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The New Jersey Appellate Division has once again reinforced that arbitration provisions are enforceable.

This ruling gives a strong boost of support to the Bais Din system. At the same time, the ruling reinforces how imperative it is for parties to commercial contracts, divorce agreements, and rental leases to closely review precise terms of arbitration clauses with experienced Toanim and Lawyers to ensure; a) that there are no confusions as to what is being agreed to; and b) that the agreement will be enforceable in court if necessary.

On May 17, 2021, Robin Eble purchased a 2016 Acura LX from Carvana, LLC, a used car dealer, for $21,612.56.

Although Eble signed all the purchase documents and paid the money at the time of the purchase, the dealer did not deliver title to the vehicle at that time. The dealer also failed to deliver title thereafter.

Eble filed suit in Superior Court in Burlington County alleging that the dealers' failure to deliver title violated N.J.A.C. 13:32-15.6, constitutes an unconscionable business practice and per se violation of the New Jersey Consumer Fraud Act (CFA), and breach of contract.

The dealer filed a motion to dismiss the complaint and to compel plaintiff to proceed to arbitration. Their basis was that their retail purchase agreement incorporates by reference a separate arbitration agreement between the parties. 

The arbitration agreement provides in part that any claim, dispute, or controversy between the parties "arising from or related to" the retail purchase contract or the sale of the vehicle shall be resolved by arbitration. As defined under the agreement, the claims subject to arbitration include "claims of every kind of nature," including "initial claims, . . . statutory claims, . . . contract claims, . . . and tort claims . . . including claims of fraud and other intentional torts." Pertinent here, the arbitration agreement also expressly delegates to the arbitrator the authority to decide "any dispute or argument that concerns the validity or enforceability of the" retail purchase agreement.

Eble argued back that the dealers' failure to deliver title violated the retail purchase agreement and therefore, the entire agreement - including the arbitration provision - is void.

The trial court granted the defendant's motion, finding that the plain language of the arbitration agreement required arbitration of the claims - a statutory claim under CFA and breach of the retail purchase contract claim - asserted in the complaint. The court also noted plaintiff did not challenge the validity of the arbitration agreement, and the court therefore found the agreement required arbitration of plaintiff's claim that the retail purchase agreement was void ab initio.

Eble appealed this decision.

Appellate Division Judges Vernoia and Walcott-Henderson were not persuaded. In a written ruling just released, they affirmed the trial court's ruling that the matter must be compelled to arbitration.

Plaintiff contends the court erred by compelling arbitration because defendant's failure to deliver title to the vehicle rendered the retail purchase agreement void ab initio, and therefore the arbitration agreement is of no legal effect as it is attendant to the retail purchase agreement, which was the product of defendant's alleged fraudulent actions.

Plaintiff's argument rests on the incorrect premise that the enforceability of the retail purchase agreement is an issue that may not be decided by the arbitrator and therefore must be decided by a court. In Goffe, the Supreme Court considered and rejected the identical claim plaintiff makes here.

In Goffe, the plaintiffs purchased cars from the defendant car dealerships. In connection with their respective transactions, the plaintiffs executed agreements requiring to arbitrate any claims related to the transactions.

Relying on a series of United States Supreme Court decisions interpreting the FAA, our Supreme Court held that under circumstances identical to those presented here, "when a plaintiff raises a claim of fraud in the inducement of a contract as a whole - rather than in the making of the arbitration agreement itself - . . . the dispute must be resolved by the arbitrator."

The Court explained that a trial court may properly adjudicate a claim there was fraud in the inducement of an arbitration agreement itself but "arbitration agreements are severable from the rest of [a] contract" and "may be valid separate and apart from the contract as a whole, provided that a party has not challenged the arbitration agreement itself." The Court observed that in Buckeye Check Cashing, Inc. v. Cardegna, the United States Supreme Court determined that because "an arbitration provision is severable from the remainder of the contract," "unless the challenge is to the arbitration clause itself, the issue of a contract's validity is considered by the arbitrator in the first instance." In Buckeye, the United States Supreme Court reasoned that where a party challenges the validity of an agreement as a whole but does "not specifically" challenge the arbitration provision, the arbitration provision is "enforceable apart from the remainder of the contract" and the validity of the contract is a decision for the arbitrator.

The Court in Goffe also recognized that where the parties agree to delegate to the arbitrator the authority to determine challenges to the contract as a whole, those issues must be decided by the arbitrator unless there is a challenge made to the delegation clause itself. The Court further explained that a contract which includes an arbitration provision delegating authority to the arbitrator to decide the issue of arbitrability, "the delegation of authority to [an] arbitrator to resolve disputes relating to the enforceability of the agreement [as a whole is] valid" in the absence of a challenge to the delegation or arbitration clauses. In Goffe, the Court held a court may not override the parties' delegation of authority to an arbitrator to determine a particular issue, including an issue as to the enforceability to the contract as a whole.

The Court's reasoning and holding in Goffe apply with syllogistic precision here. In her complaint and her arguments before the trial court and on appeal, plaintiff challenges only the validity of the retail purchase agreement, asserting it is void because it was procured through alleged fraud. Plaintiff does not offer any challenge to the validity of the arbitration agreement, which, as noted, expressly delegates to the arbitrator the authority to determine all claims pertaining to validity of the retail purchase agreement. Under such circumstances, an arbitrator is properly vested with the exclusive authority to decide plaintiff's claim that the retail purchase agreement is unenforceable as void, as well as the CFA and contract claims asserted in the complaint.

We therefore affirm the court's order dismissing the complaint and compelling plaintiff to proceed to arbitration on its claims against defendant.

Because plaintiff must litigate the merits of her asserted causes of action before the arbitrator, it is unnecessary to consider or decide plaintiff's arguments that the retail purchase agreement violates the CFA and the complaint asserts cognizable causes of action against defendant. For the reasons noted, those arguments must be presented to and decided by the arbitrator in accordance with the parties' arbitration agreement, the judges concluded.

The winning attorneys are Elizabeth F. Ahlstrand, Matthew A. Glazer and Karina Norwood Esq. of Squire Patton Boggs (US) LLP and Cozen O'Connor LLP.

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