On Thursday, July 11th, the New Jersey Supreme Court reversed the Appellate Court’s decision prohibiting class action waivers when not accompanied by a mandatory arbitration provision in consumer contracts. The Court’s unanimous decision found that such waivers are not contrary to public policy and are therefore enforceable.
In the case of Hamilton v. Cove, a complaint was filed as a proposed class action alleging that the plaintiff’s apartment complex engaged in unconscionable commercial practices by not providing the amenities promised, resulting in the overpayment of rent. The apartment complex argued that the plaintiff cannot pursue such claims on behalf of a class due to a class action waiver provision in the operative lease agreements. The plaintiff contested that without the class action waiver being connected to a mandatory arbitration provision, the waiver of a consumer’s right to pursue a court action on behalf of a class was against public policy. Appellate Division Judge Richard J. Geiger agreed, stating that “a waiver of the right to maintain a class action is unenforceable absent a mandatory arbitration agreement.”
After appeal, the Supreme Court overturned the Appellate Court’s decision, finding that, notwithstanding that the lease agreement was a “consumer contract”, the plaintiff had waived its right to pursue legal remedies in court on behalf of a class of similarly situated individuals. Supreme Court Associate Justice Fabiana Pierre-Louis wrote the decision, stating that while class actions do advance several important policy goals, the ability to bring a class action can also be contractually waived. Justice Pierre-Louis stated “In this case, because plaintiffs clearly and unambiguously waived their right to maintain a class action and the lease contract is not unconscionable as a matter of law, we hold that it is enforceable.”
As such, the Court ruled that the waiver is not unconscionable under 1992 New Jersey Supreme Court precedent, and the class action waiver does not prevent the plaintiff from pursuing their rights under New Jersey’s consumer protection laws.
“In sum, because plaintiffs knowingly and voluntarily waived their right to bring a class action by assenting to their respective leases and the class action waiver contained therein is not unconscionable, the lease is enforceable,” Pierre-Louis stated.
While the defendant in this matter successfully limited this court case to an individual plaintiff, as opposed to a class, the apartment complex was still required to defend its actions in state court, potentially in front of a jury. Had the class action waiver been coupled with an enforceable mandatory arbitration provision, the defendant could have benefited from efficient arbitration procedures.