A landmark court ruling released today is an important reminder to know before you sign!
In a big win for businesses statewide, the New Jersey Supreme Court just released a precedental ruling establishing that class action waivers are enforceable even if they aren't coupled with an arbitration agreement.
This ruling reverses lower court rulings to the contrary.
The Hamilton Cove apartment complex, located in Weehawken, houses hundreds of apartments along the Hudson River waterfront. In April 2020, Hamilton Cove advertised on its website and social media pages that its apartments had “elevated, 24/7 security.”
William Pace and Robert Walters each leased apartments at Hamilton Cove. Both leases allowed three days to consult with an attorney, after which the leases would become final. The leases were both standard form contracts with multiple addenda, including a “Class Action Waiver” Addendum. The lease addenda were incorporated into and made part of the lease.
After moving into their apartments, Pace and Walters discovered that the complex’s security cameras did not work and that there was no 24/7 security.
In March 2022, Pace and Walters jointly filed a lawsuit in New Jersey Superior Court, alleging common law fraud and a violation of the Consumer Fraud Act (CFA). According to their complaint, the advertised “24/7 security” especially drew them to lease the apartments and pay the leasehold price, because Weehawken has a property crime rate higher than the state average.
In filing suit, the plaintiffs sought to certify a class of similarly situated tenants.
The defendants moved to dismiss the claims for failure to state a claim or, alternatively, to strike the class allegations, arguing that the tenants waived their ability to proceed as a class when they signed the class action waiver addendum to the lease. The tenants opposed the motion, arguing that the lease agreements were unconscionable and contracts of adhesion.
The trial court denied defendants’ motions, finding plaintiffs’ complaint sufficiently pled fraud. Although the trial court did not specifically hold that the lease was a contract of adhesion, it noted plaintiffs’ assertion that, as “potential tenants negotiating with a sophisticated business, they lacked bargaining power” and determined that plaintiffs “met the bar to survive the motion to dismiss.” Lastly, the court concluded that “the fundament of a class action” could be gleaned from plaintiffs’ complaint.
The Appellate Division affirmed the trial court’s decision and made a bright-line rule invalidating all class action waivers in New Jersey except those coupled with an arbitration agreement.
The Appellate Division held that “a class action waiver in a contract that does not contain a mandatory arbitration provision” is unenforceable as a matter of law and public policy.
The Appellate Division rejected defendants’ argument that the lease agreements were not contracts of adhesion and that the class action waivers were not unconscionable because of the inclusion of the three-day attorney review period.
Its holding, the court explained, instead turned on the fact that a class action waiver is contrary to public policy. The court also found that a class action is “clearly favored” in this case, assuming the facts plaintiffs allege are true. The court reasoned that class action litigation would avoid inconsistent results and enhance judicial economy and economic efficiency, given that hundreds of Hamilton Cove’s tenants would be similarly affected by the lack of promised 24/7 security.
The matter wasn't over just yet.
Hamilton Cove appealed to the State's highest court, asking it to consider (1) whether class action waivers in consumer contracts that do not contain mandatory arbitration provisions are contrary to public policy and therefore unenforceable, and (2) whether the specific class action waiver in their lease agreements is enforceable.
The Supreme Court today issued a ruling reversing the Appellate Division’s bright-line rule.
Writing for a unanimous Court, Justice Pierre-louis concluded that "class action waivers standing alone and apart from a mandatory arbitration provision are not per se unenforceable. Instead, a particular class action waiver in a given contract may be unenforceable if found to be unconscionable or invalid under general contract principles. As a matter of general contract law, the inquiry is the same regardless of whether a contract contains an arbitration provision. In this case, because plaintiffs clearly and unambiguously waived their right to maintain a class action and the lease contract is not unconscionable as a matter of law, it is enforceable."
"Simply because courts have considered and upheld class waivers accompanied by arbitration agreements in light of the arbitration-protective policies adopted in the FAA and state arbitration acts does not mean that an arbitration provision is necessary to a class waiver’s enforceability.... Nor does the fact that class actions advance several important policy goals mean that they cannot bewaived.
"In this case, plaintiffs knowingly and voluntarily waived their right to maintain a class action. The agreement here was written in a simple, clear, understandable and easily readable way as required by the CFA, and it clearly and unambiguously put plaintiffs on notice that they could only proceed with a lawsuit against defendants on an individual basis. Although the lease agreement plaintiffs signed arguably is a contract of adhesion, that marks “the beginning, not the end of the inquiry” regarding its enforceability," Justice Pierre-louis wrote.
Justice Fasciale did not participate in the case ruling.
The winning attorneys are Christopher A. Rojao, Ryan A. Richman, and Ryan M. Savercool Esq. of McCarter & English.
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