June 28, 2018
In a June 5, 2018 decision by the Appellate Division of the State of New Jersey in Defina v. Go Ahead and Jump 1, LLC d/b/a Sky Zone Indoor Trampoline Park, 2018 N.J. Super. Unpub. LEXIS 1303, the Court held that the U.S. Supreme Court’s May 15, 2017 decision in Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421 did not abrogate the New Jersey Supreme Court’s decision in Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430 (NJ 2014) regarding the New Jersey state courts’ ability to invalidate arbitration clauses.
The June 2015 lawsuit filed on behalf of minor Alexander Defina by his father Michael Defina in Bergen County arose out of injuries Alexander sustained during a game of dodgeball at a Sky Zone trampoline park. As is customary, Michael Defina had to sign a document prior to his child being permitted to jump in the facility that provided for, among others, a limitation of liability, indemnification language and an arbitration clause. The arbitration clause set forth, in part, that:
[i]f there are any disputes regarding this agreement, I on behalf of myself and/or my child(ren) hereby waive any right I and/or my child(ren) may have to a trial and agree that such dispute shall be brought within one year of the date of this Agreement and will be determined by binding arbitration before one arbitrator to be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. I further agree that the arbitration will take place solely in the state of Texas and that the substantive law of Texas shall apply.
The document signed by Mr. Defina also set forth, in part, that:
[b]y signing this document, I acknowledge that if anyone is hurt or property is damaged during my participation in this activity, I may be found by a court of law to have waived my right to maintain a lawsuit against SZITP on the basis of any claim from which I have released them herein.
Go Ahead and Jump 1, LLC filed a motion to compel arbitration and stay proceedings in the trial court, which was granted. Plaintiffs filed a motion to reconsider, which was denied. The subsequent decision of the motion on appeal was issued on July 12, 2016. Therein, the Appellate Division reversed the lower court and held, pursuant to Atalese, that the document signed by Mr. Defina did not clearly and unambiguously convey to plaintiffs that they were waiving their rights to file a lawsuit in a New Jersey court and have a jury determine the outcome.
The case was remanded and the franchisors of the subject trampoline park were added as defendants. Subsequently, the decision in Kindred Nursing was issued by the U.S. Supreme Court on May 15, 2017, in which it was held that state courts cannot single out arbitration clauses governed by the Federal Arbitration Act in an effort to invalidate them. Indeed, the U.S. Supreme Court found that arbitration clauses must be treated in kind with “other contracts.” Thus, the newly added franchisor defendants filed a motion to compel arbitration and stay the lawsuit in September 2017.
The franchisors based their motion on the Kindred Nursing decision arguing that it abrogated Atalese to the extent the reasoning in the latter could no longer be utilized to deem an arbitration clause invalid because it created “a standard that was arbitration-specific.” The lower court Judge (different from the Judge denying the initial motion filed by co-defendant) denied the motion on the grounds that the Kindred Nursing decision provides that state courts can invalidate an arbitration agreement if it fails to comply with equally applied contractual defenses. Thus, since the subject clause failed to clearly and adequately inform the signor that they were waiving their right to file a legal action in court, it was invalid and could not be enforced.
The lower court’s decision led the plaintiffs and franchisor defendants back to the Appellate Division whereby the latter sought reversal of the lower court’s decision invalidating the arbitration clause. The Appellate Division upheld the decision holding that Kindred Nursing did not abrogate Atalese. Instead, the Court found that Kindred Nursing seeks only to prevent state courts from holding arbitration clauses to a higher standard of review in an effort to invalidate same. Furthermore, the decision in Atalese recognized that arbitration clauses cannot be subjected to greater scrutiny than other contractual provisions and did not create a more burdensome standard of review as argued. The Appellate Division found that the analysis it performed in the first appeal by plaintiffs and that conducted by the trial court Judge on the instant motion was the same fair and impartial process applied in determining any contractual provision. In other words, both courts simply applied basic contract law regarding clarity and ambiguity of contractual language to conclude that the document signed by Michael Defina did not adequately convey a waiver of the right to pursue the defendants in court for the injuries sustained by Alexander Defina.
Thus, New Jersey Courts will continue to scrutinize arbitration clauses. Indeed, the Defina decision is a reminder that, for now, New Jersey tends to disfavor such provisions. In response, Sky Zone has reportedly re-written its waiver agreement.