Business Owners Beware: Clear and Unambiguous Language in Arbitration Agreements Is Not Enough to Make Them Enforceable in New Jersey

Defense Digest, Vol. 22, No. 4, December 2016

By Douglas D. Suplee, Esq.*

Business owners in New Jersey seeking to avoid being sued in court by requiring patrons to sign an agreement to settle any disputes by way of binding arbitration were recently reminded by the New Jersey Appellate Division that clear and unambiguous language of such agreements is not enough to make them enforceable. In Defina v. Go Ahead and Jump 1, LLC d/b/a Sky Zone Indoor Trampoline Park, 2016 N.J. Super. Unpub. LEXIS 1797 (App. Div. July 12, 2016), the Appellate Division held that agreements to settle disputes through arbitration must not only be clear and understandable to a lay person, but they must also spell out the fact that a patron is waiving his right to bring a claim in a court of law before a judge or jury.

In Defina, the defendant owned and operated the Sky Zone Indoor Trampoline Park (SZITP) and required all of its customers to sign a document entitled “Participation Agreement, Release and Assumption of Risk” before using the facility. The agreement provides in pertinent part that, in consideration of SZITP allowing participation in trampoline games or activities:

I for myself and on behalf of my child(ren) and/or legal ward, heirs, administrators, personal representatives, or assigns, do agree to hold harmless, release and discharge SZITP of and from all claims, demands, causes of action, and legal liability, whether the same be known or unknown, anticipated or unanticipated, due to SZITP’s ordinary negligence; and I, for myself and on behalf of my child(ren) and/or legal ward, heirs, administrators, personal representatives, or any assigns, further agree that except in the event of SZITP’s gross negligence and willful and wanton misconduct, I shall not bring any claims, demands, legal actions and causes of action, against SZITP for any economic and non-economic losses due to bodily injury, death, property damage sustained by me and/or my minor child(ren) that are in any way associated with [defendant’s] trampoline games or activities.

The agreement also included an arbitration clause, which stated:

If there are any disputes regarding this agreement, I on behalf of myself and/or my child(ren) hereby waive any right I and/or my child(ren) may have to a trial and agree that such dispute shall be brought within one year of the date of this Agreement and will be determined by binding arbitration before one arbitrator to be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures.

Furthermore, the agreement included the following statement, which was printed in bold type:

By signing this document, I acknowledge that if anyone is hurt or property is damaged during my participation in this activity, I may be found by a court of law to have waived my right to maintain a lawsuit against SZITP on the basis of any claim from which I have released them herein. I have had sufficient opportunity to read this entire document. I understand this Agreement and I voluntarily agree to be bound by its terms.

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, who was then nine years old, and another child.

On June 18, 2015, the plaintiffs filed a complaint in the Law Division alleging that on February 8, 2014, Alexander was a business invitee at SZITP and was injured while participating in various activities in the facility, including “Ultimate Dodge Ball.” The plaintiffs alleged that the defendant failed to provide adequate warnings and instructions regarding the dodge ball activity; was negligent and careless in creating, advertising and promoting an ultra-hazardous and dangerous dodge ball game; and failed to properly supervise, control or regulate the conduct of other invitees over whom the defendant had supervisory responsibility.

Additionally, the plaintiffs asserted claims of gross negligence and alleged that the defendant knew or should have known that statements in the agreement were false, inaccurate and contrary to established New Jersey case law. In addition, they alleged that the agreement should be reformed or rescinded and that the defendant’s use of the agreement was an unconscionable commercial practice in violation of the New Jersey Consumer Fraud Act.

In September 2015, the defendant filed a motion to compel arbitration and stay proceedings in the lawsuit. The plaintiffs opposed and filed a cross-motion to rescind the agreement. The motion judge heard oral argument and entered an order compelling arbitration and staying the Law Division action. In a rider to the order, the judge stated that Michael Defina had validly agreed to arbitration on behalf of his minor child and there was no evidence that he had been coerced into signing the agreement. The judge found that the arbitration clause was enforceable.

Thereafter, the plaintiffs filed a motion for reconsideration. In denying the motion for reconsideration, the judge rejected the plaintiffs’ contention that the arbitration clause did not clearly and unambiguously place 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.

On appeal, the plaintiffs argued that the motion judge erred by enforcing a contract that was invalid, fraudulent and unconscionable. The plaintiffs also argued that enforcement of the agreement was erroneous because it did not apply to personal injury claims arising from conduct greater than ordinary negligence. They further argued that the arbitration clause was not enforceable. The Appellate Division agreed.

In concluding that the trial court erred by finding that the arbitration clause in the agreement was enforceable, the court did recognize that New Jersey has a strong public policy in favor of arbitration as a means of dispute resolution. Hojnowski v. Vans Skate Park, 901 A.2d 381, 392 (N.J. 2006). In Hojnowski, the court held that an agreement by a parent to arbitrate claims of a minor child arising out of a commercial recreation contract was enforceable. The court stated that, in the absence of any allegations of fraud, duress or unconscionability in the execution of the agreement, or a showing that the agreement to arbitrate was not written “in clear and unambiguous terms,” the “[p]arent’s agreement to arbitrate is valid and enforceable against any tort claims asserted on the minor’s behalf.”

However, in Defina, the plaintiffs did not claim that Michael Defina was fraudulently induced to execute the agreement or that he did so under duress. Instead, they argued that the arbitration clause was not enforceable because it was not clear and unambiguous. They asserted that the arbitration clause failed to inform the consumer he was giving up his right to bring a lawsuit in court and have the claim decided by a jury. In Hojnowski, the arbitration clause stated that the person signing the agreement was indeed giving up the right to sue the recreational facility in a court of law and the right to a jury trial.

In reversing the trial court’s decision and remanding the case for further proceedings, the court in Defina relied upon Atalese v. U.S. Legal Servs. Group, L.P., 99 A.3d 306, 314-315 (N.J. 2014). The arbitration agreement at issue in Atalese stated that either party could submit any dispute to binding arbitration, a single arbitrator would resolve the dispute, and the arbitrator’s decision would be final and could be entered as a judgment in a court of competent jurisdiction. However, the court in Atalese held that the arbitration clause was not enforceable because the clause did not clearly and unambiguously explain that the plaintiff was waiving the right to seek relief in court for a breach of statutory rights under the Consumer Fraud Act. The court stated:

[t]he provision does not explain what arbitration is, nor does it indicate how arbitration is different from a proceedings in a court of law. Nor is it written in plain language that would be clear and understandable to the average consumer that she is waiving statutory rights. The clause has none of the language that our courts have found satisfactory in upholding arbitration provisions clear and unambiguous language that the plaintiff is waiving her right to sue or go to court to secure relief.

The court noted that arbitration clauses had been upheld because they “[e]xplained that arbitration is a waiver of the right to bring suit in a judicial forum.” The court added, “We do not suggest that the arbitration clause has to identify the specific Constitutional or statutory right guaranteeing a citizen access to the court that is waived by agreeing to arbitration. But the 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.”

In Defina, the court was convinced that the arbitration clause at issue did not clearly and unambiguously inform the 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. Although the clause stated that the person signing the agreement waived any right to a “trial,” there was no “[c]lear and unambiguous statement that the person signing the agreement is waiving [his] right to sue or go to court to secure relief.” There was no reference in the clause to a court or a jury. Nor did the agreement explain how arbitration differs from a proceeding in a court of law.

In conclusion, the Defina court held that the agreement did not clearly and unambiguously inform Michael Defina that he was “[g]iving up his right to bring [his] claims in court and have a jury resolve the dispute.” Indeed, Defina confirms that clear and unambiguous language in arbitration agreements is not enough—such agreements must also explain what arbitration is and what the person signing them is giving up as a result.

*Doug is a shareholder in our Cherry Hill, New Jersey office. He can be reached at 856.414.6028 or ddsuplee@mdwcg.com.

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_{Defense Digest, Vol. 22, No. 4, December 2016. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2016 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}