What Do You Mean I Can’t Sue My Contractor?

UNPACKING ARBITRATION VS. TRIAL BY JURY IN CONSUMER CONTRACTS

Many home contractor contracts contain a clause that states the disputes will be resolved by arbitration.  Perhaps you didn’t even notice that clause while overcoming your concerns about the description of the work, the time frame, and the cost. But, it is really important.  It deals with your New Jersey constitutional rights to trial by jury and your protections under the New Jersey Consumer Fraud Act..

The good news is that in New Jersey, arbitration clauses in consumer contracts are not enforceable when the parties to the contracts do not explicitly waive their right to seek relief in a court of law.  This month we explore what exactly this means and why you should care.   Let’s say you and your home improvement contractor become embroiled in a disagreement. When you go back to look at your contract, (please tell us you have one), you realize it mentions something called “arbitration” – and you don’t know what that even means.

“Arbitration” is when parties to a dispute present their disagreement to an impartial third party for resolution. It is an alternative to going to court.  Often times, in consumer contracts, arbitration is presented as the only way to resolve contractual disagreements. Arbitration means that you the consumer have no legal right to sue the contractor in a court of law. Is it enforceable?

According to the New Jersey Supreme Court, no it isn’t, unless it also includes specific language that by electing arbitration as the exclusive remedy, the parties are waiving their “time-honored right to sue.” Atalese v. U.S. Legal Services Group. LP, 219 N.J. 430, 444 (2014).

In Atalese, supra, Patricia Atalese (“Atalese”) entered into a contract with U.S. Legal Services Group L.P. (“Legal Services”), whereby Atalese hired Legal Services to provide debt-adjustment services. The contract included an arbitration clause that stated only that either party may submit any dispute arising out of the contract to binding arbitration.  The relationship broke down, and Atalese filed suit against Legal Services in the Superior Court of New Jersey. Legal Services asked the court to dismiss Atalese’s law suit and require the parties go to arbitration. Both the trial and appellate courts agreed with Legal Services.

The Supreme Court of New Jersey reversed the lower court, noting that judicial preference to arbitration and arbitration clauses is not without its limits. Rather, an arbitration clause, like any other clause, must be a product of mutual assent, which means that the parties must have full knowledge of their legal rights. The Supreme Court of New Jersey held that for an arbitration clause to be enforceable in the consumer contract context, the clause must provide the parties with clear notice that the parties are waiving their statutory right to seek relief in a court of law. Simply stating that all disputes arising out of a consumer contract may be subject to arbitration is insufficient.

Why should I care, you may ask? Well, the right to a civil jury trial is guaranteed by the New Jersey Constitution and conferred by the New Jersey Consumer Fraud Act. See Allstate N.J. Ins. Co. v. Lajara, 222 N.J. 129, 147 (2015) (citing Zorba Contractors, Inc. v. Hous. Auth., 362 N.J.Super. 124, 138–39 (App. Div.2003)). Remedies available under the New Jersey Consumer Fraud Act include treble (triple) damages, attorneys fees, and costs of suit.  By electing arbitration, you will not be able to present your Consumer Fraud Act claims to a jury of your peers. The choice should be and is yours.

Our litigation team of Dan Posternock, Diana Sever and Anthony Valenti are here to answer your questions.