Delta Funding Corp. v. Harris
| Decision Date | 09 August 2006 |
| Citation | 189 N.J. 28,912 A.2d 104 |
| Parties | DELTA FUNDING CORPORATION, Plaintiff-Respondent, v. Alberta HARRIS, Defendant-Appellant. |
| Court | New Jersey Supreme Court |
Madeline L. Houston argued the cause for appellant (Houston & Totaro, attorneys).
Martin C. Bryce, Jr., Philadelphia, PA, argued the cause for respondent (Ballard Spahr Andrews & Ingersoll, attorneys).
Baher Z. Azmy argued the cause for amici curiae American Civil Liberties Union of New Jersey, The New Jersey Institute for Social Justice, New Jersey Citizen Action, The New Jersey Public Policy Research Institute, The National Association of Consumer Advocates, AARP, The Center for Responsible Lending, and Seton Hall School of Law Center for Social Justice (Mr. Azmy, Seton Hall University School of Law Center for Social Justice Civil Litigation Clinic, attorney; Mr. Azmy and Jessica Yager, Joseph Faulkner and Melissa Kelly, on the brief).
Henry P. Wolfe argued the cause for amicus curiae Legal Services of New Jersey (Melville D. Miller, Jr., President, attorney; Mr. Wolfe, Mr. Miller, David G. McMillin, Marcia E. Suarez, Marcie B. Harrison, Kristin A. Mateo, Carrie Ferraro and Dawn K. Miller, on the brief).
Jeffrey C. Burstein, Assistant Attorney General, Newark, argued the cause for amici curiae Attorney General of New Jersey and The New Jersey Division of Consumer Affairs (Zulima V. Farber, Attorney General, attorney; Mr. Burstein and Carol G. Jacobson, on the brief).
David M. Gossett, Washington, District of Columbia, a member of the Illinois and District of Columbia bars, argued the cause for amicus curiae Chamber of Commerce of the United States of America (Drinker Biddle & Reath, attorneys; Mr. Gossett, Evan M. Tager, a member of the New York and District of Columbia bars, Robin S. Conrad, a member of the District of Columbia bar, Amar D. Sarwal, a member of the District of Columbia bar, of counsel; Andrew B. Joseph, on the brief).
Mark L. Rienzi, Christopher Lipsett, a member of District of Columbia and New York bars, Eric J. Mogilnicki, a member of District of Columbia and Massachusetts bars and Kelly Thompson Cochran, a member of the District of Columbia and Virginia bars, Washington, District of Columbia, submitted a brief on behalf of amicus curiae American Financial Services Association (Mr. Rienzi, attorney).
Marvin J. Brauth and Jeffrey J. Brookner, Woodbridge, submitted a brief on behalf of amicus curiae New Jersey Business and Industry Association (Wilentz, Goldman & Spitzer, attorneys; Mr. Brauth, of counsel; Mr. Brauth and Mr. Brookner, on the brief).
This matter presents a question of law certified and submitted by the United States Court of Appeals for the Third Circuit pursuant to the procedures set forth in Rule 2:12A. We have been asked whether an arbitration agreement found in a consumer loan contract is unconscionable, in whole or in part, under New Jersey contract law. Because many of the agreement's provisions are ambiguous, interpretation of the contract by an arbitrator is necessary before there can be a final resolution of this dispute. However, to the extent that the procedural posture of this matter permits, we hold that several parts of the arbitration agreement may be unenforceable based on unconscionability doctrine if interpreted by an arbitrator unfavorably to the consumer as described herein.
We begin with the facts as presented by the federal court, although we acknowledge the presence of factual disputes between the parties. R. 2:12A-4. The purpose of the certification process is to answer the question of law submitted pursuant to Rule 2:12A, not to resolve those factual differences. See R. 2:12A-1.
Plaintiff Delta Funding Corp. (Delta) is a New York mortgage lender that extends loans primarily to borrowers in the sub-prime lending market. In December 1999, Delta entered into a mortgage loan contract with defendant Alberta Harris, a seventy-eight-year-old woman with only a sixth-grade education and little financial sophistication. The $37,700 loan was secured by a mortgage on Harris's home in Newark.1 The loan had an annual percentage rate of fourteen percent. At the time, Harris owned her home outright and had lived in it for more than thirty years. Delta subsequently assigned the loan to Wells Fargo as trustee.
The loan contains an arbitration agreement that allows either party to elect binding arbitration as the forum to resolve covered claims. The agreement excludes from arbitration "any action to effect a judicial or non-judicial foreclosure or to establish a deficiency judgment," as well as a number of similar actions. The agreement provides that "[t]here shall be no right or authority for any Claims to be arbitrated on a class action or class-wide basis." In respect of costs, the agreement further provides that
[a]t your written request, we will consider in good faith making a temporary advance of all or part of the filing, administrative and/or hearing fees in connection with any Claim you initiate as to which you or we seek arbitration. At the conclusion of the arbitration, the arbitrator will decide who will ultimately be responsible for paying the filing, administrative and/or hearing fees in connection with the arbitration. Unless inconsistent with applicable law, each party shall bear the expense of that party's attorneys', experts' and witness fees, regardless of which party prevails in the arbitration.
The agreement also provides for an appeal procedure within arbitration and states that "[t]he costs of . . . [any such] appeal will be borne by the appealing party regardless of the outcome of the appeal."
Under the agreement, Harris is permitted to select the American Arbitration Association (AAA), J.A.M.S./Endispute (JAMS), or the National Arbitration Forum (NAF) as the forum for any claim. The agreement also contains a severability clause, which states that "[i]f any portion of this Agreement is deemed invalid or unenforceable under any law or statute consistent with the [Federal Arbitration Act], it shall not invalidate the remaining portions of this Agreement or the Credit Transaction, each of which shall be enforceable regardless of such invalidity."
When Harris, whose only source of income was Social Security payments, was unable to make the required loan payments, Wells Fargo instituted a mortgage foreclosure action in New Jersey Superior Court. Harris responded with an answer and counterclaim, as well as a third-party complaint against Delta, alleging violations of the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 to -67, the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §§ 2601 to -17, and the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -135. Thereafter, Delta filed a petition in federal district court seeking to compel arbitration of Harris's affirmative claims against Delta. Harris filed a motion for summary judgment contending that the arbitration agreement was unconscionable and unenforceable. In March 2004, the district court denied that motion for summary judgment and granted Delta's motion to compel arbitration. Delta Funding Corp. v. Harris, 396 F.Supp.2d 512 (D.N.J.2004). The state court presiding over the foreclosure action then dismissed Harris's third-party complaint against Delta, which had been held in abeyance.
Harris appealed to the United States Court of Appeals for the Third Circuit. A three-judge panel of the Third Circuit issued a petition order to this Court pursuant to Rule 2:12A-3, in which the panel certified the question: "Is the arbitration clause at issue in this case, or any provision thereof, unconscionable under New Jersey law, N.J. Stat. Ann. § 12A:2-302, and if so, should such provision or provisions be severed." Delta Funding Corp. v. Harris, 426 F.3d 671 (3d Cir.2005). Harris submitted a brief urging that we grant certification, but asking that we remove the reference to N.J.S.A. 12A:2-302 because her unconscionability claim is based on the common law. See R. 2:12A-2.
We granted certification, reformulating the question as follows: "Is the arbitration agreement at issue, or any provision thereof, unconscionable under New Jersey law, and, if so, should such provision or provisions be severed?" 185 N.J. 255, 883 A.2d 1055 (2005). Briefs were received from the parties; in addition, numerous groups filed submissions as friends of the court. In support of Harris, amici briefs were received from Legal Services of New Jersey, the Attorney General on behalf of the New Jersey Division of Consumer Affairs, the American Civil Liberties Union of New Jersey, the New Jersey Institute for Social Justice, New Jersey Citizen Action, the New Jersey Public Policy Research Institute, the National Association of Consumer Advocates, AARP, the Center For Responsible Lending, and Seton Hall School of Law Center for Social Justice. The United States Chamber of Commerce, the New Jersey Business and Industry Association, and the American Financial Services Association filed amicus briefs in support of Delta.
We address first the procedural posture of this matter. Because we have been asked by the Third Circuit to answer a discrete question of state law, our inquiry is limited. Under federal arbitration law, it is ordinarily the role of an arbitrator and not the courts to interpret ambiguous provisions of an arbitration agreement. Green Tree Fin.Corp. v. Bazzle, 539 U.S. 444, 451-53, 123 S.Ct. 2402, 2407, 156 L.Ed.2d 414, 422-23 (2003) (plurality opinion); PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 406-07, 123 S.Ct. 1531, 1535-36, 155 L.Ed.2d 578, 584 (2003). That general rule is especially applicable where the arbitration agreement contains "sweeping language concerning the scope of the questions committed to arbitration." Bazzle, supra, 539 U.S. at 453, 123 S.Ct. at 2407, 156 L....
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