Tahisha Roach v. Bm Motoring, Llc(077125)
155 A.3d 985
| N.J. | 2017Background
- Jackson and Roach bought used cars from BM Motoring and each signed a Dispute Resolution Agreement (DRA) requiring arbitration "in accordance with the rules" of the AAA before a single retired judge or attorney; the DRA obligated the dealership to advance filing/administration fees (subject to possible reimbursement by award).
- Jackson filed an AAA arbitration demand alleging Consumer Fraud Act violations; BM did not advance the AAA fees or respond and the AAA dismissed her claim for nonpayment.
- Roach earlier filed in court; that action was dismissed in favor of arbitration. She then filed with the AAA, which declined to administer her claim because BM had previously failed to comply with AAA fee rules; BM did not respond to her demand.
- Plaintiffs sued in Superior Court after AAA dismissals; defendants moved to compel arbitration. Trial court ordered attempts to reinstate at the AAA, dismissed the complaint; AAA reinstated but proceedings stalled; Appellate Division affirmed dismissal in favor of arbitration.
- The New Jersey Supreme Court accepted certification and held that plaintiffs’ AAA filings complied with the DRA and that BM’s failure to advance required fees was a material breach that precluded BM from enforcing the arbitration clause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was AAA a proper forum under the DRA? | DRA requires arbitration "in accordance with" AAA rules; AAA-administered arbitration is permitted. | DRA contemplates an arbitrator who follows AAA rules but does not mandate AAA administration. | AAA administration was permitted by the DRA; plaintiffs’ choice to file with AAA was reasonable and entitled to deference. |
| Did BM’s failure to advance AAA filing/arbitrator fees constitute a material breach? | Failure to advance fees that results in dismissal deprives plaintiffs of the core benefit of arbitration and is a material breach. | Any forum dispute excused BM’s nonpayment; nonpayment was not a material breach or done in bad faith. | Failure to advance fees that caused AAA to dismiss claims went to the essence of the DRA and was a material breach. |
| Does a material breach by failing to pay fees bar a party from compelling arbitration later? | Yes — a knowing refusal to cooperate in properly initiated arbitration precludes later enforcement to avoid perverse incentives to ignore demands. | No waiver or estoppel; defendants promptly sought to compel arbitration when sued. | A material prelitigation breach bars the breaching party from compelling arbitration; the Court did not adopt a bright-line rule and left case-by-case application. |
| Was a bright-line rule adopted for timing/non-response? | Plaintiffs urged a bright-line rule that failure/refusal to respond within a reasonable time is a material breach. | Defendants opposed a per se rule. | Court declined a bright-line rule; materiality determinations are fact-specific. |
Key Cases Cited
- Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (recognizing FAA places arbitration agreements on equal footing with other contracts)
- Doctor’s Associates v. Casarotto, 517 U.S. 681 (state laws may not single out arbitration agreements for disfavored treatment)
- Sink v. Aden Enterprises, Inc., 352 F.3d 1197 (9th Cir.) (failure to pay arbitration fees is a material breach/default disabling enforcement)
- Brown v. Dillard’s, Inc., 430 F.3d 1004 (9th Cir.) (refusal to participate in properly initiated arbitration precludes later enforcement)
- Pre-Paid Legal Servs., Inc. v. Cahill, 786 F.3d 1287 (10th Cir.) (failure to pay required fees breaches arbitration agreement)
- Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (principles limiting state law treatment of arbitration clauses; arbitration agreements governed by contract law)