New Jersey Law Journal

Bill Would Outlaw Mandatory Arbitration In Consumer Contracts

New Jersey Law Journal — Saturday, February 6, 2015

Michael Booth, New Jersey Law Journal

A trio of New Jersey lawmakers is sponsoring legislation that would bar companies from forcing customers to sign contracts in which they waive their rights to sue and instead must pursue any claims through arbitration.

The Assembly Consumer Affairs Committee recommended passage of the bill, A4097, in a 3-1 vote Feb. 5. The bill is sponsored by the three Democrats on the committee—Chairman Paul Moriarty, D-Gloucester, and Assemblymen Patrick Diegnan Jr., D-Middlesex, and Charles Mainor, D-Hudson.

The bill would amend the state's Truth-in-Consumer Contract, Warranty and Notice Act to prohibit consumer contracts from requiring consumers to waive or limit their rights to sue in court.

The bill specifically says rights that could not be waived or limited in a consumer contract, except with the permission of the consumer, include: any rights under the Consumer Fraud Act, the Lemon Law or any other federal or state consumer protection law; the right to contact a law enforcement agency, state or local government entity for the purpose of reporting a consumer complaint; the right to bring a complaint or civil action within the six-year statute of limitations; the right to have New Jersey serve as the forum, jurisdiction or venue for the resolution of any dispute; the right to bring a class action or serve as a class representative in any dispute; the right to discovery as provided by the state's Rules of Court; the right to bring a claim for injury to person or property; and the right to a jury trial, unless the consumer waives that right upon the advice of counsel.

Under the bill, any contract that contains any provision that requires a consumer to waive any of his or her legal rights could be declared null and void. Any violation of the prohibition could lead to the company being forced to pay the consumer $100, in addition to any damages, plus counsel fees.

Moriarty said that in recent years, consumer contracts have frequently begun to include provisions that make it difficult or impossible for consumers to pursue remedies for misrepresentations, deception, fraud, negligence or breach of contract.

These contracts, he said in a statement attached to the bill, are typically standardized forms drafted with no input from the consumer, and offered on a take-it-or-leave-it basis. The consumer, usually the less sophisticated party in a transaction, generally has no choice but to agree to the terms, he said.

The bill is being opposed by a variety of business groups, including the New Jersey Coalition of Automotive Retailers, the New Jersey Chamber of Commerce, the Fuel Merchants Association, the New Jersey Retail Merchants Association and the New Jersey Business and Industry Association.

James Appleton, the president of the auto retailers' coalition, told the committee that the bill would run afoul of the Federal Arbitration Act, which favors arbitration as the forum for dispute resolution.

"This bill would never be considered enforceable," he said. "It would be void as a matter of public policy" because of federal preemption. "It is legally suspect."

"The net result would be to benefit a small group of plaintiffs' attorneys," Appleton said.

Appleton suggested that any change to consumer contracts should come from Congress, since it enacted the FAA.

Moriarty laughed at that suggestion.

"Did you just say leave it to Congress? Leave it to Congress? I don't think so," he said.

The New Jersey Civil Justice Institute, a tort-reform organization, also opposes the bill.

Its chief counsel, Alida Kass, echoed Appleton by saying the provisions of the bill would be unenforceable because of the language of the FAA.

"Arbitration is a good and valuable thing," she said.

New Jersey Citizen Action, a pro-consumer group, supports the bill.

A group representative, Naved Husain, told the committee that there is a "troubling trend" in which companies ranging from car dealerships and credit card companies to cruise ship operators and social media sites require customers to sign agreements that mandate that all disputes be settled by arbitrators.

Those arbitrators, he said, citing a recent study by Public Citizen, a national consumer-rights organization, rule in favor of the company in 94 percent of cases that go to arbitration.

The New Jersey Association for Justice, which argues on behalf of plaintiffs' rights, also supports the bill.

"This is another example of New Jersey's fair and just protection of consumer interests," said the association's president, Thomas Comer, when he testified.

"Consumers should not be forced to give up their rights merely to purchase services," said Comer, of Lomurro, Munson, Comer, Brown & Schottland in Freehold, N.J.

Contracts with mandatory arbitration clauses, he said, "only serve to support a company's bottom line."

Assemblyman John DiMaio, R-Warren, cast the only vote against the bill. He argued that it would discourage companies from doing business in the state.

The bill must still be acted on by the full Assembly. If it passes the Assembly, it will then have to go through the Senate, where there is no companion measure.

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