330 A.3d 803
N.J. Super. Ct. App. Div.2025Background
- John Lahoud entered a contract with Anthony & Sylvan Corp. (A&S) to construct an in-ground swimming pool at his Mantoloking beach home; A&S provided the contract form.
- The contract contained an ADR provision requiring most disputes to be resolved via mediation/arbitration, but allowed A&S alone to file collection actions in court (the "reservation of rights").
- Lahoud experienced significant delays in the pool installation, terminated the contract, and alleged additional unnecessary work (helical pilings) was fraudulently represented by A&S.
- Lahoud sued A&S for breach of contract, New Jersey Consumer Fraud Act (CFA) violations, and sought a declaration that the "one-sided" ADR provision was unenforceable.
- The lower court enforced the ADR provision, compelled arbitration, denied declaratory relief, and dismissed Lahoud's claims, finding the provision not unconscionable under New Jersey law; Lahoud appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the ADR provision unconscionable because it is one-sided? | Provision is grossly one-sided and violates public policy. | Clause is valid under precedent; allows both parties ADR, with court access for collections. | ADR valid as to requiring Lahoud to arbitrate his claims. |
| Is A&S’s reservation of rights to litigate for collections enforceable? | Unenforceable as it lacks mutuality; only A&S can go to court. | It mirrors exceptions upheld in prior cases (Delta). | Reservation of rights is unconscionable and unenforceable. |
| Should the reservation of rights provision be severed from the contract? | Provision can be severed, allowing ADR clause to remain. | Severability not directly disputed by A&S. | Reservation of rights struck; ADR provision stands without it. |
| Was dismissal without stay of proceedings improper? | Court erred in not staying case pending ADR outcome. | N/A | Complaint reinstated; stay imposed pending ADR. |
Key Cases Cited
- Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430 (clear waiver language required for arbitration agreements)
- Delta Funding Corp. v. Harris, 189 N.J. 28 (unconscionability analysis for non-mutual arbitration clauses)
- Muhammad v. Cnty. Bank of Rehoboth Beach, 189 N.J. 1 (factors for determining unconscionability in adhesion contracts)
- Rudbart v. N. Jersey Dist. Water Supply Comm'n, 127 N.J. 344 (procedural vs. substantive unconscionability analysis)
- Martindale v. Sandvik, Inc., 173 N.J. 76 (general contract principles apply to arbitration agreements)