In recent years, New Jersey courts and the New Jersey Legislature have taken steps to curtail the use of arbitration clauses to limit exposure to consumer fraud class actions. On January 23, in the most recent development in New Jersey's pushback against arbitration clauses, the New Jersey General Assembly passed A-1515. If enacted, A-1515 would make unlawful any term in a consumer contract purporting to require a New Jersey consumer to resolve his or her contract disputes in a forum outside New Jersey. This legislation bears close watching because it could impose significant new burdens on companies entering into contracts with New Jersey consumers.
Unlike prior legislative attempts to curtail the common use of arbitration clauses in contractual dispute resolution provisions, this legislation is facially neutral on the issue of arbitration. Instead, it would broadly render unenforceable any contractual provision purporting to require a New Jersey consumer to bring a claim in any jurisdiction outside New Jersey, regardless of whether the contract calls for such action to be brought in arbitration or in court. This facial neutrality and broad scope may complicate preemption-based challenges under the Federal Arbitration Act, which has been held to prohibit courts and legislatures from applying rules that undermine the strong national policy in favor of arbitration.
Additionally, if A-1515 is enacted, its impact may actually expose companies to potential civil penalties. In recent years, New Jersey has seen an explosion of class actions under the Truth-in-Consumer Contract, Warranty and Notice Act, N.J.S.A. 56:12-14 et seq., also known as TCCWNA, which permits a consumer to seek civil penalties of $100 when a contractual provision violates his or her "clearly established legal rights." Because forum selection clauses are ubiquitous in consumer contracts, especially in e-commerce, it can be expected that if A-1515 becomes law, plaintiffs' attorneys will soon begin bringing large putative class action claims against companies with consumer contracts that call for claims to be brought in jurisdictions outside New Jersey.
The legislation would apply only to consumer contracts executed on or after the 90th day following enactment. Additionally, the legislation explicitly carves out contracts issued by insurance companies and eligible surplus lines insurers that are licensed or authorized to do business in New Jersey.
It is unclear whether and when the New Jersey Senate – where a companion bill has been introduced and is pending before the Senate Commerce Committee – will take up the legislation, or whether Governor Christie would sign it into law. The current legislative term closes at the end of this calendar year.
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