199 A.3d 766 (N.J. 2019), A-15-17, Kernahan v. Home Warranty Administrator of Florida, Inc.

• Docket Nº: A-15-17, 079680
• Citation: 199 A.3d 766, 236 N.J. 301
• Opinion Judge: LaVECCHIA, JUSTICE
• Party Name: Amanda KERNAHAN, Plaintiff-Respondent, v. HOME WARRANTY ADMINISTRATOR OF FLORIDA, INC. and Choice Home Warranty, Defendants-Appellants.
• Attorney: Lori Grifa, Hackensack, argued the cause for appellants (Archer & Greiner, attorneys; Lori Grifa, of counsel and on the briefs, and Michael J. Plata, Hackensack, and Josiah Contarino, Hackensack, on the briefs). John E. Keefe, Jr., Red Bank, argued the cause for respondent (Keefe Law Firm and Law...
• Judge Panel: CHIEF JUSTICE RABNER and JUSTICES ALBIN, PATTERSON, FERNANDEZ-VINA, SOLOMON, and TIMPONE join in JUSTICE LaVECCHIA’s opinion. JUSTICE ALBIN filed a separate, concurring opinion. JUSTICE ALBIN, concurring.
• Case Date: January 10, 2019
• Court: Supreme Court of New Jersey

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199 A.3d 766 (N.J. 2019)

236 N.J. 301

Amanda KERNAHAN, Plaintiff-Respondent,

v.

HOME WARRANTY ADMINISTRATOR OF FLORIDA, INC. and Choice Home Warranty, Defendants-Appellants.

Nos. A-15-17, 079680

Supreme Court of New Jersey

January 10, 2019

Argued September 12, 2018

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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On certification to the Superior Court, Appellate Division.

Lori Grifa, Hackensack, argued the cause for appellants (Archer & Greiner, attorneys; Lori Grifa, of counsel and on the briefs, and Michael J. Plata, Hackensack, and Josiah Contarino, Hackensack, on the briefs).

John E. Keefe, Jr., Red Bank, argued the cause for respondent (Keefe Law Firm and Law Office of Jonathan Rudnick, attorneys; Stephen T. Sullivan, Jr., Red Bank, and Jonathan Rudnick, Red Bank, on the briefs).

David R. Kott, Newark, argued the cause for amici curiae New Jersey Business and Industry Association, Commerce and Industry Association of New Jersey and New Jersey Chamber of Commerce (McCarter & English, attorneys; David R. Kott, Newark, Edward J. Fanning, Jr., Newark, and Zane C. Riester, Newark, of counsel and on the briefs, and Steven H. Del Mauro, Newark, on the briefs).

James A. Barry, Cherry Hill, argued the cause for amicus curiae New Jersey Association for Justice (Locks Law Firm and Law Offices of Charles N. Riley, attorneys; James A. Barry, Michael Galpern, Cherry Hill, Andrew P. Bell and Charles N. Riley, Cherry Hill, on the brief).

George W. Conk, South Orange, argued the cause for amicus curiae New Jersey State Bar Association (New Jersey State Bar Association, attorneys; Robert B. Hille, President, Morristown, of counsel and on the brief, and George W. Conk and Timothy E. Dinan, Sparta, on the brief).

OPINION

LaVECCHIA, JUSTICE

[236 N.J. 307] In this appeal, we address whether parties to a consumer contract intended to create an agreement to arbitrate through the insertion of language within an alternative dispute resolution provision. See

Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 435, 99 A.3d 306 (2014) (observing that inclusion of arbitration provisions in consumer contracts is now "commonplace").

Both the Federal Arbitration Act (FAA), 9 U.S.C. § § 1 to 16, and the New Jersey Arbitration Act, N.J.S.A. 2A:23B-1 to -32, value the benefits from arbitration of disputes and encourage enforcement of arbitration agreements. See

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Roach v. BM Motoring, LLC, 228 N.J. 163, 173-74, 155 A.3d 985 (2017). In determining whether to give effect to the disputed alternative dispute resolution provision here, we are mindful that federal law requires that arbitration agreements be placed "on equal footing with all other contracts." Kindred Nursing Ctrs. L.P. v. Clark, 581 U.S. __, 137 S.Ct. 1421, 197 L.Ed.2d 806 (2017) (quoting DIRECTV, Inc. v. Imburgia, 577 U.S. __, 136 S.Ct. 463, 465, 193 L.Ed.2d 365 (2015) ). Our case law recognizes that obligation as well. See

Atalese, 219 N.J. at 440-41, 99 A.3d 306 (collecting cases).

In dispensing even treatment to arbitration agreements, basic contract formation and interpretation principles still govern, for there must be a validly formed agreement to enforce. See Volt Info. Scis., Inc. v. Bd. of Trs., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989); Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 132, 773 A.2d 665 (2001). We apply state law principles of contract formation in that analysis. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ("When deciding whether the parties agreed to arbitrate a certain matter ..., courts generally ... should apply ordinary state-law principles that govern the formation of contracts.").

[236 N.J. 308] In this matter, plaintiff Amanda Kernahan entered into an agreement with defendants for a home maintenance warranty. When she became dissatisfied, she filed a complaint in Superior Court seeking statutory and common law relief. Defendants sought dismissal of the action, arguing that the contract’s alternative dispute resolution provision, labeled "MEDIATION," contained language that required plaintiff to proceed with her claims exclusively through arbitration.

The trial court refused to dismiss plaintiff’s complaint, finding in the language of the provision no mutuality of assent to have formed an agreement to arbitrate. The Appellate Division affirmed. We granted certification to review defendants’ argument that an overly demanding review resulted in a prohibited hostility to arbitration. Defendants also contended that our recent decision in Atalese, which examined a contract for mutuality of assent to arbitrate, thereby waiving one’s right to pursue claims in court, violated recent United States Supreme Court pronouncements in Kindred Nursing about FAA requirements. Because defendants have retreated from their argument that our decision in Atalese transgresses the FAA under Kindred Nursing, we do not address that contention. We will not address an argument that, at this time, is advanced only by amici.

In our de novo review of the pivotal provision at issue in the disputed contract, we conclude that the so-called "arbitration agreement" within this consumer contract fails to support a finding of mutuality of assent to form an agreement to arbitrate. The provision’s language is debatable, confusing, and contradictory -- and, in part, misleading. The "arbitration agreement" touted by defendants is also obscure when this consumer contract is viewed as a whole. The provision does not fairly convey to an ordinary person that arbitration would be the required method of dispute resolution.

Accordingly, for the reasons expressed herein, we concur in the judgment that declined to enforce this provision as an understandable mutual agreement to arbitrate disputes, which, thereby, [236 N.J. 309] allowed plaintiff to proceed with her claims in the action she filed in court.

I.

A.

Because this appeal arises from a denial of a motion to dismiss, we recite the facts

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as alleged in plaintiff’s November 30, 2015 putative class action complaint. In the spring of 2015, plaintiff purchased a "home service agreement" from defendants Home Warranty Administrator of Florida, Inc., and Choice Home Warranty (collectively, defendants). The agreement was essentially a consumer contract whereby defendants would pay for and arrange for a certified contractor to repair or replace certain home appliances at plaintiff’s property in Orlando, Florida, in exchange for the contract term price of $1050.

Becoming dissatisfied, plaintiff cancelled the contract in June 2015 and received a refund of the purchase price.^[1] In November 2015, she filed the instant complaint alleging that defendants violated the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20; the Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA), N.J.S.A. 56:12-14 to -18; and the implied covenant of good faith and fair dealing. She claimed that the agreement misrepresented its length of coverage and that the deceptively labelled "MEDIATION" section of the agreement failed to inform her that she was waiving her right to a jury trial and would be deterred from seeking the additional remedies of treble damages, punitive damages, and attorney’s fees and costs.² Defendants filed [236 N.J. 310] a motion to dismiss the complaint with prejudice in favor of arbitration, citing the agreement’s alternative dispute resolution provision.

The alternative-dispute-resolution section of the agreement that is the focus of this appeal appears on the fifth and last page of the contract, and it reads in full as follows:

G. MEDIATION

In the event of a dispute over claims or coverage You agree to file a written claim with Us and allow Us thirty (30) calendar days to respond to the claim. The parties agree to mediate in good faith before resorting to mandatory arbitration in the State of New Jersey. Except where prohibited, if a dispute arises from or relates to this Agreement or its breach, and if the dispute cannot be settled through direct discussions you agree that:

1. Any and all disputes, claims and causes of action arising out of or connected with this agreement shall be resolved individually, without resort to any form of class action.

2. Any and all disputes, claims and causes of action arising out of or connected with this Agreement (including but not limited to whether a particular dispute is arbitrable hereunder) shall be resolved exclusively by the American Arbitration Association in the state of New Jersey under its Commercial Mediation Rules. Controversies or claims shall be submitted to arbitration regardless of the theory under which they arise, including without limitation contract, tort, common law, statutory, or regulatory duties or liability.

3. Any and all claims, judgments and awards shall be limited to actual out-of-pocket costs incurred to a maximum of $1500 per claim, but in no event attorneys fees.

4. Under no circumstances will you be permitted to obtain awards for, and you hereby waives [sic] all rights to claim,

Page 772 indirect, punitive, incidental and consequential damages and any other damages, other than for actual out-of-pocket expenses, and any and all rights to have damages multiplied or otherwise increased. All issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement, shall be governed by, and construed in accordance with, the laws of the State of New Jersey, U.S.A. without giving effect to any choice of law or conflict of law rules (whether of the State of New Jersey or any other jurisdiction), which would cause the...