N.J. Supreme Court Sends Auto Dealer Disputes to Arbitration

On Wednesday, June 5, the New Jersey Supreme Court ruled in favor of enforcing arbitration agreements in car purchase agreements. The case, Goffe v. Foulke Mgmt. Corp. (link to: https://www.njcourts.gov/attorneys/assets/opinions/supreme/a_3_4_18.pdf?c=hqF), reverses the New Jersey Court’s recent trend of setting state law limits to the enforceability of arbitration agreements– in stark contrast to the U.S. Supreme Court’s recent arbitration decisions. (See for example, our posts from January 16, 2019 (link to: https://www.genovaburns.com/publications/litigation-law/2019-01-16-new-jersey-supreme-court-rules-mis-labeled-arbitration-provision-in-consumer-contract-unenforceable) January 10, 2019 (link to: https://www.genovaburns.com/publications/litigation-law/2019-01-10-arbitrator-to-decide-whether-dispute-is-subject-to-arbitration-even-if-argument-is-wholly-groundless-supreme-court-holds) and January 16, 2019 (link to: https://www.genovaburns.com/publications/litigation-law/2019-01-16-new-jersey-supreme-court-rules-mis-labeled-arbitration-provision-in-consumer-contract-unenforceable) and October 19, 2018 (link to: https://www.genovaburns.com/publications/litigation-law/2018-10-19-new-jersey-appellate-division-invalidates-jenny-craig-employee-arbitration-provision). Genova Burns represented the New Jersey Coalition of Automotive Retailers (“NJCAR”) as amicus curiae in support of the defendants. NJCAR’s amicus brief was cited and summarized by the Court in its opinion.

Goffe involved two cases where the plaintiff alleged fraudulent sales practices in connection with the car sales agreements. In each case, the plaintiff admitted to signing a clear arbitration agreement that specifically provided that the issue of arbitrability – whether the case is subject to arbitration – must be decided by the arbitrator. New Jersey’s Appellate Division held that the parties must conduct discovery on whether the contract itself was enforceable, relying on the Third Circuit Court of Appeals 2013 decision in Guidotti v. Legal Helpers Debt Resolution, LLC (link to: https://scholar.google.com/scholar_case?case=15005400522212496937&hl=en&as_sdt=6&as_vis=1&oi=scholarr).

Reversing, the New Jersey Supreme Court found that the U.S. Supreme Court’s decisions under the Federal Arbitration Act mandated a different result. When the parties agree to delegate the question of arbitrability to the arbitrator, the courts must honor this contract. To avoid this, a party must challenge the enforceability of the arbitration provision itself – not the contract as a whole. In this case, the Supreme Court found, the parties challenged the enforceability of the contracts a whole under the Consumer Fraud Act, not of the arbitration provisions. The Court also rejected the Appellate Division’s understanding of Guidotti, noting that the plaintiff in that case disputed the validity of the arbitration provision, which was contained in a separate standalone agreement – not of the contract as a whole - as opposed to the plaintiffs here who only made general assertions regarding their broader contracts.

For more details regarding arbitration agreements or the Federal Arbitration Act, please feel free to contact Jennifer Borek, Esq., or Matthew I. W. Baker, Esq., in our Complex Litigation Group.