By: Kelly M. Purcaro, Esq. and Kory Ann Ferro, Esq.
The New Jersey Appellate Division recently revisited the oft-litigated issue of enforceability of arbitration agreements. The key takeaway is that timing matters – seeking to include an arbitration provision in a contract after services have already been rendered could preclude enforceability.
In Kay v. SCI New Jersey Funeral Services, LLC d/b/a Bloomfield-Cooper Jewish Chapels , the Court was presented with particularly egregious and, indeed, startling facts. Defendants lost the remains of the plaintiff’s recently deceased wife, showed the plaintiff and other family members the pictures of another deceased woman wearing the plaintiff’s deceased wife’s clothing and jewelry, and, when confronted by the family that this was not their loved one, Defendants later located the correct body which had been mistakenly buried elsewhere. Discovering that they had buried the wrong body, in the wrong place, in someone else’s clothes, Defendants then exhumed the mistakenly buried body and reconducted a burial of the deceased – this time in the correct clothing and jewelry and at the correct location. Plaintiff thereafter filed suit for, amongst other things, infliction of emotional distress. Defendants moved to compel arbitration. The arbitration provision at issue was contained in a contract presented to the decedent’s husband at the mausoleum directly after the funeral ended as an “invoice for services already performed” requiring his signature. Plaintiff executed the post-burial contract at a podium in the mausoleum on the word of the funeral director that it needed to be signed so that the funeral home could pick up the bill.
The trial court declined to enforce an arbitration agreement on the grounds of procedural unconscionability. On appeal, the Appellate Division first detailed the long-standing New Jersey law respecting the enforceability of arbitration agreements. Namely, arbitration agreements are subject to the same formation requirements and subject to the same defenses as any other contract. In New Jersey, courts may refuse to enforce unconscionable contracts. The Court noted that procedural unconscionability “includes ‘a variety of inadequacies, such as age, literacy, lack of sophistication, hidden or unduly complex contract terms, bargaining tactics, and the particular setting existing during the contract formation process.’” Contracts of adhesion, which are offered on a take-it-or-leave-it basis, indicate procedural unconscionability but are not dispositive in and of itself of enforceability. Additional factors must be considered, as the Court noted, such as “'[1] the subject matter of the contract, [2] the parties’ relative bargaining positions, [3] the degree of economic compulsion motivating the adhering party, and [4] the public interests affected by the contract.’” Finally, where a contract as a whole is attacked as unenforceable, the arbitration provision may be severed, and arbitration mandated. Thus, an analysis of the agreement to arbitrate must be independently evaluated.
In this case, the contract before the burial was an oral agreement, which did not include any mention of arbitration. Only the “invoice,” presented after the conclusion of the funeral services and at the burial grounds, contained an arbitration agreement. The Appellate Division indicated that the contract at issue was one of adhesion and was presented for services already performed. There were certainly, as the trial court determined, indications of unconscionability given the timing of the presentation and execution of the subject contract. The Appellate Division remanded the case for further discovery regarding arbitrability and unconscionability. Plaintiff will have to demonstrate that the arbitration provision itself, and not the contract, as a whole, is unconscionable. That said, had the arbitration provision been in the initial agreement before the services were rendered, this case likely would have proceeded directly to arbitration. So, if a company truly wants to compel arbitration of future potential disputes, the arbitration provision should be in place before any services are rendered.
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