NJ Appellate Court Rejects Arbitration Clause in Consumer Class Action

May 3, 2023

On May 1, 2023, in the Achey v. Cellco P’ship opinion, selected for publication, the NJ Appellate Court reversed the Trial Courts decision to enforce arbitration in a consumer class action asserting New Jersey Consumer Fraud Act (“NJCFA”) claims.

In short, Verizon customers brought a putative class action against the wireless company for violations of the NJCFA and related statutes for failure to disclose monthly administrative fee charges to customers. Defendants moved to compel arbitration pursuant to the relevant clause in the customer contracts, which contracts (among other things) also limited consumer damages and required all claims to be asserted within 180 days. Notably, in the event of the filing of 25 or more similar claims, the arbitration clause contained a bellwether provision allowing Defendants to select five cases to first proceed to arbitration while staying the others and preventing the filing of additional arbitrations, until completion of the same. If the remaining arbitrations are not yet resolved, Defendants may select another five for another round of bellwethers while continuing restrictions on additional arbitration proceedings and filings. In addition, Defendants specifically reserved the right to call upon the Courts to enforce the enjoining mass arbitration filings.

The Trial Court struck the limitation on damages provision because it impermissibly stripped the plaintiffs of their rights to treble damages under the NJCFA but enforced the arbitration clause.

The Appellate Court affirmed the decision below with respect to striking the limitation on damages provision. However, the Appellate Division reversed the trial court’s order enforcing the arbitration clause. Returning to New Jersey’s historical position on consumer protection, the Appellate Division “at the outset” called out the unequal bargaining power inherent in contracts of adhesion such as this. Then, citing the recent United States District Court for the Northern District of California decision in MacClelland v. Cellco P’ship, 609 F. Supp. 3d 1024 (N.D. Cal. 2022) as persuasive authority, the Appellate Division found that “the entire arbitration agreement was permeated by unconscionability.” Indeed, in addition to shortening the statute of limitations on claims and insulating itself from liability under the CFA, plaintiffs’ counsel noted that his clients “would be required to wait 145 years to file their claims, until the preceding 2,537 claims brought by plaintiffs’ counsel have been arbitrated pursuant to the bellwether process” contained within the arbitration clause.

Some may say that this decision signals a changing of the tides in judicial enforcement of arbitration clauses. FAA pre-emption has taken center stage over the past decade or more, and its implications on class action litigation have been far-reaching. It is clear to class action practitioners that the Verizon arbitration clause in issue here was designed, in part, to combat the emergence of mass arbitrations which has become an increasingly more popular counterattack by the plaintiffs’ bar following the debilitating blow to class arbitrations following the Lamps Plus decision. This decision makes it clear that arbitration enforceability can only go so far – at least in the New Jersey State Appellate Court.

It will be interesting to see what lies ahead in the Supreme Court. For now, consumers may have seen a bright light at the end of the tunnel and businesses should be mindful to review their contracts to comport with this most recent swing of the arbitration pendulum.

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NJ Appellate Court Rejects Arbitration Clause in Consumer Class Action

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