Arbitration Agreements May Not Be Enforceable Even When They Are Clear And Unambiguous

• Posted on: Jan 10 2017

Business owners hate litigation. In fact, there are few things they hate more. Litigation damages relationships, tarnishes reputations, and interferes with business operations. Even small claims divert time, money and talent.

So, how can corporations and small businesses avoid these costs and expenses? The answer: alternative dispute resolution, such as arbitration and mediation.

Over the past few decades, it has become commonplace for corporations and small businesses to incorporate arbitration provisions into their agreements with customers and employees. While these clauses often seem to be merely procedural, they are not.  They prevent consumers and employees from having their day in court before a judge or a jury.

Over the past few decades, the courts have endorsed the use of arbitration as an alternative to litigation, reduced the ability of individuals to avoid arbitrating their disputes, and narrowed the possibility of obtaining judicial review. They have adopted pro-arbitration doctrines such that arbitration agreements are almost always upheld when challenged, even when individuals can show that an arbitration clause was buried in fine print or incorporated by reference to an obscure and inaccessible source.  This Blog previously wrote about this issue here.

But, as a New Jersey appellate court ruled last year, to be enforceable, an arbitration provision must not only be clear and unambiguous, but it must clearly state that the customer is waiving his/her right to bring a claim in a court of law before a judge or a jury. Defina v. Go Ahead and Jump 1, LLC d/b/a Sky Zone Indoor Trampoline Park, Docket No. A-1371-15T3 (N.J. Super. App. Div. July 12, 2016).

The Facts and Motion Court Proceedings:

The defendant, Go Ahead & Jump 1, LLC, owned and operated an indoor trampoline facility in Pine Brook, N.J., known as the Sky Zone Indoor Trampoline Park (“SZITP”).  Before using the facility, the defendant required all customers to sign an agreement entitled, “Participation Agreement, Release and Assumption of Risk” (the “Agreement”). Slip op. at 2. The Agreement contained a number of substantive provisions, including a release of liability for any injury to person or property caused by participation in the park, a choice of law and venue provision, a severability clause and an arbitration provision.

The arbitration provision provided, in pertinent part, that “any disputes regarding th[e] agreement,” would be resolved “by binding arbitration before one arbitrator” rather than through trial. Importantly, the Agreement stated that by signing the document, the participant was “waiv[ing] any right … to a trial.” Id. at 2-4.

On February 8, 2014, Michael Defina signed the Agreement electronically on the defendant’s website. He certified that he was the legal guardian of two participants: Alexander Defina, his nine-year-old son, and another child. Defina’s son was injured while participating in various activities in the facility, including “Ultimate Dodgeball.” Id. at 4.

More than a year later, on June 18, 2015, the plaintiffs (Alexander and his parents as guardians ad litem) filed a complaint against SZITP, alleging various violations of the law related to Alexander’s injuries, including the failure to provide adequate warnings and instructions regarding the dodgeball activity; negligence in creating, advertising and promoting an ultra-hazardous and dangerous dodgeball game; and the failure to properly supervise, attend to, control or regulate the conduct of other invitees over whom the defendant had supervisory responsibility, thereby rendering the dodgeball game unsafe and ultra-hazardous for persons participating in that game. Id. at 5. Among other relief, the plaintiffs sought compensatory and punitive damages, interest, attorney’s fees, and costs of suit. Id.

On September 2, 2015, the defendant filed a motion to compel arbitration and stay proceedings. Id. The plaintiffs opposed the defendant’s motion and filed a cross-motion to rescind the Agreement. Id. On October 23, 2015, the motion court granted the motion to compel arbitration and stayed the action. Id. at 5-6. The court found that the arbitration clause was enforceable. Id. at 6. The motion court denied the cross motion.

The plaintiffs thereafter filed a motion for reconsideration. After hearing oral argument, the motion court denied the motion. Id. The court rejected, among other things, the “plaintiffs’ contention that the arbitration clause clearly and unambiguously placed the person signing it on notice that he was waiving the right to a trial and agreeing that any disputes would be determined by binding arbitration.” Id. at 7. The plaintiffs appealed.

The Appellate Division’s Ruling:

On appeal, the plaintiffs argued, among other things, that the motion court erred by finding that the arbitration clause in the Agreement was enforceable.  The Court agreed.

In doing so, the Court found that the arbitration clause did not clearly and unambiguously “inform Michael Defina that he was giving up his right to bring [his] claims in court and have a jury resolve the dispute”:

We are convinced that the arbitration clause at issue in this matter did not clearly and unambiguously inform plaintiff that he was giving up his right to bring claims arising out of the participation in activities at SZITP in a court of law and have a jury decide the case. The arbitration clause states that the person signing the agreement waives any right to a “trial” and agrees that any dispute shall be determined “by binding arbitration before one arbitrator to be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures.”

Although the clause refers to a “trial’, there is no “clear and unambiguous statement that the person signing the Agreement is waiving [his] right to sue or go to court to secure relief.” Indeed, there is no reference in the clause to a court or a jury. The Agreement also does not explain how arbitration differs from a proceeding in a court of law. We conclude that the Agreement did not clearly and unambiguously inform Michael Defina that he was giving up his right to bring [his] claims in court and have a jury resolve the dispute.

Accordingly, we conclude that the trial court erred by finding that arbitration clause in the Agreement is enforceable. We therefore reverse the order compelling arbitration and staying further trial court proceedings.

Id. at 12 (internal quotations and citations omitted).

Conclusion

As the Defina court noted, there is a strong public policy “both at the state and federal levels favoring arbitration agreements.” Id. at 8. Notwithstanding, mandatory arbitration agreements have come under fire as of late. Consumer advocates, legislators, and judges have argued that such agreements unfairly deny people access to the courts, as well as exclude them from exercising their constitutional right to a jury.  While not declaring arbitration agreements unenforceable or against public policy, the Defina court nevertheless took a stand to ensure that the party with no bargaining power (i.e., the customer or employee) understood the consequences of an otherwise and clear and unambiguous arbitration agreement.

Tagged with: Alternative Dispute, Business Litigation, Commercial Litigation