Case Title: Kernahan v. Home Warranty Administrator of Florida, Inc.

Citation: 

Docket Number: 

State: new-jersey

Court: New Jersey Supreme Court

Date: 2019-01-10T00:00:00Z

Document:
SYLLABUS

This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the
Clerk for the convenience of the reader. It has been neither reviewed nor approved by the
Court. In the interest of brevity, portions of an opinion may not have been summarized.

          Amanda Kernahan v. Home Warranty Administrator of Florida, Inc.
                               (A-15-17) (079680)

Argued September 12, 2018 -- Decided January 10, 2019

LaVECCHIA, J., writing for the Court.

        In this appeal, the Court addresses whether parties to a consumer contract intended to
create an agreement to arbitrate through the insertion of language within an alternative
dispute resolution provision.

        Plaintiff Amanda Kernahan purchased a “home service agreement” from defendants
Home Warranty Administrator of Florida, Inc., and Choice Home Warranty (collectively,
defendants). When she became dissatisfied, she filed a complaint in Superior Court seeking
statutory and common law relief. Plaintiff 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. Defendants filed a motion to dismiss the complaint with prejudice
in favor of arbitration, citing the alternative dispute resolution provision.

        The trial court denied defendants’ motion to dismiss, concluding that the arbitration
provision is unenforceable. The court found the provision both ambiguous and noncompliant
with Atalese v. U.S. Legal Services Group, L.P.,  219 N.J. 430 (2014), “in either its form or
its function.” The trial court reasoned that the provision does not contain clear language that
would inform the consumer she is agreeing to arbitrate all disputes and that she is waiving
her right to a jury trial. The court cited the provision’s failure to convey unambiguously to a
consumer that there is a difference between resolving a dispute in court and resolving it in
arbitration. The court subsequently denied defendants’ motion for reconsideration, rejecting
defendants’ argument that language stating that all claims will be resolved “exclusively” by
arbitration would or should have adequately informed plaintiff that she is waiving her right to
proceed in court, as opposed to use of other available dispute resolution processes.

       The Appellate Division affirmed the trial court’s refusal to dismiss the complaint, and
this Court granted certification.  231 N.J. 334 (2017).

HELD: 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
                                               1
agreement” 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, this arbitration agreement is not enforceable.

1. Federal and state law governing arbitration agreements guide this matter. 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. In a recent opinion, the Supreme Court emphasized
the FAA’s “equal-treatment principle,” stating that the FAA not only preempts any state rule
that facially discriminates against arbitration but also “displaces any rule that covertly
accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the
defining features of arbitration agreements.” Kindred Nursing Ctrs. L.P. v. Clark, 581 U.S.
___,  137 S. Ct. 1421, 1426 (2017). The Court cautioned that state court decisions that rest on
general principles may violate the FAA if they implicitly “rely on the uniqueness of an
agreement to arbitrate as [their] basis.” Ibid. (pp. 2-3, 16-18)

2. New Jersey codifies its own hospitable approach toward arbitration in the New Jersey
Arbitration Act, using terms nearly identical to those of the FAA. The statutory policies of
the FAA and New Jersey law are in synchronicity. In this state, when called on to enforce an
arbitration agreement, a court’s initial inquiry must be -- just as it is for any other contract --
whether the agreement to arbitrate all, or any portion, of a dispute is “the product of mutual
assent, as determined under customary principles of contract law.” Atalese,  219 N.J. at 442.
And, equivalent to federal law, parties may not be compelled “to arbitrate when they have
not agreed to do so.” Ibid. (pp. 19-20)

3. In Atalese, this Court relied on mutuality of assent as its animating principle when
considering the enforceability of an agreement to arbitrate in a consumer contract for debt-
adjustment services.  219 N.J. at 442. At bottom, the judgment in Atalese, which declined to
enforce the arbitration provision at issue, is rooted in the notion that mutual assent had not
been achieved because the provision did not, in some fashion, explain that it was intended to
be a waiver of the right to sue in court. Id. at 436. Because the provision could not be
deemed a knowing waiver of the right to sue in court, a meeting of the minds did not occur.
Id. at 435, 447. The consumer context of the contract mattered. (pp. 20-21)

4. Here, the Court again reviews consumer contract language to determine whether there
was mutuality of assent to form an agreement to arbitrate. But, unlike in Atalese, the
question in this case is whether mutuality of assent is achieved when a provision confusingly
and unpredictably shifts between the terms “arbitration” and “mediation” and the procedures
for those proceedings. The parties and amici disagree on whether the term arbitration is self-
defining. The Court examines the use of the word “arbitration” in the context of the contract
to determine if its meaning is apparent, and whether it can supply the mutual assent required
for the provision to constitute a meeting of the minds. In this matter, the meaning of the
provision is not apparent from the manner in which it relayed information to the consumer
who signed the contract. Although the Court does not expect a specific recitation of words to
effect a meeting of the minds to create an agreement to arbitrate, the construct and wording
                                                2
of the instant provision are too confusing and misleading to meet simple plain wording
standards demanded by the public policy of this state for consumer contracts. (pp. 21-23)

5. Atalese stands for the proposition that an arbitration agreement is clearly enforceable
when its terms affirmatively state, or unambiguously convey to a consumer in a way that he
or she would understand, that there is a distinction between agreeing to resolve a dispute in
arbitration and in a judicial forum.  219 N.J. at 442-44. Here, the ambiguity that affects the
mutuality of assent question focuses on the overall language of the provision and whether the
plaintiff-consumer fairly should have known that by signing her contract, she was knowingly
assenting to arbitration as an exclusive remedy. On a macro level, the contract fails to signal
to consumers that it contains an arbitration provision affecting their rights because the
alternative dispute resolution provision’s “arbitration agreement” is located within a section
labeled “MEDIATION.” Even when located, the small size of the print makes the provision
burdensome to read and appears to violate the font size requirements of the Plain Language
Act,  N.J.S.A. 56:12-1 to -13. As for the substance of the provision, its terms are
contradictory. Mediation and arbitration are distinct and different procedures. (pp. 23-27)

6. Defendants initially petitioned asking the Court to hold that Atalese runs afoul of Kindred
Nursing. However, defendants have abandoned that argument. Even if defendants
maintained that argument, the Court would not need to address any perceived conflict
between those cases because the threshold issue of whether the instant provision’s language
contains sufficient clarity to form any agreement about arbitration is easily answered. This
provision does not meet the rudiments for showing a mutual assent to have arbitration be the
only means of dispute resolution permitted to plaintiff, necessarily foreclosing her from
pursuing her right to bring an action in court. Reading the provision as a whole, the
references to arbitration cannot be harmonized with the title of the section (“MEDIATION”)
and the intended use of the Commercial Mediation Rules in order to give rise to an
enforceable agreement to arbitrate. Because the contract contains material discrepancies that
call into question the essential terms of the purported agreement to arbitrate, mutual assent is
lacking. Accordingly, the arbitration agreement is not enforceable. (pp. 27-31)

       AFFIRMED AS MODIFIED.

       JUSTICE ALBIN, CONCURRING, agrees that the purported arbitration clause in
this consumer contract case is unenforceable. However, Justice Albin would address the
issue of whether Atalese runs afoul of Kindred Nursing and the FAA, and he is confident
that, when presented with the issue, the Court will reaffirm the continued vitality of New
Jersey’s long-established jurisprudence.

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.

                                               3
       SUPREME COURT OF NEW JERSEY
             A-
15 September Term 2017
                       079680

                 Amanda Kernahan,

                Plaintiff-Respondent,

                         v.

   Home Warranty Administrator of Florida, Inc.
         and Choice Home Warranty,

              Defendants-Appellants.

        On certification to the Superior Court,
                  Appellate Division.

      Argued                        Decided
 September 12, 2018             January 10, 2019

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

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

David R. Kott 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, Edward J. Fanning, Jr., and

                           1
             Zane C. Riester, of counsel and on the briefs, and
             Steven H. Del Mauro, on the briefs).

             James A. Barry 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, Andrew P. Bell and
             Charles N. Riley, on the brief).

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

           JUSTICE LaVECCHIA delivered the opinion of the Court.

      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 (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 Roach v. BM Motoring, LLC,  228 N.J. 163, 173-74 (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

                                        2
placed “on equal footing with all other contracts.” Kindred Nursing Ctrs. L.P.

v. Clark, 581 U.S. ___,  137 S. Ct. 1421 (2017) (quoting DIRECTV, Inc. v.

Imburgia, 577 U.S. ___,  136 S. Ct. 463, 465 (2015)). Our case law recognizes

that obligation as well. See Atalese,  219 N.J. at 440-41 (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.,