decision in Rent-A-Center West Inc. v. Jackson are to be applied in situations like the one at hand.
The confusion and tension that arises in cases like this where the state is attempting to carve out exceptions to an area of law that has been fully occupied by the feds since the early 20th century, is to be expected. It reinforces the argument that NJCJI has been making for some time now – federal law governing arbitration is firmly supported by both the United States Supreme Court and Congress, so any attempt by New Jersey to make its own law in this area is futile.