Gar Disability Advocates, LLC v. Taylor

Citation: 365 F. Supp. 3d 522Docket: No. 17-cv-3038 (KM)(MAH)

Court: District Court, D. New Jersey; February 5, 2019; Federal District Court

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Kevin McNulty, United States District Judge, presides over a case initiated by GAR Disability Advocates, LLC (GAR) against former employee Pamela S. Taylor for breach of contract, with Taylor counterclaiming for monetary damages. GAR seeks to dismiss Taylor's counterclaim and compel arbitration, which the court grants. The arbitration clause in the agreements encompasses all disputes, rendering both GAR's and Taylor's complaints subject to arbitration. GAR's motion to amend the complaint is deemed moot.

GAR, which assists individuals with Social Security Disability Benefits (SSDI) and Supplemental Security Income (SSI), entered into an Asset Purchase and Sale Agreement (APS Agreement) with Taylor on February 26, 2015. Taylor agreed to sell her SSDI and SSI cases to GAR for $275,000, which GAR claims to have paid on March 3, 2015. The APS Agreement specifies that Taylor was advised to seek legal counsel and acknowledges that the agreement was negotiated fairly and without coercion. It includes an arbitration provision mandating that disputes be settled by arbitration, with costs borne by the losing party, and is governed by New Jersey law.

On March 2, 2015, the Employment Agreement was executed, employing Taylor as a Case Manager/Advocate and containing a similar arbitration clause as the APS Agreement. Both agreements stipulate the selection of an arbitrator and are governed by New Jersey law.

The Employment Agreement includes non-disclosure, non-compete, and non-disparagement clauses. A breach allows GAR to seek injunctive and equitable relief, including temporary, preliminary, and permanent injunctions, as well as an accounting of all gains from such violations. Taylor acknowledged her understanding of the Agreement’s terms and had the chance to consult independent counsel. GAR alleges that Taylor breached these clauses by not assigning cases to GAR and misrepresenting herself to clients. GAR terminated Taylor’s employment on April 7, 2017, and there is a dispute over whether this was with or without cause. Following her termination, GAR claims Taylor threatened to take employees and disclose confidential information. GAR filed an original complaint on May 20, 2017, seeking injunctive relief and later amended it to include four causes of action. Taylor responded with a counterclaim, asserting unpaid salary and expenses. GAR's initial motion to compel arbitration of the counterclaim was dismissed to allow for discussions, but was renewed on May 16, 2018, after the parties failed to reach an agreement. The Employment Agreement is governed by New Jersey law, and Taylor's opposition to the motion to compel relied heavily on a New Jersey Supreme Court case, Atalese v. U.S. Legal Servs. Grp., with subsequent developments in Kernahan v. Home Warranty Adm'r of Fla. Inc. influencing the proceedings. The resolution of the motion to compel was delayed pending the Kernahan decision, which was issued on January 10, 2019, after which both parties submitted supplemental briefs addressing its impact.

The Federal Arbitration Act (FAA) establishes a strong federal policy favoring arbitration, supporting the enforcement of valid arbitration agreements. Parties can compel arbitration under 9 U.S.C. §§ 2 and 4, with judicial mandates requiring consent from both parties based on the agreement. When a motion to compel arbitration is presented, courts must first assess the validity of the arbitration agreement and then determine if the dispute falls within its scope. If the agreement includes both a choice-of-law and an arbitration clause, the arbitration clause is interpreted under the chosen substantive law. 

In the case discussed, Taylor argues that the arbitration clause is invalid under New Jersey law due to the absence of an explicit waiver-of-rights disclaimer, as mandated by state precedent. Taylor also contends that GAR waived its right to arbitration by filing a federal lawsuit. The Employment Agreement and APS Agreement both require New Jersey law, which stipulates that arbitration clauses must inform parties that claims typically resolved in court will instead be arbitrated. An enforceable arbitration agreement requires mutual assent, typically presumed unless fraudulent conduct is present. New Jersey courts emphasize the need for clarity regarding the rights relinquished in arbitration agreements to ensure mutual understanding and consent.

Clarity of intent is essential to ensure that parties understand they are waiving their right to sue when opting for arbitration as the exclusive remedy. New Jersey law, as established in Marchak v. Claridge Commons, Inc. and reinforced by the New Jersey Constitution, guarantees the right to a civil jury trial. The New Jersey Supreme Court's decision in Atalese emphasizes that mutual assent in an arbitration agreement requires explicit notice of the waiver of the right to court adjudication. Although no specific wording is mandated, the waiver must be clear and unambiguous, allowing parties to recognize the difference between arbitration and judicial resolution.

In Atalese, a contract for debt-adjustment services included an arbitration clause but failed to explicitly state that the plaintiff was waiving her right to seek court relief. When the plaintiff subsequently sued for Consumer Fraud Act violations, the court ruled the arbitration provision unenforceable due to the lack of clear waiver language. The court highlighted that mutual assent necessitates an understanding of the agreed-upon terms and that effective waivers require full knowledge of legal rights. The decision noted that typical consumers may not inherently recognize arbitration as a replacement for court litigation without clear explanatory language.

Subsequent legal cases have established that the consumer-fraud context significantly limits the 'clear and unambiguous' standard from Atalese, particularly in consumer contracts. In the Kernahan case, the New Jersey Supreme Court emphasized the consumer fraud aspect while ruling on an arbitration clause deemed 'too confusing and misleading' for enforceability under state public policy. Key factors in the ruling included the clause's inconspicuous placement under a section labeled 'MEDIATION,' its small font violating the Plain Language Act, and its contradictory terms. The Court noted that the Atalese decision, which concerned a consumer contract for debt-adjustment services, was influenced by two main concerns: the lack of consumer familiarity with legal terminology and the necessity for plain language in contracts waiving constitutional or statutory rights. Kernahan reiterated the importance of the consumer context, highlighting the requirement for consumer contracts to use straightforward language accessible to the general public. While the New Jersey Supreme Court has not definitively limited the Atalese rule to consumer contracts, the consumer context remains a crucial consideration. In the current case involving GAR and Taylor, the agreements in question are not classified as consumer contracts or contracts of adhesion, as they were not negotiated in a way that would categorize them as typical consumer agreements.

Prior to the Employment Agreement, Taylor sold her business assets to GAR for $275,000 under an Asset Purchase and Sale Agreement (APS Agreement). Both agreements included representations from Taylor that she understood the terms and had consulted an attorney. The context of the agreements indicates that Taylor was not in a position where she could reasonably claim ignorance about waiving the right to a civil trial. It is anticipated that the New Jersey Supreme Court would not apply the stringent Atalese standard in this case, as the parties were engaged in sophisticated negotiations rather than being average consumers facing an adhesion contract.

The arbitration clauses in both agreements are deemed valid and enforceable, with the Employment Agreement's clause applying broadly to "any disputes regarding this agreement." Taylor's counterclaim for breach of contract clearly arises from the Employment Agreement and is thus subject to arbitration. Regarding GAR's federal court complaint, the first two causes of action—breach of contract claims based on the APS Agreement and the Employment Agreement—are also arbitrable, as they fall within the scope of the arbitration provisions. 

GAR's request to compel arbitration for all claims relating to the agreements is supported by the language of the agreements, which covers claims for damages from breaches. However, GAR's claims for equitable relief, specifically for an injunction and accounting, are argued to be outside the scope of the arbitration provisions. GAR cites a specific provision in the Employment Agreement that allows for injunctive relief in cases of breach by Taylor, indicating a distinction between claims for damages and equitable claims.

The provision in question does not limit the scope of arbitration or negate the arbitration clause, which is governed by the American Arbitration Association (AAA) procedures. The AAA Rules allow for any remedy available in court, including interim relief. The arbitration clauses apply to all disputes arising from breaches of the APS or Employment Agreement, making GAR's complaints and Taylor's counterclaims arbitrable. 

Regarding waiver of the right to arbitrate, it hinges on whether GAR's actions in federal court have prejudiced the other party. Waiver typically occurs when there is significant inconsistency in actions and resulting prejudice. Factors considered include the timeliness of the arbitration motion, contestation of claims, notification of intent to arbitrate, involvement in non-merits motions, compliance with pretrial orders, and discovery engagement. In this case, no substantial discovery or merit-based motions have occurred, indicating no prejudice. The parties have not participated in significant pretrial activities, and GAR initially sought only equitable relief, mistakenly believing such claims were non-arbitrable. Thus, GAR has not waived its right to compel arbitration.

Taylor filed counterclaims in response to the Amended Complaint, prompting GAR to file a motion to compel arbitration on July 14, 2017. This motion was limited to claims at law, and GAR sought arbitration for all claims it believed fell under the arbitration clauses. Both parties considered the possibility of arbitration, leading Magistrate Judge Hammer to administratively terminate the motion for discussions on dismissing the action and proceeding to arbitration, or alternatively, returning to court for a scheduling order. The court concluded that GAR did not waive its right to arbitrate and that Taylor did not suffer any prejudice due to GAR's conduct. Consequently, GAR's motion to compel arbitration was granted, referring all claims and counterclaims to arbitration and administratively terminating the action without prejudice. GAR's request to amend the complaint was deemed moot. The document references various cases illustrating that the arbitration requirement in commercial contracts does not need to adhere to the stringent standards applied to consumer contracts, affirming that parties in a commercial setting can agree to arbitrate without specific language. The court noted that the application of Atalese, which imposes higher standards for arbitration agreements in consumer contexts, is limited and not applicable in this case involving sophisticated business parties.

Taylor submitted a supplemental certification asserting that she was not informed by GAR or her counsel about the arbitration clause in her contract, and that she did not understand she was waiving her right to a jury trial. This certification was provided after the court requested supplemental briefing regarding the impact of Kernahan. Under New Jersey law, defendants are not required to inform plaintiffs of arbitration clauses within contracts they sign. Additionally, failing to read a contract does not excuse one from its terms unless fraud or misconduct obstructed the reading. The certification is also procedurally defective because it lacks the required statement that it is submitted "under penalty of perjury," as mandated by 28 U.S.C. 1746. Previous cases have emphasized that nonconforming certifications do not meet legal standards necessary for consideration by the court. Furthermore, GAR mistakenly believes that only Taylor is pursuing claims for damages; however, the Amended Complaint includes claims for breach of contract seeking monetary damages. GAR has requested to amend its complaint to assert claims for damages, which it erroneously claims it has not previously done, despite already having included such claims. The American Arbitration Association (AAA) Rules referenced are publicly accessible.