June 16, 2016

New Jersey's Supreme Court: we weren't born to follow

By Mark Miller Senior Attorney

New Jersey‘s own Bon Jovi once had a hit song called We Weren’t Born to Follow; that title reminds me of the New Jersey Supreme Court’s decision this week in an arbitration case called Morgan v. Sanford Brown Institute.

Let me explain.

Plaintiffs Annemarie Morgan and Tiffany Dever, residents of New Jersey, enrolled at Defendant Sanford Brown Institute’s Trevose, Pennsylvania, school in November 2009. Sanford Brown provides career training programs in healthcare, business, legal administration, and computer-related fields at thirty campuses nationwide. Both plaintiffs signed the same Enrollment Agreement.

This agreement contained a section entitled “Agreement to Arbitrate,” providing that the parties would resolve any disputes arising out of or relating to their relationship through arbitration, including the question of whether they had agreed to arbitrate any particular claim. Despite these provisions, Morgan and Dever sued Sanford Brown in court when they became dissatisfied with the education they received from the school. Sanford Brown moved to compel arbitration. The trial court denied the motion; the lower appellate court reversed.

The New Jersey Supreme Court accepted the case for review to decide whether the terms of the arbitration agreement compelled the plaintiffs to arbitrate all claims related to their enrollment agreements, including state statutory claims. The answer to that question should have been a resounding “yes,” based on a 2010 Supreme Court of the United States decision known as Rent-A-Center v. Jackson. In Rent-A-Center, Justice Scalia explained why courts must enforce agreements to arbitrate pursuant to the Federal Arbitration Act:

An agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other. The additional agreement is valid under § 2 [of the Federal Arbitration Act] “save upon such grounds as exist at law or in equity for the revocation of any contract,” and courts can enforce the agreement by staying . . . litigation under § 3 and compelling arbitration under § 4.

Here, the “written provision . . . to settle by arbitration a controversy,” 9 U.S.C. § 2, that Sanford Brown asked the trial court to enforce includes the delegation provision that gave the arbitrator full authority to resolve “all issues relating to the enforcement of the Arbitration Agreement and the arbitrability of claims between the parties.” Accordingly, just like in Rent-A-Center, the trial court should have treated the delegation provision as valid under § 2, and should have enforced it under §§ 3 and 4, leaving any challenges about the arbitrability of certain claims to the arbitrator. The intermediate appellate court in New Jersey correctly reached that conclusion, explaining that “[w]hen an arbitration agreement contains a delegation clause, unless a party challenges ‘the delegation provision specifically,’ the court must ‘treat it as valid . . . and . . . leav[e] any challenge to the validity of the Agreement as a whole for the arbitrator.”

Unfortunately, this week the New Jersey Supreme Court decided it wasn’t born to follow Supreme Court of the United States precedent, because it concluded that it could parse out a microscopic factual and legal distinction from Rent-A-Center that the Plaintiffs themselves had not even argued.

If you think you’ve seen everything in the practice of law, then just wait a day or two to be reminded that you have not seen anything yet.

Be that as it may, if my New Jersey high school civics class taught me anything, it’s that the Supreme Court of the United States is the highest court in the land. For this reason, Pacific Legal Foundation hopes that Sanford Brown asks the Supreme Court of the United States to consider this case, so that the High Court can re-affirm that when adults enter contracts, all courts are expected to enforce those contracts.

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