Gras v. Associates First Capital Corp.

• Decision Date: 20 December 2001
• Citation: 346 N.J. Super. 42,786 A.2d 886
• Parties: Robert E. GRAS, Sr. and Evelyn L. Gras, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. ASSOCIATES FIRST CAPITAL CORP., Associates Corp. of North America, Associates Financial Services Co., Inc., and Union Security Life Insurance Co., Defendants-Respondents.
• Court: New Jersey Superior Court

786 A.2d 886

346 N.J. Super. 42

Robert E. GRAS, Sr. and Evelyn L. Gras, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. ASSOCIATES FIRST CAPITAL CORP., Associates Corp. of North America, Associates Financial Services Co., Inc., and Union Security Life Insurance Co., Defendants-Respondents.

Superior Court of New Jersey, Appellate Division.

Argued October 30, 2001.

Decided December 20, 2001.

Donna Siegel Moffa, Cherry Hill, argued the cause for appellants (Rodriguez & Richards, attorneys; Lisa J. Rodriguez and Ms. Moffa, on the brief).

Mark S. Melodia, Princeton, argued the cause for respondents Associates First Capital Corp., Associates Corp. of North America and Associates Financial Services Co., Inc. (Reed Smith Shaw & McClay, attorneys; Mr. Melodia, on the brief).

B. John Pendleton, Jr., Newark, argued the cause for respondent Union Security Life Insurance Co. (McCarter & English, attorneys; Mr. Pendleton, Jr., of counsel; Farrokh Jhabvala and Joanne M.F. Wilcomes, on the brief).

Before Judges SKILLMAN, WALLACE, JR., and CARCHMAN.

The opinion of the court was delivered by CARCHMAN, J.A.D.

Plaintiffs Robert E. Gras, Sr. and Evelyn L. Gras entered into a series of five secured loan transactions with defendants Associates First Capital Corp., Associates Corp. of North America, and Associates Financial Services Co., Inc. (collectively "Associates"). Each loan transaction was accompanied by the purchase of credit life insurance provided by defendant Union Security Life Insurance Co. (Union). The loan documents further included an agreement whereby plaintiffs consented to arbitrate any dispute or claim in connection with the loans, including within its terms "any claim or dispute based on a federal or state statute." Finally, the arbitration agreement prohibited plaintiffs from pursuing a class action in arbitration.

Plaintiffs brought an action in the Law Division alleging, among other claims, that the credit life insurance provisions of the loan agreements violated the Consumer Fraud Act, N.J.S.A. 56:8-1 to -106. Defendants filed a Demand for Arbitration with the American Arbitration Association (AAA), plaintiffs moved to stay the arbitration, and defendants cross-moved for a stay pending arbitration. The motion judge granted defendants' motion and dismissed plaintiffs' complaint. Plaintiffs appealed, and we stayed the arbitration pending appeal.

We reject plaintiffs' claim on appeal that the arbitration agreement is void because it contravenes public policy by precluding class actions and, if not void, the agreement cannot be enforced since plaintiffs did not knowingly waive their rights to pursue such action. We conclude that the arbitration agreement is valid even though it does preclude class actions as plaintiffs can maintain their statutory claims in the arbitration proceeding. We also conclude that the agreement adequately notifies plaintiffs as to the limitation of their rights. We affirm.

I.

Over a period of four years, plaintiffs secured five loans from Associates and, as part of each loan transaction, purchased credit life insurance from Union. Each loan was used to pay the prior loan, and the principal amount of each loan ranged from approximately $27,000 to $68,000. The credit life premiums ranged from $2,948.46 to $3,585. Although the record on appeal does not reflect signatures as to each insurance agreement, plaintiffs were required to acknowledge purchase of the insurance in each instance.

Each loan agreement was accompanied by a separate arbitration agreement. Each agreement was separately executed by plaintiffs and carried a legend at the beginning of the agreement stating:

READ THIS ARBITRATION AGREEMENT CAREFULLY. IT LIMITS CERTAIN OF YOUR RIGHTS, INCLUDING YOUR RIGHT TO MAINTAIN A COURT ACTION.

The arbitration agreement also described the costs of arbitration, the selection of arbitrators, the method of initiating arbitration, the location of the arbitration, and the enforcement of the arbitration decision.

The agreement specifically described the disputes covered by arbitration and stated in pertinent part:

[t]his agreement applies to all claims and disputes between [plaintiffs] and [Associates]. This includes, without limitation, all claims and disputes arising out of, in connection with, or relating to:

• your loan with us today;

• any previous loan from us and any previous retail installment sales contract or loan assigned to us;

• all the documents relating to this or any previous loan or retail installment sales contract;

• any insurance purchased in connection with this or any previous loan or retail installment sales contract;

....

• any claim or dispute based on a federal or state statute;

[emphasis added.]

Finally, the agreement prohibited plaintiffs from bringing a class action in the arbitration forum and reiterated the original capitalized legend previously described.

While they signed these arbitration agreements, plaintiffs allege that they never negotiated or discussed them with defendants. They further allege that these agreements were presented to them as part of a "stack" of closing papers. Defendants characterized those documents as the same closing documents signed in plaintiffs' previous loan transactions.

II.

Plaintiffs argue that the arbitration agreements they signed in connection with their loans from Associates are contracts of adhesion and, as such, are unconscionable as they contravene public policy. We first restate the basic principles applicable to the issues presented here. An arbitration clause or agreement in a contract involving interstate commerce is subject to the Federal Arbitration Act (FAA). See 9 U.S.C.A. § 1 to 16; Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 2525, 96 L.Ed.2d 426, 435 (1987). Arbitration agreements are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C.A. § 2. "[G]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening [the FAA]." Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 1656, 134 L.Ed.2d 902, 909 (1996).

We first address the issue of contracts of adhesion, which have been widely addressed by our courts. A contract of adhesion is defined as "[a] contract where one party ... must accept or reject the contract[.]" Rudbart v. North Jersey Dist. Water Supply Comm'n, 127 N.J. 344, 353, 605 A.2d 681, cert. denied sub nom. First Fid. Bank v. Rudbart, 506 U.S. 871, 113 S.Ct. 203, 121 L.Ed.2d 145 (1992) (quoting Vasquez v. Glassboro Serv. Ass'n, Inc., 83 N.J. 86, 104, 415 A.2d 1156 (1980)). "[T]he essential nature of a contract of adhesion is that it is presented on a take-it-or-leave-it basis, commonly in a standardized printed form, without opportunity for the `adhering' party to negotiate except perhaps on a few particulars." Ibid. (citations omitted). Significantly, the mere fact that a contract is adhesive does not render it unenforceable; that issue must be determined as a matter of policy. Ibid.

Applying these standards here, we have little reservation in concluding that these were contracts of adhesion; however, as we have noted, the finding of an adhesive contract is not dispositive of the issue of enforceability. Such a finding "is the beginning, not the end, of the inquiry[.]" Id. at 354, 415 A.2d 1156. Rudbart instructs us that the appropriate analysis requires a consideration of the subject matter of the contract, the relative bargaining powers of each party, the degree of economic compulsion motivating the adhering party, and the public interests affected by the contract. Id. at 356, 605 A.2d 681. We have applied these factors in our review of various agreements to arbitrate. See, e.g., Young v. Prudential Ins. Co. of Am., 297 N.J.Super. 605, 619, 688 A.2d 1069 (App.Div.), certif. denied, 149 N.J. 408, 694 A.2d 193 (1997) (enforcing an NASD arbitration provision and requiring plaintiff to proceed in arbitration on a claim alleging violation of the Law Against Discrimination (LAD)); Allgor v. Travelers Ins. Co., 280 N.J.Super. 254, 260, 654 A.2d 1375 (App.Div.1995) (holding that an agreement to arbitrate an underinsured motorist (UIM) claim was not invalid merely because it was a contract of adhesion as the arbitration provision advanced a public policy of providing an appropriate forum for disposing of UIM claims).

Plaintiffs focus their challenge on the arbitration agreement's preclusion of their right to proceed as a class and claim that such provision violates New Jersey's policy of protecting consumers. We look first to the body of federal decisions where the majority of federal courts addressing this issue have taken a different view where the particular statute in issue fails to provide for such right.

In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 23, 111 S.Ct. 1647, 1650, 114 L.Ed.2d 26, 35 (1991), the Supreme Court considered the issue of whether a claim under the Age Discrimination in Employment Act (ADEA) can be subjected to compulsory arbitration pursuant to an arbitration agreement in a securities registration application. In answering the question in the affirmative, the Court first recognized that statutory claims may be the subject of an arbitration agreement, and stated that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." Id. at 26, 111 S.Ct. at 1652, 114 L.Ed.2d at 37 (quoting Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444, 456 (1985)). The Court then concluded that the party, having made the agreement to arbitrate, should be held to it unless Congress has evinced an intention to preclude...