In William Pace v. Hamilton Cove (A-4-23/088302) (Decided July 10, 2024), the Supreme Court of New Jersey held that contract provisions waiving class actions are lawful, even if they aren’t accompanied by arbitration provisions; however, such waivers may be unenforceable if found to be unconscionable or to violate other tenets of state contract law.
The Court further found that because the plaintiffs clearly and unambiguously waived their right to maintain a class action and the lease contract is not unconscionable as a matter of law, it can be enforced.
Facts of Pace v. Cove
The Hamilton Cove apartment complex, located in Weehawken, includes hundreds of apartments along the Hudson River waterfront. Plaintiffs allege that in April 2020, Hamilton Cove advertised on its website and social media pages that its apartments had “elevated, 24/7 security.” Plaintiffs each leased apartments at Hamilton Cove.
Both plaintiffs’ leases allowed three days to consult with an attorney, after which the leases would become final. The leases were both standard form contracts with multiple addenda, including a “Class Action Waiver” Addendum. The lease addenda were incorporated into and made part of the lease.
After moving into their apartments, Pace and Walters discovered that the complex’s security cameras did not work and that there was no 24/7 security. According to plaintiffs, the advertised “24/7 security” drew them to lease defendants’ apartments and pay the leasehold price, especially because, plaintiffs allege, Weehawken has a property crime rate higher than the state average.
In March 2022, Pace and Walters jointly filed a complaint, alleging common law fraud and a violation of the Consumer Fraud Act (CFA). Defendants moved to dismiss plaintiffs’ claims for failure to state a claim or, alternatively, to strike plaintiffs’ class allegations, arguing that plaintiffs waived their ability to proceed as a class when they signed the class action waiver addendum. The trial court denied defendants’ motions, finding plaintiffs’ complaint sufficiently pled fraud.
The Appellate Division affirmed the trial court’s decision and held that “a class action waiver in a contract that does not contain a mandatory arbitration provision” is unenforceable as a matter of law and public policy. The court distinguished AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), in which the United States Supreme Court held that “the Federal Arbitration Act [(FAA)]…preempts states from invalidating class action waiver clauses contained within arbitration agreements on public policy or unconscionability grounds” because no arbitration agreement was present in the lease agreements at issue. The Appellate Division further held that unless they are not rendered enforceable by the presence of an arbitration agreement, “[c]lass action waivers are clearly contrary to the public policy of this State.”
NJ Supreme Court’s Decision in Pace v. Cove
The New Jersey Supreme Court reversed. “Class action waivers in consumer contracts are not per se contrary to public policy, but they may be unenforceable if found to be unconscionable or to violate other tenets of state contract law,” Justice Fabiana Pierre-Louis wrote for the court. “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.”
In reaching its decision, the New Jersey Supreme Court emphasized that class action waivers are distinct from arbitration provisions even though, they are frequently paired with arbitration provisions to prevent class arbitration. “Simply because courts have considered and upheld class waivers accompanied by arbitration agreements in light of the arbitration-protective policies adopted in the FAA and state arbitration acts, however, does not mean that an arbitration provision is necessary to a class waiver’s enforceability,” Justice Pierre-Louis explained.
The Court also noted that the fact that class actions advance several important policy goals does not mean that they cannot be waived. “Our law supports the contractual waiver of many rights that advance important goals, such as the constitutional right to a jury trial, provided that the requisite procedural safeguards surrounding the waiver are met,” Justice Pierre-Louis wrote.
The New Jersey Supreme Court when on to hold that class action waivers standing alone and apart from a mandatory arbitration provision are not per se unenforceable. Instead, a particular class action waiver in a given contract may be unenforceable if found to be unconscionable or invalid under general contract principles. “As a matter of general contract law, the inquiry is the same regardless of whether a contract contains an arbitration provision,” Justice Pierre-Louis explained.
The New Jersey Supreme Court next turned to whether the class action waiver at issue in the case was deemed unconscionable. To answer this question, the Court considered the factors set forth in Rudbart v. N. Jersey District Water Supply Commission, 127 N.J. 344 (1992): (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.
The Court ultimately concluded that the waiver is not unconscionable. “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,” Justice Pierre-Louis wrote.