Court Opinion

ID: 9943878
Source: CourtListenerOpinion
Date Created: 2024-02-26 15:07:13.04587+00
Date Added: 2024-06-11T13:49:34.706548
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-3346-22
                                                                   A-3372-22

MARIA AGUIRRE,
ANDREA PALACIOS,
and LORENA VARAS,

          Plaintiffs-Respondents,

v.

CDL LAST MILE SOLUTIONS,
LLC, ANTHONY CURCIO, and
KATTY PONCE,

          Defendants-Appellants,

and

SUBCONTRACTING
CONCEPTS, LLC, d/b/a SCI,

     Defendant.
______________________________

MARIA AGUIRRE,
ANDREA PALACIOS,
and LORENA VARAS,

          Plaintiffs-Respondents,
v.

CDL LAST MILE SOLUTIONS,
LLC, ANTHONY CURCIO, and
KATTY PONCE,

      Defendants,

and

SUBCONTRACTING
CONCEPTS, LLC, d/b/a SCI,

     Defendant-Appellant.
______________________________

           Argued January 9, 2024 – Decided February 26, 2024

           Before Judges Natali and Puglisi.

           On appeal from the Superior Court of New Jersey, Law
           Division, Bergen County, Docket No. L-1172-23.

           Theodore M. Eder argued the cause for appellants CDL
           Last Mile Solutions, LLC, Anthony Curcio and Katty
           Ponce, in A-3346-22 (Weber Gallagher Simpson
           Stapleton Fires & Newby LLP, attorneys; Theodore M.
           Eder, of counsel and on the briefs).

           Peter Paul Perla, Jr., argued the cause for appellant
           Subcontracting Concepts, LLC d/b/a SCI, in A-3372-
           22 (PRB Attorneys at Law, LLC, attorneys; Peter Paul
           Perla, Jr., of counsel and on the briefs).

           Scott Simpson (Menken Simpson & Rozger LLP) of the
           New York bar, admitted pro hac vice, argued the cause
           for respondents (Newman, Simpson & Cohen, LLP,
           attorneys; Scott Simpson, Raya F. Saksouk (Menken

                                                                   A-3346-22
                                     2
            Simpson & Rozger LLP) of the New York bar, admitted
            pro hac vice, Jason J. Rozger, Daniel Jay Cohen, and
            Daniel C. Stark, on the briefs).

PER CURIAM

      In this consolidated appeal, defendants CDL Last Mile Solutions, LLC

(CDL), Anthony Curcio, and Katty Ponce (collectively, the CDL defendants),

and defendant Subcontracting Concepts, LLC d/b/a SCI (SCI), challenge two

Law Division orders that denied their respective motions to compel arbitration

and to dismiss the putative class action complaint filed by plaintiffs Maria

Aguirre, Andrea Palacios, and Lorena Varas. We affirm for the following

reasons.

      First, we conclude New Jersey law applies, rather than New York law as

identified in the agreements, because (a) New Jersey has a materially greater

interest than New York in the arbitrability of disputes related to the agreements

at issue here, (b) New Jersey law would apply absent any choice of law

provision, and (c) New York law is contrary to New Jersey's fundamental public

policy of ensuring any waiver of the right to a jury trial is knowing, intelligent,

and voluntary. On that point, we conclude the arbitration agreements here are

unenforceable because they fail to adequately "explain that the plaintiff[s] [are]

giving up [their] right to bring [their] claims in court or have a jury resolve the

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                                        3
dispute," as required by Atalese v. U.S. Legal Services Group, L.P., 219 N.J.

430, 447 (2014).

      As we further detail below, we do not reach the applicability of the

interstate employment contract exemption to the Federal Arbitration Act (FAA),

9 U.S.C. §§ 1-16, because, even assuming the FAA applies, it permits states to

regulate contracts, including those containing arbitration provisions, using

generally applicable state law such as that set forth in Atalese. Finally, in light

of our decision finding the arbitration agreement unenforceable, we conclude

the class action waiver, which by its express terms applies only to arbitration

proceedings, is inapplicable under these circumstances.

                                        I.

      We begin by reciting the relevant facts in the motion record. CDL is a

Delaware LLC, specializing in "logistics and last-mile delivery services." It is

headquartered in New York and operates a warehouse in Bergen County.

Plaintiffs, residents of New Jersey, work as delivery drivers for CDL, make

deliveries exclusively in New Jersey, and report to the Bergen County

warehouse.

      SCI is a Delaware LLC, headquartered in New York, that "provides third-

party administrative support for courier and logistics companies." Since 2012,

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                                        4
SCI has provided services to CDL, including payroll processing and delivery

driver onboarding.

      Defendant Curcio is the owner, manager, and president of CDL and a New

York resident. Defendant Ponce is a CDL dispatcher at the Bergen County

warehouse who is alleged to have "authority to hire, fire, and discipline . . .

drivers" and "to assign or reassign their delivery routes."

      On March 2, 2023, plaintiffs filed a putative class action complaint

seeking damages, injunctive and declaratory relief, and attorneys' fees and costs.

The complaint alleges the class includes at least one hundred people, identified

as "all delivery drivers who performed work for [d]efendants in the [s]tate of

New Jersey from March 2, 2017, until [d]efendants cease their unlawful acts ."

Plaintiffs claimed, first, defendants misclassified the class members as

independent contractors to avoid paying overtime wages in violation of the New

Jersey Wage and Hour Law, N.J.S.A. 34:11-56a4(b) (WHL), and second,

defendants unlawfully deducted from the class members' wages in violation of

the New Jersey Wage Payment Law, N.J.S.A. 34:11-4.4 (WPL).

      Plaintiffs further alleged drivers hired to work for CDL are "required to

sign an independent contractor agreement with SCI," entitled "Owner/Operator

Agreement" (the Agreements). CDL is not a party to the Agreements and while

                                                                            A-3346-22
                                        5
not directly named, is referred to in the Agreements as the "logistics broker" or

"customer." The Agreements signed by each plaintiff contain the following

arbitration clause:

            In the event of any dispute, claim, question, or
            disagreement arising from or relating to this agreement
            or the breach thereof, or service agreement between
            Owner/Operator and SCI's clients or any permiss[i]ble
            statutory disputes, the parties hereto shall use their best
            efforts to settle the dispute, claim, question, or
            disagreement. . . . If resolution of the dispute is not
            reached within [sixty] days . . . disputes that are within
            the jurisdictional maximum for small claims will be
            settled in small claims court where the Owner/Operator
            resides.

            All other disputes, claims, questions, or differences
            beyond the jurisdictional maximum for small claims
            courts and have not passed the statute of limitations
            within the locality of the Owner/Operator's residence
            will be finally settled by arbitration under the policies
            of the Federal Arbitration Act and New York State's
            Arbitration provisions. . . .

            Neither you nor SCI shall be entitled to join or
            consolidate claims in arbitration by or against other
            individuals or entities, or arbitrate any claim as a
            representative member of a class . . . .

            [(Emphasis supplied).]

      The Agreements also state they "shall be governed by the laws of the State

of New York." At the end of each of the Agreements, just above the signature

area, an all-caps notice informs: "THIS CONTRACT CONTAINS A BINDING

                                                                           A-3346-22
                                        6
ARBITRATION PROVISION AND CLASS-ACTION WAIVER WHICH

AFFECTS YOUR LEGAL RIGHTS AND MAY BE ENFORCED BY THE

PARTIES."     A separate "Independent Contractor Acknowledgement Form"

requires acknowledgement of the following:

            You understand you may opt out of the Arbitration
            provisions within the Owner Operator Agreement by
            notifying SCI in writing, within ten (10) days of the
            date below . . . . The writing should contain the name
            and contact information of each person opting out, and
            a clear statement indicating you are opting out of
            arbitrate [sic]. By not opting out you are subject to the
            dispute resolution provisions contained in the Owner
            Operator Agreement.

      The CDL defendants and SCI each moved to dismiss under Rule 4:6-2 and

to compel arbitration. The CDL defendants contended the court should apply

New York law, consistent with the choice of law provision, in determining the

enforceability of the arbitration clause in the Agreements, but also argued the

clause would be enforceable under either New York or New Jersey law. SCI

argued the court should apply the FAA as provided in the Agreements , as the

exemption for employment contracts involving interstate commerce set forth in

                                                                         A-3346-22
                                       7
9 U.S.C. § 1 did not apply. 1 In the alternative, it joined the CDL defendants in

contending New York law should control.

      Plaintiffs responded by arguing New Jersey law applied, as New York law

concerning enforceability of arbitration agreements was contrary to New Jersey

public policy regarding what is required to establish a waiver of the right to a

jury trial. Under New Jersey law, plaintiffs argued, the Agreements did not

include "clear and unambiguous language" explaining the right being waived

and therefore were unenforceable.

      On June 27, 2023, the court issued two nearly-identical orders denying the

CDL defendants' and SCI's motions to compel arbitration and to dismiss the

complaint, accompanied by a rider in which it detailed its reasoning. First, the

court explained "[c]ourts should generally apply state-law contract principles to

determine whether the parties agreed to arbitrate." It then applied New Jersey

law to the question of enforceability of the arbitration clause.

      Under Atalese, 219 N.J. at 447, it noted while "no prescribed set of words

must be included in an arbitration clause to accomplish a waiver of rights," a

valid clause "must explain that the plaintiff is giving up her right to bring her

1
  9 U.S.C. § 1 provides, in part, "nothing [in the FAA] shall apply to contracts
of employment of . . . any other class of workers engaged in foreign or interstate
commerce."
                                                                            A-3346-22
                                        8
claims in court or have a jury resolve the dispute." Here, the court found "the

arbitration clause is devoid of any language that would put the plaintiffs, without

extensive knowledge of arbitration, on notice that they were waiving their right

to a jury trial or having their disputes settled in court by signing the agreement."

It noted the language of the clause "does not 'unmistakably' establish that

arbitration involves waiver to a jury trial."

      The court reasoned, as stated in Atalese, 219 N.J. at 442, "an average

member of the public may not know—without some explanatory comment—that

arbitration is a substitute for the right to have one's claim adjudicated in a court

of law." Further, the court found "Atalese establishes that 'arbitration' is not

self-defining, and the provision in this case goes no further in defining the term."

It also determined the admonition at the end of the contract "does nothing to

broaden the scope of the class-arbitration waiver itself" as it failed to provide "a

clear explanation of what rights the plaintiffs were waiving."

      The court rejected defendants' argument that the Agreements "did not need

to explicitly state that the arbitration provision would waive the plaintiffs' right

to a jury trial because plaintiffs were acting as representatives of their business

when signing the contract, rather than as individuals." It found the plaintiffs

were individual delivery drivers and use of a separate legal entity "does not

                                                                              A-3346-22
                                         9
imply that they possess the business acumen to comprehend the implications of

arbitration." Additionally, the court noted "there is no case law to support the

notion that businesses are not entitled to the same clarity in arbitration

provisions as individuals."

      In conclusion, the court found "New Jersey case law requiring an

unambiguous waiver of the right to go to court and have a jury decide your

dispute had existed for years, yet the arbitration clauses in the three most recent

contracts signed by the plaintiffs are devoid of these fundamental requirements."

Because an arbitration clause lacking these requirements is unenforceable under

Atalese, 219 N.J. at 436, the court determined the plaintiffs could not be

compelled to arbitrate and the class-action waivers tied directly to the arbitration

clause were moot.

      The court thereafter submitted a written amplification pursuant to Rule

2:5-1(d), in which it further explained its decision to apply New Jersey law. It

noted defense counsel cited in their moving papers, and the parties discussed at

oral argument, an unpublished federal district court case involving "a contract

enormously similar to the contracts in the case at hand," Easterday v. USPack

                                                                              A-3346-22
                                        10
Logistics, LLC, No. 15-07559 (D.N.J. Dec. 4, 2020).2 After reviewing the

federal judge's and magistrate's decisions in that case, the court "chose to follow

the Third Circuit's precedent in Roadway [Package System, Inc. v. Kayser, 257

F.3d 287, 288-89 (3d Cir. 2001)] wherein the Third Circuit found general choice

of law provisions shed little light on what law will govern arbitration

provisions." Therefore, it reasoned, "the choice of law provision in the contracts

in this case is not instructive as to the choice of law for the arbitration clauses."

        The court explained it also found a conflict existed between New York

and New Jersey law "with regards to the enforceability of arbitration provisions

when the provisions are silent as to waiving the right to a jury trial." After

conducting a choice of law analysis using the most significant relationship test,

the court "found the contacts overwhelmingly relate to New Jersey." It thus

concluded New Jersey law applied. These consolidated appeals followed.

                                         II.

        We review an order compelling or declining to compel arbitration de

novo.    Goffe v. Foulke Mgmt. Corp., 238 N.J. 191, 207 (2019).              As the

enforceability of arbitration provisions is a question of law, no deference is owed

2
   Easterday is a non-precedential, unpublished opinion and as such, does not
inform our decision. See R. 1:36-3.
                                                                               A-3346-22
                                        11
to the trial court's interpretation. Ibid. In such a review, we remain "mindful of

the strong preference to enforce arbitration agreements, both at the state and

federal level." Hirsch v. Amper Fin. Svcs., LLC, 215 N.J. 174, 186 (2013).

Similarly, we review de novo choice-of-law determinations. Cont'l Ins. Co. v.

Honeywell Int'l., Inc., 234 N.J. 23, 46 (2018).

      Before us, both the CDL defendants and SCI contend the court erred in

denying their motions to dismiss and compel arbitration. In support, they reprise

their arguments: (1) the FAA or New York law, as provided in the Agreements,

should control; (2) the Agreements are enforceable under federal, New York, or

New Jersey law; and (3) the Agreements' class action waiver is also applicable.

      As an initial matter, we conclude the court's reliance on Roadway

Package, 257 F.3d at 288-89, was misplaced. In that case, the Third Circuit

concluded "the presence of a generic choice-of-law clause tells us little (if

anything) about whether contracting parties intended to opt out of the FAA's

default standards and incorporate ones borrowed from state law." Id. at 296. In

this case, however, the Agreements contain not only a generic choice-of-law

clause, but specify New York law applies to arbitration as well. Nevertheless,

"it is well-settled that appeals are taken from orders and judgments and not from

opinions, oral decisions, informal written decisions, or reasons given for the

                                                                            A-3346-22
                                       12
ultimate conclusion." Hayes v. Delamotte, 231 N.J. 373, 387 (2018) (quoting

Do-Wop Corp. v. City of Rahway, 168 N.J. 191, 199 (2001)).

      Our analysis begins with a determination as to which state's law controls.

The CDL defendants contend the court must apply New York law, consistent

with the Agreements' choice of law provision. In this regard, they correctly

note, under North Bergen Rex Transportation v. Trailer Leasing Co., 158 N.J.

561, 568-69 (1999), New Jersey courts uphold a contract's choice of law

provision unless:

            (a) the chosen state has no substantial relationship to
            the parties or the transaction and there is no other
            reasonable basis for the parties' choice, or (b)
            application of the law of the chosen state would be
            contrary to a fundamental policy of a state which has a
            materially greater interest than the chosen state in the
            determination of the particular issue and which . . .
            would be the state of the applicable law in the absence
            of an effective choice of law by the parties.

            [Ibid.]

      Here, the CDL defendants argue a substantial relationship to New York

exists because it is undisputed CDL and SCI are New York companies.

Additionally, they contend application of New York law would not be contrary

to any fundamental policy of New Jersey. In support, they rely upon Grandvue

Manor, LLC v. Cornerstone Contracting Corp., 471 N.J. Super. 135 (App. Div.

                                                                          A-3346-22
                                      13
2022), which they argue demonstrates any difference between New York and

New Jersey law is "slight." The CDL defendants also note "a party may not be

compelled to arbitrate a dispute unless there is evidence which affirmatively

establishes that the parties clearly, explicitly, and unequivocally agreed to

arbitrate the dispute" under In re AT&S Transp., LLC v. Odyssey Logistics &

Tech. Corp., 803 N.Y.S.2d 118 (App. Div. 2005), a standard they characterize

as "exactly the same as New Jersey." Even assuming a difference in the law of

the two states, the CDL defendants assert such difference "does not rise to the

level of being offensive or repugnant to the public policy of New Jersey." SCI

joins the CDL defendants, noting "[i]t is well-settled that a parties' choice of law

provision must be honored" under North Bergen Rex Transportation, 158 N.J.

at 568.

      Plaintiffs respond by arguing the court properly found the New York

choice-of-law provision "was void as against New Jersey public policy" which

aims to protect "'average' individuals in asymmetric negotiations (particularly

when a waiver of rights is involved.)" They contend New York "does not require

courts to conduct a substantive inquiry into whether the arbitration agreement

contains a fair and effective waiver of rights in the sense contemplated by

Atalese." Further, they maintain New Jersey has a materially greater interest in

                                                                              A-3346-22
                                        14
this matter than New York, as plaintiffs live in New Jersey, report to a New

Jersey warehouse, make deliveries exclusively in New Jersey, signed the

Agreements in New Jersey, suffered injuries in New Jersey, and their claims

involve vindication of their rights as New Jersey workers under the New Jersey

WHL and WPL. In contrast, they contend the only connections to New York

are CDL's, SCI's, and Curcio's residences there. We agree.

      Generally, "when parties to a contract have agreed to be governed by the

laws of a particular state, New Jersey courts will uphold the contractual choice

if it does not violate New Jersey's public policy." Grandvue, 471 N.J. Super. at

142 (quoting Instructional Sys., Inc. v. Computer Curriculum Corp., 130 N.J.

324, 341 (1992)). New Jersey follows the approach set forth in section 187 of

the Restatement (Second) of Conflict of Laws and will apply the law of the state

chosen by the parties unless:

            (a) the chosen state has no substantial relationship to
            the parties or the transaction and there is no other
            reasonable basis for the parties' choice, or

            (b) application of the law of the chosen state would be
            contrary to a fundamental policy of a state which has a
            materially greater interest than the chosen state in the
            determination of the particular issue and which would
            be the state of the applicable law in the absence of an
            effective choice of law by the parties.

                                                                          A-3346-22
                                      15
            [Grandvue, 471 N.J. Super. at 142               (quoting
            Instructional Sys., 130 N.J. at 341-42).]

      Here, New York has a substantial relationship to the parties because CDL,

Curcio, and SCI are residents of that state. See Instructional Sys., 130 N.J. at

342 (finding section 187(a) inapplicable because California had a substantial

relationship to the parties as defendant was headquartered there). Thus, section

187(a) is inapplicable and for New Jersey law to apply, (1) New Jersey must

have "a materially greater interest than [New York] in the determination of" the

Agreements' arbitrability, (2) New Jersey law must be applicable in the absence

of an effective choice of law, and (3) the application of New York law must be

"contrary to a fundamental policy" of New Jersey. Grandvue, 471 N.J. Super.

at 142 (quoting Instructional Sys., 130 N.J. at 342).

      We are convinced, based on the facts in the motion record, New Jersey

has a "materially greater interest" with respect to disputes under the Agreements

than New York. Ibid. (quoting Instructional Sys., 130 N.J. at 342). Indeed,

New York has little to no connection to this matter beyond CDL's, SCI's, and

Curcio's residences there. Meanwhile, plaintiffs live and work in New Jersey,

CDL operates a warehouse in New Jersey, the Agreements were executed in

New Jersey, and plaintiffs' claims implicate the New Jersey WHL and WPL and

involve alleged wage injuries suffered in New Jersey.        These same facts,

                                                                           A-3346-22
                                       16
combined with plaintiffs' choice of New Jersey as forum, strongly support the

application of New Jersey law absent the choice of law provision.

      Further, we are also satisfied the application of New York law here would

be "contrary to a fundamental policy" of New Jersey.            Ibid.   (quoting

Instructional Sys., 130 N.J. at 342). It is undisputed both New Jersey and New

York favor arbitration as a means of dispute resolution. See Flanzman v. Jenny

Craig, Inc., 244 N.J. 119, 133 (2020) (noting "the affirmative policy of [New

Jersey], both legislative and judicial, favors arbitration as a mechanism of

resolving disputes" (quoting Martindale v. Sandvik, Inc., 173 N.J. 76, 92

(2002))); Ferrarella v. Godt, 15 N.Y.S.3d 180, 183 (App. Div. 2015) (holding

"[t]he announced policy of [New York] favors and encourages arbitration as a

means of conserving the time and resources of the courts and the contracting

parties" (quoting In re Nationwide Gen. Ins. Co. v. Inv'rs. Ins. Co. of Am., 332

N.E.2d 333, 335 (N.Y. 1975))).

      New Jersey has a long standing policy of protecting the right to access its

courts. Article I, paragraph 9 of the New Jersey Constitution provides "[t]he

right of trial by jury shall remain inviolate." "Although rights may be waived,

courts 'indulge every reasonable presumption against waiver of fundamental

constitutional rights.'" Mazdabrook Commons Homeowners' Ass'n v. Khan, 210

                                                                           A-3346-22
                                      17
N.J. 482, 505 (2012) (quoting Johnson v. Zerbst, 304 U.S. 458, 464 (1938)). "To

be valid, waivers must be knowing, intelligent, and voluntary." Ibid.

      In that vein, our Supreme Court in Atalese intended "to assure that the

parties know that in electing arbitration as the exclusive remedy, they are

waiving their time-honored right to sue." 219 N.J. at 444 (quoting Garfinkel v.

Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 132 (2001)).

Accordingly, as we detail further below in section III, the Court held an

enforceable arbitration clause "at least in some general and sufficiently broad

way, must explain that the plaintiff is giving up her right to bring her claims in

court or have a jury resolve the dispute." Id. at 447.

      In contrast, to determine whether the parties agreed to arbitrate, New York

courts "perform the initial screening process designed to determine in general

terms whether the parties have agreed that the subject matter under dispute

should be submitted to arbitration." Grandvue, 471 N.J. Super. at 144 (quoting

Nationwide, 332 N.E.2d at 335). The court's inquiry ends "[o]nce it appears that

there is, or is not a reasonable relationship between the subject matter of the

dispute and the general subject matter of the underlying contract."           Ibid.

(quoting Nationwide, 332 N.E.2d at 335); see also Ferrarella, 15 N.Y.S.3d at

183 (holding "[o]nce it is determined that the parties have agreed to arbitrate the

                                                                             A-3346-22
                                       18
subject matter in dispute, the court's role has ended"). Further, "New York

courts interfere 'as little as possible with the freedom of consenting parties ' to

submit disputes to arbitration." Ibid. (quoting In re 166 Mamaroneck Ave. Corp.

v. 151 E. Post Rd. Corp., 575 N.E.2d 104, 107 (N.Y. 1991)).

      Protecting individuals' rights to sue and to a jury trial, and ensuring any

waiver of those rights is knowing, intelligent, and voluntary are unquestionably

fundamental policies of New Jersey. Contrary to New Jersey law in this respect,

New York law does not specifically require an arbitration clause explain that

agreement thereto involves waiving the right to a jury trial, and defendants have

cited no precedent to the contrary. Therefore, we are satisfied application of

New York law in this circumstance would be contrary to a fundamental policy

of New Jersey and accordingly apply New Jersey law.

      We are convinced Grandvue does not compel a different result. First,

contrary to the CDL defendants' contention, in that case we affirmed the trial

court's application of New Jersey law, not New York law. Grandvue, 471 N.J.

Super. at 142, 146. Next, while we acknowledge certain superficial similarities

between the facts of Grandvue and those before us, at bottom we conclude these

circumstances are distinguishable.          Grandvue involved a contract for

construction of a $10 million home in New York, id. at 139-40, while the

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                                       19
Agreements here concern the terms of delivery services provided by plaintiffs

in New Jersey. As we detail below in section III, plaintiffs here are not the

"sophisticated" parties involved in Grandvue. Id. at 146.

                                       III.

      Next, the CDL defendants and SCI maintain the arbitration provision of

the Agreements is enforceable even under New Jersey law and controls the

disputes at issue. In support, they note the court must examine "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,'" under Arafa

v. Health Express Corp., 243 N.J. 147, 171 (2020). Further, defendants assert

the court must "preserve the parties' intent to arbitrate" under Arafa and the New

Jersey Arbitration Act, N.J.S.A. 2A:23B-1 to -36 (NJAA). They argue the

arbitration clause in the Agreements "clearly and unambiguously describe[s] the

entire dispute resolution process," and plaintiffs were given the opportunity to

opt-out of arbitration.    Further, the CDL defendants assert plaintiffs are

sophisticated negotiators who operate their own businesses, and there was no

evidence plaintiffs did not understand what they were waiving.

      Plaintiffs respond the arbitration clause in the Agreements fails to meet

the requirements of Atalese as it "do[es] not distinguish between arbitration and

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                                       20
litigation," "explain what arbitration is," "indicate how arbitration is differ ent

from a proceeding in a court of law," or mention the words jury or waiver, except

in the context of the class action waiver. Relying upon Moon v. Breathless Inc.,

868 F.3d 209, 214 (3d Cir. 2017), they argue an enforceable arbitration

agreement must (1) "identify the substantive areas it purports to cover," (2)

"reference the types of claims waived," and (3) "explain the difference between

arbitration and litigation using clear and unambiguous language to inform the

parties of their legal rights and their intent to surrender those rights." Plaintiffs

argue the arbitration clause in the Agreements here fails all three prongs, as it

does not explain which areas and claims are covered, nor does it clearly explain

the rights to be waived.

      Plaintiffs also dispute the CDL defendants' claim of their sophistication,

contending they are delivery drivers performing manual labor with "extremely

limited control over [their] work." Even though some plaintiffs may work

through their own business entity, they contend this does not change the nature

of the work they perform or their relationships to CDL and SCI. Additionally,

they note their agreement to "two intrinsically unconscionable contract terms,"

requiring them to waive "their statutory rights to attorney's fees and punitive

                                                                              A-3346-22
                                        21
damages," demonstrates their lack of sophistication and the disparity in

bargaining power between plaintiffs and SCI. We agree with plaintiffs.

      The NJAA "is nearly identical to the FAA and enunciates the same

policies favoring arbitration." Arafa, 243 N.J. at 167. "[T]he NJAA will apply

unless preempted even without being explicitly referenced in an arbitration

agreement." Id. at 169. However, "[a]rbitration's favored status does not mean

that every arbitration clause, however phrased, will be enforceable." Atalese,

219 N.J. at 441.

      "An agreement to arbitrate, like any other contract, 'must be the product

of mutual assent, as determined under customary principles of contract law.'"

Id. at 442 (quoting NAACP of Camden Cnty. E. v. Foulke Mgmt. Corp., 421

N.J. Super. 404, 424 (App. Div. 2011)). Accordingly, to be enforceable, an

arbitration agreement must clearly state that the parties are agreeing to arbitrate

and are giving up the right to pursue a claim in court. In that regard, our

Supreme Court has explained:

            Mutual assent requires that the parties have an
            understanding of the terms to which they have agreed.
            "An effective waiver requires a party to have full
            knowledge of his [or her] legal rights and intent to
            surrender those rights." Knorr v. Smeal, 178 N.J. 169,
            177 (2003). "By its very nature, an agreement to
            arbitrate involves a waiver of a party's right to have [his

                                                                             A-3346-22
                                       22
              or] her claims and defenses litigated in court." NAACP
              of Camden Cnty. E., 421 N.J. Super. at 425.

              [Ibid. (citations reformatted).]

        Like other waivers of statutory or constitutional rights, the Court noted

"because arbitration involves a waiver of the right to pursue a case in a judicial

forum, 'courts take particular care in assuring the knowing assent of both parties

to arbitrate, and a clear mutual understanding of the ramifications of that

assent.'" Id. at 442-43 (quoting NAACP of Camden Cnty. E., 421 N.J. Super. at

425).     "Although an arbitration clause need not identify 'the specific

constitutional or statutory right guaranteeing a citizen access to the courts' that

are being waived, it must 'at least in some general and sufficiently broad way'

convey that parties are giving up their right to bring their claims in court or have

a jury resolve their dispute." Barr v. Bishop Rosen & Co., Inc., 442 N.J. Super.

599, 606 (App. Div. 2015) (quoting Atalese, 219 N.J. at 447); see also Moon,

868 F.3d at 214 (distilling New Jersey jurisprudence and concluding valid

arbitration agreement must "identify the substantive area that the arbitration

clause covers," "reference the types of claims waived," and "explain the

difference between arbitration and litigation"). "An arbitration agreement that

fails to 'clearly and unambiguously signal' to parties that they are surrendering

their right to pursue a judicial remedy renders such an agreement

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unenforceable." Barr, 442 N.J. Super. at 606 (quoting Atalese, 219 N.J. at 444,

448).

        As we explained in County of Passaic v. Horizon Healthcare Services,

Inc., 474 N.J. Super. 498, 503-04 (App. Div. 2023), the concern described in

Atalese regarding those who might not be "aware of the fact that an agreement

to arbitrate may preclude the right to sue in a court or invoke the inestimable

right of trial by jury . . . vanishes when considering individually-negotiated

contracts between sophisticated parties—often represented by counsel at the

formation stage—possessing relatively similar bargaining power." In other

words, "an express waiver of the right to seek relief in a court of law to the

degree required by Atalese is unnecessary when parties to a commercial contract

are sophisticated and possess comparatively equal bargaining power." Id. at

504.

        We are satisfied, applying Atalese and its progeny, the arbitration clause

in the Agreements is unenforceable. Although the clause implies some claims

will be resolved in "small claims court" while others will go to arbitration, it

falls short of the "clear and unambiguous" explanation of rights waived required

by Atalese, 219 N.J. at 445.        The Agreements do not explain what the

"jurisdictional maximum for small claims" is, what arbitration is, or that by

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agreeing to it, plaintiffs gave up their right to litigate their claims in court. As

our Supreme Court recognized, "[t]he meaning of arbitration is not self-evident

to the average consumer, who will not know, 'without some explanatory

comment[,] that arbitration is a substitute for the right to have one's claim

adjudicated in a court of law.'" Morgan v. Sanford Brown Inst., 225 N.J. 289,

308 (2016) (second alteration in original) (quoting Atalese, 219 N.J. at 442).

      While the Agreements describe the procedure arbitration will follow, such

as the number of arbitrators on the panel and where it will occur, they do not

define arbitration and lack the crucial disclosure that it will replace litigation or

a jury trial. An average consumer or delivery driver is not likely to understand,

absent further explanation, what arbitration is, how it differs from litigation in

court or that it involves no judge or jury, nor are they likely able to distinguish

which claims fall within the "jurisdictional maximum for small claims" to be

litigated in court. The ability to opt-out of arbitration does nothing to further

clarify its meaning.

      We find defendants' reliance on Arafa misplaced as each of the two

arbitration agreements involved in that case clearly complied with Atalese.

Arafa, 243 N.J. at 171-72. Specifically, one agreement stated "[t]he parties

voluntarily agree to waive any right to a trial by jury in any suit filed hereunder

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and agree to adjudicate any dispute pursuant to" further detailed arbitration

clauses, and the other provided "BY AGREEING TO ARBITRATE ALL SUCH

DISPUTES, THE PARTIES TO THIS AGREEMENT AGREE THAT ALL

SUCH      DISPUTES       WILL      BE    RESOLVED         THROUGH         BINDING

ARBITRATION BEFORE AN ARBITRATOR AND NOT BY WAY OF A

COURT OR JURY TRIAL."              Id. at 155, 158 (emphasis supplied, caps in

original). Here, the Agreements fail to explain that agreeing to arbitration means

waiving the right to a jury trial, or even to mention the words "jury trial" at all .

      Finally, the record reflects the Agreements were not the product of a

sophisticated negotiation, contrary to defendants' contentions. It appears none

of the plaintiffs were represented by counsel, nor did the terms of the

Agreements substantially differ among the plaintiffs, suggesting the Agreements

were similar to "take-it-or-leave-it" contracts of adhesion. See Muhammad v.

Cnty. Bank of Rehoboth Beach, 189 N.J. 1, 15 (2006) (noting "the 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" (quoting

Rudbart v. N. Jersey Dist. Water Supply Comm'n., 127 N.J. 344, 353 (1992))).

This also indicates unequal bargaining power between the parties. Accordingly,

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the Agreements are closer to consumer contracts, as in Atalese, than commercial

contracts, as in County of Passaic or Grandvue.

      The parties in County of Passaic were a municipality and a health

insurance company with a seventeen-year relationship involving multiple

contracts. 474 N.J. Super. at 501, 504. Both were represented by counsel, and

the record in that case reflected negotiation of several contracts. Id. at 504-05.

Thus, we concluded the parties were sophisticated and possessed relatively

equal bargaining power. Id. at 501, 504. Similarly, in Grandvue, we deemed

the contractor corporation and couple who, through an LLC, contracted for

construction of a $10 million home were sophisticated. 471 N.J. Super. at 139-

40, 146. Further, unlike the Agreements before us, the arbitration clause we

upheld in that case clearly delineated that the parties had a choice between

arbitration or "[l]itigation in a court of competent jurisdiction." Id. at 140.

      Plaintiffs are clearly not the type of parties we had in mind in County of

Passaic, 474 N.J. Super. at 503-04.          The record is devoid of evidence

demonstrating any of them were represented by counsel or engaged in individual

negotiation of the Agreements.         The record demonstrates plaintiffs are

individual delivery drivers who perform manual labor for CDL under CDL's

rules. That one of the plaintiffs worked through an LLC does not change the

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nature of the work she performed or the disparity in bargaining power between

plaintiffs and SCI.

      Because the Agreements were not the product of a sophisticated

negotiation and the arbitration clause therein does not clearly and

unambiguously explain the parties are waiving their rights to bring their claims

in court or to have a trial by jury, the court correctly found the arbitration

agreement is unenforceable.

                                      IV.

      SCI contends the court erred by failing to analyze the Agreements'

arbitration clauses under the FAA. It notes the FAA exemption in 9 U.S.C. § 1

does not apply here because the Agreements are not contracts of employment or

interstate commerce as "[p]laintiffs did not provide their delivery services to

SCI." Plaintiffs assert they are transportation workers engaged in interstate

commerce and thus clearly fall within the section 1 exemption. They also

contend the term "contracts of employment" as used in the section 1 exemption

includes independent contractors under New Prime Inc. v. Oliveira, 586 U.S. __,

139 S. Ct. 532 (2019).

      Under Shetiwy v. Midland Credit Management, 959 F. Supp. 2d 469, 473

(S.D.N.Y. 2013), SCI argues a court determining arbitrability under the FAA

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must consider "(1) whether the parties have entered into a valid agreement to

arbitrate, and, if so, (2) whether the dispute at issue comes within the scope of

the arbitration agreement." SCI concludes if both parts of the test are answered

in the affirmative, as here, the court has no discretion and must order arbitration.

We are not persuaded.

      Although the FAA "contains no express pre-emptive provision, nor does

it reflect a congressional intent to occupy the entire field of arbitration," it

generally "preempts state laws that treat arbitration agreements differently from

other contracts." Grandvue, 471 N.J. Super. at 145 (quoting Arafa, 243 N.J. at

164-65). Accordingly, an arbitration clause "cannot be invalidated by state-law

'defenses that apply only to arbitration or that derive their meaning from the fact

that an agreement to arbitrate is at issue.'" Atalese, 219 N.J. at 441 (quoting

AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)).

      However, the FAA "specifically permits states to regulate contracts,

including contracts containing arbitration agreements[,] under general contract

principles." Grandvue, 471 N.J. Super. at 145 (alteration in original) (quoting

Arafa, 243 N.J. at 165). In other words, "New Jersey may 'regulate agreements,

including those that relate to arbitration, by applying its contract-law principles

that are relevant in a given case.'" Skuse v. Pfizer, Inc., 244 N.J. 30, 47 (2020)

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(quoting Leodori v. Cigna Corp., 175 N.J. 293, 302 (2003)). "[S]tate contract-

law principles generally govern a determination whether a valid agreement to

arbitrate exists." Waskevich v. Herold Law, P.A., 431 N.J. Super. 293, 298

(App. Div. 2013) (quoting Hojnowski v. Vans Skate Park, 187 N.J. 323, 342

(2006)).

      The Supreme Court's opinion in Atalese does not in any way conflict with

the FAA as it "does not disfavor or discriminate against arbitration agreements,"

but rather "reaffirmed principles long embedded in [New Jersey] jurisprudence."

Kernahan v. Home Warranty Adm'r of Fla., Inc., 236 N.J. 301, 330 (2019)

(Albin, J., concurring).3 As Justice Albin explained, the United States Supreme

Court's FAA jurisprudence "do[es] not bar an undemanding state-law

requirement that allows consumers a minimal understanding that in choosing

arbitration they will not have access to a judicial forum." Id. at 334. Thus, in

light of our conclusion the Agreements do not comply with the general contract

principles set forth in Atalese, we need not, and do not, decide whether the FAA

applies to the Agreements.

3
   In Kernahan, 236 N.J. at 328, Justice Albin specifically considered and
rejected the argument that Atalese conflicted with the United States Supreme
Court's holding in Kindred Nursing Centers L.P. v. Clark, 581 U.S. 246, 248
(2017), a position not advanced by defendants here in their briefs or at oral
argument.
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      We are satisfied Arafa does not compel a different result. In that case, the

plaintiffs argued (1) there had been no "meeting of the minds" with respect to

arbitration because the terms of the agreement provided it would be governed

by solely the FAA, but the agreement was exempt from the FAA under 9 U.S.C.

§1, and (2) the court could not apply the NJAA in place of the FAA absent

express intent of the parties to do so. Arafa, 243 N.J. at 160-61. The Court was

therefore required to examine the FAA exemption to resolve the issues before

it. Id. at 166. Further, we note each of the arbitration agreements at issue in

Arafa expressly informed the parties their assent thereto constituted a waiver of

their right to a trial by jury, as required under Atalese. Id. at 172.

                                         V.

      Finally, the CDL defendants assert "the FAA preempts states from

invalidating class action waiver clauses contained within arbitration agreements

on public policy or unconscionability grounds." Plaintiffs respond the class

action waiver was limited to arbitration and is thus unenforceable. We agree

with plaintiffs.

      The Agreements state "[n]either you nor SCI shall be entitled to join or

consolidate claims in arbitration by or against other individuals or entities, or

arbitrate any claim as a representative member of a class or in a private attorney

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general capacity." (Emphasis added). Nothing in this language is ambiguous—

it clearly states the limitation applies to arbitration, with no reference to

litigation in court. In light of our decision finding the arbitration agreement

unenforceable, we conclude the class action waiver is inapplicable under these

circumstances.

      To the extent we have not addressed any of the parties' arguments, it is

because we conclude they lack sufficient merit to warrant extended discussion

in a written opinion. R. 2:11-3(e)(1)(E).

      Affirmed.

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