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Authored - NJ Contract Law Update - Outcome Unpredictable When One Agreement Calls For Arbitration, And Others Don't
JULY 12, 2013 | Windels Marx - Commercial Litigation

In Rezac v. JMK Auto Sales, Inc., 2013 WL 1907739 (N.J.App.Div. May 9, 2013), the Court was faced with (1) a used-car Lease, with no arbitration clause, that was executed after (2) a "Motor Vehicle Retail Order Agreement", which contained an arbitration clause, and before (3) a damage-protection plan for certain damage to the vehicle, which apparently did not contain an arbitration clause. The Court viewed the lease as the main document; thus, arbitration could not be ordered.

When the plaintiff terminated the lease and returned the car, defendant charged him for certain damage to the vehicle. Plaintiff then learned (according to plaintiff) that the damage-protection plan he had purchased through the defendant (albeit from a third party): (1) had not been purchased by defendant from that third party in the correct form--but rather (2) was a lesser plan, costing the defendant less but protecting the plaintiff less as well. Plaintiff sued the dealer.

The Lease required payments for "extensive wear and use", thus supporting the conclusion that the Lease was the main document. Also telling was:

  1. The fact that the protection plan (a) contained no direct reference to the retail order; and (b) did not contain an arbitration clause, even though it was the document that most directly addressed the damage issue. However (as noted), that agreement--as to which the defendant was some sort of conduit (although conceivably with some commission or differential earned by defendant)--was in the name of a third party.
  2. The fact that the retail agreement does not appear to have expressly talked about damage. The Court noted that the "retail order contained no terms concerning wear and use", so the Lease was more relevant.

For all these reasons, the Court concluded that the Lease, with no arbitration clause, superseded the retail order. Thus, no arbitration was required.

However, had there been a few words different in the various clauses, the result would have been the opposite. And, of course, there likely was no bargaining by the consumer. So perhaps it was simply a case of imprecise draftsmanship, assuming arguendo that arbitration was the desired result, and further assuming that the same party had control of drafting all the documents.

The moral of the story is that when dealing with multiple, virtually simultaneous agreements, always make sure that the forum clauses are parallel. If they cannot be, for some reason--for example, there may be a split of operational authority between a local franchise and a franchisor, in some settings--then be as explicit as possible as to what is and is not arbitratable, and try to make the documents as harmonious as possible.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments

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