KORAL MOORE, ET AL. V. WOMAN TO WOMAN OBSTETRICS & GYNECOLOGY, L.L.C., ET AL., __ N.J. Super. __ (App. Div. 2010), A-0953-09, August 18, 2010:

The Legislature’s approval of arbitration agreements is broad. Arbitration Act, L. 2003, c. 95 (codified as N.J.S.A. 2A:23B-1 to -32).

Subsection a of N.J.S.A. 2A:23B-6 provides: “An agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract.”. This provision clearly encompasses pre-dispute agreements to arbitrate.

Moreover, the Act does not prohibit agreements to arbitrate based upon the nature of the disputed claim. While the Legislature has excluded arbitration of certain labor disputes from the provisions of the Act, N.J.S.A. 2A:23B-3a, it has not prohibited arbitration of those labor disputes.

Arbitration is “‘a creature of contract.’” Fawzy v. Fawzy, 199 N.J. 456, 469 (2009) (quoting Kimm v. Blisset, LLC, 388 N.J. Super. 14, 25 (App. Div. 2006), certif. denied, 189 N.J. 428 (2007)). An agreement to arbitrate is “valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract.” N.J.S.A. 2A:23B-6a.

“The court shall decide whether an agreement to arbitrate exists . . . .” N.J.S.A. 2A:23B-6b. An agreement to arbitrate a claim must be a valid agreement. See Muhammad v. County Bank of Rehoboth Beach, De., 189 N.J. 1, 12 (2006) (noting the existence of “a valid arbitration agreement” is a “gateway” question requiring “judicial resolution”), cert. denied, 549 U.S. 1338, 127 S. Ct. 2032, 167 L. Ed. 2d 763 (2007). Moreover, the court must decide whether there is a “ground that exists at law or in equity for the revocation of a contract.” N.J.S.A. 2A:23B-6a. ^[1]

Courts decline to enforce an arbitration agreement that is not sufficiently clear as to the rights the party is waiving. “‘In the absence of a consensual understanding, neither party is entitled to force the other to arbitrate their dispute.’” Fawzy, supra, 199 N.J. at 469 (quoting In re Arbitration Between Grover & Universal Underwriters Ins. Co., 80 N.J. 221, 228-29 (1979)). This requirement of a “consensual understanding” about the rights of access to the courts that are waived in the agreement has led our courts to hold that clarity is required. See id. at 469-70. Thus, “‘[a] clause depriving a citizen of access to the courts should clearly state its purpose. The point is to assure that the parties know that in electing arbitration as the exclusive remedy, they are waiving their time-honored right to sue.’” Id. at 469 (quoting Marchak v. Claridge Commons, Inc., 134 N.J. 275, 282 (1993)).

In considering the law and equity relevant to enforcement of an agreement to arbitrate as contemplated by subsection a of N.J.S.A. 2A:23B-6, courts may decline to enforce when wellestablished principles addressing the absence of a consensual agreement and unfairness in contracting and the agreement warrant relief. Those principles include fraud, duress, mistake, illegality, imposition, undue influence and unconscionability. Muhammad, supra, 189 N.J. at 12, 15; Rudbart v. N. Jersey Dist. Water Supply Comm’n, 127 N.J. 344, 353, cert. denied, 506 U.S. 871, 113 S. Ct. 203, 121 L. Ed. 2d 145 (1992).

Undue influence warrants avoidance when “by virtue of the relation between [the parties, the party seeking to avoid enforcement was] justified in assuming that that person will not act in a manner inconsistent with his [or her] welfare.” Restatement (Second) of Contracts § 177(1) (1981). The relationship between physician and patient is one that the comment indicates is within the purview of Section 177. Id. at cmt. a to § 177.

The Supreme Court addressed unconscionability in the context of contracts of adhesion in Muhammad and Rudbart. Muhammad, supra, 189 N.J. at 18; Rudbart, supra, 127 N.J. at 353-56. Contracts of adhesion are unique. “[T]he essential nature of a contract of adhesion is that it is presented on a take-it-or-leave-it basis, commonly in a standardized printed form, without opportunity for the adhering party to negotiate except perhaps on a few particulars.” Rudbart, supra, 127 N.J. at 353 (internal quotations omitted). A contract of adhesion is “‘[a] contract where one party . . . must accept or reject the contract . . . .’” Ibid. (quoting Vasquez v. Glassboro Serv. Ass’n, 83 N.J. 86, 104 (1980)). “Such a contract ‘does not result from the consent of that party.’” Ibid. Consequently, a “distinct body of law surrounding contracts of adhesion” has developed “to determine whether and to what extent such nonconsensual terms will be enforced.” Id. at 353-54.

“For the most part, the unconscionability [involves] two factors: (1) unfairness in the formation of the contract, [procedural unconscionability] and (2) excessively disproportionate terms[, substantive unconscionability].” Sitogum Holdings, Inc. v. Ropes, 352 N.J. Super. 555, 564 (Ch. Div. 2002); see Muhammad, supra, 189 N.J. at 15 (discussing Sitogum and employing the terms “procedural” and “substantive” unconscionability). “Because adhesion contracts invariably evidence some characteristics of procedural unconscionability, . . . a careful fact-sensitive examination into substantive unconscionability” is generally required. Muhammad, supra, 189 N.J. at 16. Nonetheless, while substantive unconscionability is the focus when the contract is one of adhesion, “overwhelming procedural unconscionability” is considered and the relevant facts are “included and weighed in the overall analysis for unconscionability.” Id. at 16 n.3; see Delta Funding Corp. v. Harris, 189 N.J. 28, 39-40 (2006). Thus, “[w]hen making the determination that a contract of adhesion is unconscionable and unenforceable, we consider, using a sliding scale analysis, the way in which the contract was formed and, further, whether enforcement of the contract implicates matters of public interest.” Stelluti v. Casapenn Enters, LLC, ___ N.J. ___, ___ (2010) (slip op. at 26 & n.10).

Factors relevant to unconscionability include characteristics of the party presented with a contract of adhesion, “such as age, literacy, lack of sophistication, hidden or unduly complex contract terms, bargaining tactics, and the particular setting existing during the contract formation process.” Sitogum, supra, 352 N.J. Super. at 564. The “setting existing” is sufficiently broad to warrant consideration of facts such as the relationship between the parties and the services at issue. See Muhammad, supra, 189 N.J. at 15-16 (noting the relevance of “‘[(1)] the subject matter of the contract, [(2)] the parties’ relative bargaining positions, [(3)] the degree of economic compulsion motivating the “adhering” party, and [(4)] the public interests affected by the contract’”) (quoting Rudbart, supra, 127 N.J. at 356); see also Stelluti, supra, slip op. at 25-26 (approving consideration of those factors).

The omission of information set forth in N.J.S.A. 2A:23B-22 to -24 is not an automatic bar to enforcement of an agreement to arbitrate tort claims.

In the context of a contract of adhesion, the “subject matter” and the “parties’ relative bargaining positions” as well as public policies implicated are pertinent. Muhammad, supra, 189 N.J. at 15-16.

While the Supreme Court has held that a parent may “bind a minor child to arbitrate future tort claims,” Hojnowski v. Vans Skate Park, 187 N.J. 323, 343 (2006), there is not a legal theory that would permit one spouse to bind another to an agreement waiving the right to trial on his or her claim without securing his consent to the agreement.

A claim asserted by a husband and a parent of a patient is an individual claim; it is not a “derivative” claim of the patient. Procanik by Procanik v. Cillo, 97 N.J. 339, 348 (1984) (describing wrongful birth as a “cause of action of parents who claim that the negligent advice or treatment deprived them of [a] choice”).

NOTE: This Blog/Blawg, NJ Family Issues, is managed by Paul G. Kostro, Esq., an attorney/lawyer/mediator in Linden, Union County, New Jersey.

1. In contrast, pursuant to subsection c of N.J.S.A. 2A:23B-6, the “arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable.”. As the emphasized language indicates, subsection c assumes that any dispute about the validity of the agreement to arbitrate has been resolved by the court. N.J.S.A. 2A:23B-6 is identical to Section 6 of the Uniform Arbitration Act (UAA) (2000). As the official comment to Section 6 of the UAA explains, the arbitrator’s authority under subsection c encompasses matters of procedural prerequisites relevant to arbitration proceedings “such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate . . . .” UAA, Section 6: Validity Of Agreement To Arbitrate, cmt. 2. The Commissioners’ comments to the UAA are available at http://www.law.upenn.edu/bll/archives/ulc/uarba/arb1031.htm. With exceptions expressly noted, the sponsor of New Jersey’s Act endorsed the Commissioners’ Official Comments. See Note to N.J.S.A. 2A:23B-1 (quoting Assembly Judiciary Committee Statement to S. 514—L. 2003, c. 95).

   The Commissioners’ comment makes it clear that subsection c of Section 6 is not intended to limit the court’s authority to determine questions of fraud, illegality, mutual mistake, duress or unconscionability relevant to the agreement to arbitrate. They explain: “The language in section 6(c), ‘whether a contract containing a valid agreement to arbitrate is enforceable,’ is intended to follow the ‘separability’ doctrine outlined in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395 (1967).” Id. at cmt. 4. In Prima Paint, the Court distinguished claims of fraud in the inducement related “to the arbitration clause itself — an issue which goes to the ‘making’ of the agreement to arbitrate —” and should be adjudicated by the courts from claims of fraud in the inducement of the contract in general, an issue which should be addressed by the arbitrator. 388 U.S. at 403-04. [↩]