The New Jersey Supreme Court refused to allow a respondent to benefit from its refusal to pay arbitration fees in Roach v. BM Motoring, LLC, 2017 WL 931430 (NJ March 9, 2017).
First, Ms. Jackson filed a demand for arbitration against a New Jersey car dealership with the AAA. The parties’ arbitration agreement required the dealership to “advance both party’s [sic] filing, service, administration, arbitrator, hearing or other fees, subject to reimbursement by decision of the arbitrator.” Nevertheless, the dealership refused to pay any filing fees or even respond to the claim and the AAA dismissed the case for non-payment. (Sing it: “Sorry Ms. Jackson, I am for real…”) Another buyer, Ms. Roach, also had her claim dismissed due to the dealership’s failure to comply with the AAA rules.
Ms. Jackson and Ms. Roach then filed a putative class action in New Jersey state court. The dealership had the nerve to move for dismissal, due to the arbitration clause. The trial court granted the dealership’s motion, and the high court reversed.
The NJ Supreme Court had no patience for the dealership’s arguments. It first disposed of the dealership’s argument that the consumers were wrong to take their arbitration demand to the AAA. The agreement provided that “arbitration shall be conducted in accordance with the rules of the” AAA. The court noted that Rule R-2 of the AAA’s Commercial Rules provides that parties who agree to use the AAA rules also consent to AAA administration, and the plaintiff’s choice of forum is granted deference.
Second, the court found the dealership materially breached the arbitration agreement by failing to pay AAA fees and respond to the arbitration demands, and as a result, the dealership could no longer compel arbitration. Otherwise “the result would be a ‘perverse incentive scheme’–a company could ignore an arbitration demand, and if the claimant did not abandon the claim, later compel arbitration.” (internal quotes from a Ninth Circuit decision on the topic).
What’s the lesson? As my contracts professor liked to say: “Don’t try to game it.”
As long as we’re on the subject of state courts, I will share that Georgia’s high court enforced an arbitration agreement in the context of an allegation of wrongful death at a nursing home. United Health Services of Georgia, Inc. v. Norton, 2017 WL 875035 (Ga. March 6, 2017). That’s not the direction that many state courts have taken recently.