JALIYAH MUHAMMAD, ON HER OWN BEHALF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-APPELLANT, v. COUNTY BANK OF REHOBOTH BEACH, DELAWARE AND MAIN STREET SERVICE CORPORATION, DEFENDANTS-RESPONDENTS, AND EASYCASH, TELECASH, JOHN DOE AND JOHN ROE, DEFENDANTS.
Argued February 14, 2006—Decided August 9, 2006.
912 A.2d 88
Marc J. Zucker and Claudia T. Callaway, a member of the District of Columbia bar, argued the cause for respondents (Weir & Partners, attorneys for County Bank of Rehoboth Beach, Delaware and Sweeney & Sheehan, attorneys for Main Street Service Corporation; Mr. Zucker, Ms. Callaway, Susan M. Verbonitz, John Michael Kunsch, on the briefs).
David G. McMillin argued the cause for amicus curiae Legal Services of New Jersey (Melville D. Miller, Jr., President, attorney; Mr. McMillin, Mr. Miller and Christopher Hill, on the briefs).
Jeffrey C. Burstein, Assistant Attorney General, argued the cause for amici curiae Attorney General of New Jersey and The New Jersey Division of Consumer Affairs (Zulima V. Farber, Attorney General, attorney; Mr. Burstein and Carol G. Jacobson, Deputy Attorney General, on the brief).
William J. Pinilis submitted a brief on behalf of amici curiae AARP, Consumers League of New Jersey and National Association of Consumer Advocates.
Marvin J. Brauth and Jeffrey J. Brookner submitted a brief on behalf of amicus curiae New Jersey Business and Industry Association (Wilentz, Goldman & Spitzer, attorneys; Mr. Brauth, of counsel; Mr. Brauth and Mr. Brookner, on the brief).
Justice LaVECCHIA delivered the opinion of the Court.
In this appeal we must determine whether a provision in an arbitration agreement that is part of a consumer contract of adhesion is unconscionable and therefore unenforceable because it forbids class-wide arbitration. Plaintiff entered into a short-term loan agreement, the terms of which she claims violate the State‘s consumer-fraud statutes. Her complaint includes allegations that the State‘s civil usury limits are being evaded in loan transactions such as hers by means of a conspiracy involving complex financial dealings among out-of-state financial entities. The damages allegedly caused by such transactions are small on an individual-by-individual basis, but are substantial when aggregated into a class claim. Plaintiff seeks, therefore, to pursue a class action and is willing to pursue her class-wide claim in the arbitral forum but for the arbitration agreement‘s class-arbitration bar. Both the trial court and the Appellate Division found the class-arbitration bar enforceable.
Applying the controlling test for determining unconscionability for contracts of adhesion set forth in Rudbart v. North Jersey District Water Supply Commission, 127 N.J. 344, 605 A.2d 681 (1992), cert. denied, 506 U.S. 871, 113 S.Ct. 203, 121 L.Ed. 2d 145 (1992), we hold that the class-arbitration waiver in this consumer contract is unenforceable. Such a waiver would be unconscionable whether applied in a lawsuit or in arbitration. We further conclude that the appropriate remedy in these circumstances is to sever the unconscionable provision and enforce the otherwise valid arbitration agreement.
I.
Defendant County Bank of Rehoboth Beach, Delaware (County Bank) is a federally-insured depository institution chartered under Delaware law. Defendant Main Street Service Corp. (Main Street) is a loan servicer for County Bank. Main Street operates a telephone service center in Pennsylvania. Defendants Easy Cash and Telecash are registered trade names of County Bank.
On May 23, 2003, plaintiff Jaliyah Muhammad, a part-time student at Berkeley College in Paramus, received a short-term, single advance, unsecured loan of $200 from County Bank. According to the terms of the LOAN NOTE AND DISCLOSURE form that Muhammad signed, the principal, along with a finance charge of sixty dollars, was due on June 13, 2003. The annual percentage rate listed on the loan note was 608.33%. According to Muhammad, she twice extended the loan (with a sixty dollar finance charge each time) because she could not repay it, resulting in a total of $180 in finance charges. Those facts are unchallenged by defendants. Muhammad also obtained two similar loans from County Bank, dated April 28, 2003 and June 6, 2003.
Muhammad had to complete and return three pages of standard form contracts in order to receive a loan. The first two pages, entitled “LOAN APPLICATION,” were signed by Muhammad on April 28, 2003. Muhammad did not have to complete that form again in connection with the loans made on May 23, 2003 and June 6, 2003. The first page of the LOAN APPLICATION requested
AGREEMENT TO ARBITRATE ALL DISPUTES: By signing below and to induce us, County Bank of Rehoboth Beach, Delaware, to process your application for a loan, you and we agree that any and all claims, disputes or controversies that we or our servicers or agents have against you or that you have against us, our servicers, agents, directors, officers and employees, that arise out of your application for a loan, the Loan Note or Agreement that you must sign to obtain the loan, this agreement to arbitrate all disputes, collection of the loan, or alleging fraud or misrepresentation, whether under the common law or pursuant to federal or state statute or regulation, including the matters subject to arbitration, or otherwise, shall be resolved by binding individual (and not class) arbitration by and under the Code of Procedures of the National Arbitration Forum (“NAF“) in effect at the time the claim is filed. This agreement to arbitrate all disputes shall apply no matter by whom or against whom the claim is filed....
NOTICE: YOU AND WE WOULD HAVE HAD A RIGHT OR OPPORTUNITY TO LITIGATE DISPUTES THROUGH A COURT AND HAVE A JUDGE OR JURY DECIDE THE DISPUTES BUT HAVE AGREED INSTEAD TO RESOLVE DISPUTES THROUGH BINDING ARBITRATION.
AGREEMENT NOT TO BRING, JOIN OR PARTICIPATE IN CLASS ACTIONS: To the extent permitted by law, by signing below you agree that you will not bring, join or participate in any class action as to any claim, dispute or controversy you may have against us or our agents, servicers, directors, officers and employees. You agree to the entry of injunctive relief to stop such a lawsuit or to remove you as a participant in the suit. You agree to pay the costs we incur, including our court costs and attorney‘s fees, in seeking such relief. This agreement is not a waiver of any of your rights and remedies to pursue a claim individually and not as a class action in binding arbitration as provided above. This agreement not to bring or participate in class action suits is an independent agreement and shall survive the closing and repayment of the loan for which you are applying.
[(Emphasis added).]
Above the signature line, the LOAN APPLICATION also stated that “[b]y signing below you also agree to the Agreement to Arbitrate All Disputes and the Agreement Not To Bring, Join or Participate In Class Actions....”
In respect of the May 23, 2003 loan, Muhammad also executed a LOAN NOTE AND DISCLOSURE form that included the following language.
AGREEMENT TO ARBITRATE ALL DISPUTES: You and we agree that any and all claims, disputes or controversies between you and us and/or the Company, any claim by either of us against the other or the Company (or the employees, officers, directors, agents or assigns of the other or the Company) and any claim
arising from or relating to your application for this loan or any other loan you previously, now or may later obtain from us, this Loan Note, this agreement to arbitrate all disputes, your agreement not to bring, join or participate in class actions, regarding collection of the loan, alleging fraud or misrepresentation, whether under the common law or pursuant to federal, state or local statutes, regulation or ordinance, including disputes as to the matters subject to arbitration, or otherwise, shall be resolved by binding individual (and not joint) arbitration by and under the Code of Procedures of the National Arbitration Forum (“NAF“) in effect at the time the claim is filed. This agreement to arbitrate all disputes shall apply no matter by whom or against whom the claim is filed.... This arbitration agreement is made pursuant to a transaction involving interstate commerce. It shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 ....NOTICE: YOU AND WE WOULD HAVE HAD A RIGHT OR OPPORTUNITY TO LITIGATE DISPUTES THROUGH A COURT AND HAVE A JUDGE OR JURY DECIDE THE DISPUTES BUT HAVE AGREED INSTEAD TO RESOLVE DISPUTES THROUGH BINDING ARBITRATION.
AGREEMENT NOT TO BRING, JOIN OR PARTICIPATE IN CLASS ACTIONS: To the extent permitted by law, you agree that you will not bring, join or participate in any class action as to any claim, dispute or controversy you may have against us, our employees, officers, directors, servicers and assigns. You agree to the entry of injunctive relief to stop such a lawsuit or to remove you as a participant in the suit. You agree to pay the attorney‘s fees and court costs we incur in seeking such relief. This Agreement does not constitute a waiver of any of your rights and remedies to pursue a claim individually and not as a class action in binding arbitration as provided above.
[(Emphasis added).]
If that were not clear enough, directly above the signature line, the LOAN NOTE AND DISCLOSURE form also stated, that “BY SIGNING BELOW, YOU AGREE TO ALL OF THE TERMS OF THIS NOTE, INCLUDING THE AGREEMENT TO ARBITRATE ALL DISPUTES AND THE AGREEMENT NOT TO BRING, JOIN OR PARTICIPATE IN CLASS ACTIONS.”
Thus, the contracts signed by Muhammad contain two types of class-action prohibitions. The first, referred to herein as the “class-arbitration waivers,” are found within the text of the arbitration clauses and highlighted above. They specifically bar class claims in arbitration. The second, referred to herein as the “broad class-action waivers,” are separate from the arbitration clauses and prohibit Muhammad from bringing or participating in
In February 2004, Muhammad filed a putative class-action suit in New Jersey Superior Court against County Bank, Easy Cash, Telecash, Main Street, John Doe, and John Roe. The complaint alleged that Easy Cash, Telecash, and Main Street violated the Consumer Fraud Act (CFA),
Defendants removed the action to federal district court, but because Muhammad‘s claims were determined by that court not to be preempted by the Depository Institutions Deregulation and Monetary Control Act of 1980,
Plaintiff filed a motion for leave to appeal, which we granted. 185 N.J. 254, 883 A.2d 1054 (2005). Legal Services of New Jersey filed a brief as amicus curiae in support of Muhammad. AARP, the Consumers League of New Jersey, and the National Association of Consumer Advocates filed a joint brief in support of Muhammad. Also, the Attorney General on behalf of the New Jersey Division of Consumer Affairs filed a brief in Muhammad‘s support. The Chamber of Commerce of the United States of America and the New Jersey Business and Industry Association filed amicus briefs in support of defendants.
II.
A.
Congress enacted the FAA,
“[G]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2.” Doctor‘s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 1656, 134 L.Ed. 2d 902, 909 (1996) (emphasis added); see also Discover Bank v. Superior Court, 36 Cal. 4th 148, 30 Cal. Rptr. 3d 76, 113 P.3d 1100, 1112-13 (2005) (stating that “the FAA does not federalize the law of unconscionability or related contract defenses except to the extent that it forbids the use of such defenses to discriminate against arbitration clauses.“). Furthermore, “whether the parties have a valid arbitration agreement at all” is a “gateway” question that requires judicial resolution. Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 123 S.Ct. 2402, 2407, 156 L.Ed. 2d 414, 422 (2003) (plurality opinion).
It is clear that under Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 1806, 18 L.Ed. 2d 1270, 1277 (1967), “a court must decide whether [an] agreement to arbitrate is valid.” Barker v. Golf U.S.A., Inc., 154 F.3d 788, 791 (8th Cir. 1998), cert. denied, 525 U.S. 1068, 119 S.Ct. 796, 142 L.Ed. 2d 659 (1999). That said, were this contract
Other courts similarly have distinguished Bazzle. For example, in Gipson v. Cross Country Bank, 354 F. Supp. 2d 1278, 1286 (M.D. Ala. 2005), the court, in the course of upholding a particular class-arbitration waiver, stated that
[t]he contract before this court now is distinguishable from the one in Bazzle, because here the clause prohibiting class arbitration is clear, that is, there is no issue of contract interpretation as there was in Bazzle. Put another way, the Court plurality in Bazzle felt that the answer as to whether the contracts allowed or prohibited class arbitration was “not completely obvious,” hence contract interpretation, which is the realm of the arbitrator, would be necessary. Here, however, an arbitrator need not interpret the contract‘s class action waiver clause, because the contract expressly prohibits class arbitration, thereby concerning “the validity of the arbitration clause,” which the Bazzle plurality indicated could fall under the narrow exception concerning matters “contracting parties would likely have expected a court” to decide. There is no need for anyone to decide “whether the contract[] forbid[s] class arbitration.” It expressly and unequivocally does. The only issue is whether such a clear prohibition is valid and enforceable....
[(Citations omitted).]
Because federal arbitration law does not prevent us from examining the validity of the class-arbitration waiver, we turn then to our own state law requirements in respect of contract unconscionability.2
It is well settled that courts “may refuse to enforce contracts that are unconscionable.” Saxon Constr. & Mgmt. Corp. v. Masterclean of N.C., Inc., 273 N.J. Super. 231, 236, 641 A.2d 1056 (App. Div.), certif. denied, 137 N.J. 314, 645 A.2d 142 (1994); see also
The determination that a contract is one of adhesion, however, “is the beginning, not the end, of the inquiry” into whether a contract, or any specific term therein, should be deemed unenforceable based on policy considerations. Id. at 354, 605 A.2d 681. A sharpened inquiry concerning unconscionability is necessary when a contract of adhesion is involved.
[I]n determining whether to enforce the terms of a contract of adhesion, courts have looked not only to the take-it-or-leave-it nature or the standardized form of the document but also to [ (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.
[Id. at 356, 605 A.2d 681.]
Because adhesion contracts invariably evidence some characteristics of procedural unconscionability, the Court required a careful fact-sensitive examination into substantive unconscionability.3 Ibid. Rudbart‘s multi-factor analysis generally conforms to the case-by-case approach widely used for evaluating claims of unconscionability. See Cheshire Mortg. Serv. v. Montes, 223 Conn. 80, 612 A.2d 1130, 1135 (1992) (stating that, under the UCC, “[t]he determination of unconscionability is to be made on a case-by-case basis, taking into account all of the relevant facts and circumstances.“).
C.
The unconscionability issue in this matter centers on access to a class-wide proceeding in the arbitral setting. Although class arbitration specifically has never before been examined by this Court, the merits of the class-action procedure have been acknowledged many times in the context of court litigation. “By permitting claimants to band together, class actions equalize adversaries and provide a procedure to remedy a wrong that might otherwise go unredressed.” In re Cadillac V8-6-4 Class Action, 93 N.J. 412, 424, 461 A.2d 736 (1983). “If each victim were remitted to an individual suit, the remedy could be illusory, for the individual loss may be too small to warrant a suit.... Thus the wrongs would go without redress, and there would be no deterrence to further
The class-action vehicle remedies the incentive problem facing litigants who seek only a small recovery. “[A] class action can produce a substantial fund to compensate ... [the class members‘] attorney for his services.” In re Cadillac, supra, 93 N.J. at 424, 461 A.2d 736. A “substantial fund” not only covers the attorney‘s actual fees, but also provides incentive in the form of possible contingency fees for attorneys to risk the prospect of receiving no recovery for their efforts. See Amchem Products, Inc. v. Windsor, 521 U.S. 591, 617, 117 S.Ct. 2231, 2246, 138 L.Ed. 2d 689, 709 (1997) (stating that “[a] class action solves [the incentive problem created by small damages] by aggregating the relatively paltry potential recoveries into something worth someone‘s (usually an attorney‘s) labor.“); Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 161, 94 S.Ct. 2140, 2144, 40 L.Ed. 2d 732, 739 (1974) (stating that “[n]o competent attorney would undertake this complex antitrust action to recover so inconsequential an amount [as $70].“). The class-action mechanism also overcomes the problem that small individual recoveries may fail to provide an adequate incentive for a litigant to investigate a claim or bring suit even if the litigant could secure representation. See Varacallo v. Mass. Mutual Life Ins. Co., 226 F.R.D. 207, 234 (D.N.J. 2005) (stating that “[a]bsent class certification, very few individuals would have the incentive ... to bring individual claims“). And, not least of all, there is the additional justification that a class-action proceeding “can aid the efficient administration of justice by avoiding the expense, in both time and money, of relitigating similar claims.” In re Cadillac, supra, 93 N.J. at 435, 461 A.2d 736.
In sum, the class-action mechanism is recognized to be valuable to litigants, to the courts, and to the public interest. Class actions fulfill the policies of this State even when only a
III.
A.
The arbitration agreement signed by Muhammad is clearly a contract of adhesion. We, therefore, must apply Rudbart‘s four factors, as did the Appellate Division, in order to determine whether New Jersey contract law principles permit enforcement of the class-arbitration prohibitions found in the instant arbitration agreements.
The first three factors of the Rudbart analysis require only brief attention. In respect of subject matter, the circumstantial backdrop to our Rudbart inquiry is the payday loan agreement executed between the parties. The focus of our analysis, however, is on the agreement‘s mandatory arbitration provision that contains limits on discovery and bars class-wide arbitration. In respect of Rudbart‘s second factor, the gross disparity in the relative bargaining positions of the parties is self-evident from the nature of the payday loan contract between a consumer and a
Rudbart‘s fourth factor, the most important to the present analysis, considers “the public interests affected by the contract.” That factor requires us to determine whether the effect of the class-arbitration bar is to prevent plaintiff from pursuing her statutory consumer protection rights and thus to shield defendants from compliance with the laws of this State. Those “public interest” considerations ultimately determine whether we can permit enforcement of the provision in plaintiff‘s contract that allegedly precludes any realistic challenge to the substance of her loan-contract‘s terms.
In New Jersey, exculpatory waivers that seek a release from a statutorily imposed duty are void as against public policy. McCarthy v. NASCAR, Inc., 48 N.J. 539, 542, 226 A.2d 713 (1967). Muhammad‘s claims are statutory; however, the class-arbitration waiver at issue, and class-action waivers in general, are not, in the strictest sense of the term, exculpatory clauses. See Discover Bank, supra, 30 Cal. Rptr. 3d 76, 113 P.3d at 1108. The class-arbitration waiver does not preclude Muhammad from filing an individual claim in arbitration. The difficulty lies in the
To permit the defendants to contest liability with each claimant in a single, separate suit, would, in many cases give defendants an advantage which would be almost equivalent to closing the door of justice to all small claimants. This is what we think the class suit practice was to prevent.
[Delgozzo v. Kenny, 266 N.J. Super. 169, 193, 628 A.2d 1080 (App. Div. 1993) (quoting Hohmann v. Packard Instrument Co., 399 F.2d 711, 715 (7th Cir. 1968)).]
Such waivers are problematic “when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages,” as the California Supreme Court also recognized. Discover Bank, supra, 30 Cal. Rptr. 3d 76, 113 P.3d at 1110 (emphasis added).
In most cases that involve a small amount of damages, “rational” consumers may decline to pursue individual consumer-fraud lawsuits because it may not be worth the time spent prosecuting the suit, even if competent counsel was willing to take the case. See Kinkel v. Cingular Wireless, L.L.C., 357 Ill. App. 3d 556, 564, 293 Ill. Dec. 502, 510, 828 N.E.2d 812, 820 (2005) (observing that in context of individually pursued small damage claims, any potential recovery would be offset “by any costs incurred in presenting the claim and any lost wages for taking time from work to do so.“), appeal granted, 216 Ill. 2d 690, 298 Ill. Dec. 378, 839 N.E.2d 1025 (2005); see also Carnegie v. Household Int‘l, Inc., 376 F.3d 656, 661 (7th Cir. 2004) (commenting that “only a lunatic or a fanatic sues for $30.“). Moreover, without the availability of a class-action mechanism, many consumer-fraud victims may never realize that they may have been wronged. As commentators have noted,
often consumers do not know that a potential defendant‘s conduct is illegal. When they are being charged an excessive interest rate or a penalty for check bouncing, for example, few know or even sense that their rights are being violated. Nor,
given the relatively small amounts at stake, would most consumers find it worth-while to seek legal advice to determine whether this is the case.
[Jean R. Sternlight and Elizabeth J. Jensen, Mandatory Arbitration: Using Arbitration to Eliminate Consumer Class Actions: Efficient Business Practice or Unconscionable Abuse, 67 Law & Contemp. Prob. 75, 88 (2004).]
In addition to their impact on individual litigants, class-action waivers can functionally exculpate wrongful conduct by reducing the possibility of attracting competent counsel to advance the cause of action. Class-action waivers prevent an aggregate recovery that can serve as a source of contingency fees for potential attorneys. Although defendants have no obligation to provide counsel to plaintiff, they cannot take action that impedes ordinary citizens’ access to representation to vindicate their rights. Defendants emphasize the availability of attorney‘s fees under the CFA; however, that fact is not dispositive in the instant case because the damages sought by Muhammad and those she seeks to represent are small. The availability of attorney‘s fees is illusory if it is unlikely that counsel would be willing to undertake the representation. The finance charge for the loan in this matter was $60. The class of people whom plaintiff seeks to represent may have similar claims about that size. In fact, plaintiff had to roll-over her loan two times, bringing her compensatory claims to $180 that, with the possibility of treble damages available under CFA, may add up to a maximum of less than $600. One may be hard-pressed to find an attorney willing to work on a consumer-fraud complaint involving complex arrangements between financial institutions of other jurisdictions when the recovery is so small.5
We hold, therefore, that the presence of the class-arbitration waiver in Muhammad‘s consumer arbitration agreement renders that agreement unconscionable. As a matter of generally applicable state contract law, it was unconscionable for defendants to deprive Muhammad of the mechanism of a class-wide action, whether in arbitration or in court litigation. The public interest at stake in her ability and the ability of her fellow consumers effectively to pursue their statutory rights under this State‘s consumer protection laws overrides the defendants’ right to seek enforcement of the class-arbitration bar in their agreement.
...
We do not view our holding today to be at odds with the decision in Gras v. Associates First Capital Co., 346 N.J. Super. 42, 786 A.2d 886 (2001), certif. denied, 171 N.J. 445, 794 A.2d 184 (2002), in which the Appellate Division considered the issue before it to be whether class-action waivers were per se unenforceable. The court in Gras, supra, found that there was no “inherent conflict ... between arbitration and the underlying purpose of [the CFA],” 346 N.J. Super. at 52, 786 A.2d 886, and we agree. Gras, however, did not present the precise issue before the Court in this matter: whether the small amount of damages being pursued in this action involving complicated financial arrangements and multiple out-of-state entities effectively prevents plaintiff from being able to vindicate the public interests protected by the CFA.
court should consider whether the availability of attorney‘s fees (including possible fee enhancement, Rendine v. Pantzer, 141 N.J. 292, 661 A.2d 1202 (1995)) in conjunction with a substantial potential damages award (including potential statutory multipliers) would allow a “substantial number” of consumers to obtain counsel and seek relief.
To be sure, many commentators have criticized, for various reasons, the class-action mechanism as it is applied in courts. See Sternlight and Jensen, supra, 67 Law & Contemp. Prob. at 102 (noting that “[a]cademics as well as corporate interests have pointed to ethical and efficiency issues and have argued that class actions be limited or reformed, if not eliminated.“). Commentators have also suggested that class arbitration may in fact be no different or no more efficient than class actions litigated in court. Jean R. Sternlight, As Mandatory Arbitration Meets the Class Action, Will the Class Action Survive?, 42 Wm. and Mary L. Rev. 1, 44-53 (2000); Jack Wilson, No-Class-Action Arbitration Clauses, State Law Unconscionability, and the Federal Arbitration Act: A Case for Federal Judicial Restraint and Congressional Action, 23 Quinnipiac L. Rev. 737, 773-80 (2004). In respect of court actions, the United States Congress and/or our State Legislature may amend class-action procedures should they perceive deficiencies in the current process. And, in the context of class arbitration, contracting parties and the various arbitration forums can
B.
Our decision today is rooted in the fact-sensitive public interest assessment of the Rudbart analysis and is not based on a determination that the arbitral forum, per se, cannot accomplish vindication of a consumer-fraud litigant‘s rights. In Gilmer, supra, the United States Supreme Court stated that arbitration is allowed in actions authorized by federal statutes “[s]o long as the prospective
Our analysis does not focus solely on the ability of Muhammad to individually vindicate her statutory rights. Our consideration of “the public interests affected by the contract” under Rudbart compels a broader inquiry into how class-action waivers affect the various interests protected under the CFA. Moreover, the analysis undertaken in Gilmer and Randolph reconciled various remedial federal statutes with the FAA. In Randolph, supra, the Court noted as part of its inquiry that it must “ask whether Congress has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.” 531 U.S. at 90, 121 S.Ct. at 521, 148 L.Ed. 2d at 383. That is a uniquely federal question, distinct from an analysis of state contract law under Rudbart. The California Supreme Court observed similarly in Discover Bank, supra, when examining federal cases that have applied Gilmer and Randolph. 30 Cal. Rptr. 3d 76, 113 P.3d at 1114 n. 6. Noting the difference between the federal “vindication of statutory rights” test and an unconscionability analysis under state law, the California Supreme Court stated that the decisions following the former approach “address whether a federal statute impliedly limits arbitration, [and] are obviously not binding on this court when it decides whether class arbitration waivers are unconscionable under state law principles.” Ibid.; see also Kristian v. Comcast Corp., 446 F.3d 25, 60 n. 22 (1st Cir. 2006) (concluding similarly that state unconscionability analysis, which is “based on the particulars of state contract law, may include considerations not present in the vindication of statutory rights analysis which is not
...
C.
Finally, although we find that the class-arbitration waivers in Muhammad‘s arbitration agreements are unconscionable and unenforceable, we find that the waivers are severable. Once the waivers are removed, the remainder of the arbitration agreement is enforceable. As the Eleventh Circuit has explained,
[i]f all the provisions of the arbitration clause are enforceable, then the court must compel arbitration according to the terms of the agreement. If, however, some or all of its provisions are not enforceable, then the court must determine whether the unenforceable provisions are severable. Severability is decided as a matter of state law. If the offensive terms are severable, then the court must compel arbitration according to the remaining, valid terms of the parties’ agreement. The court should deny the motion to compel arbitration only where the invalid terms of the arbitration clause render the entire clause void as a matter of state law.
[Terminix Int‘l Co. LP v. Palmer Ranch Ltd. P‘ship, 432 F.3d 1327, 1331 (11th Cir. 2005) (citation omitted).]
Similarly, our courts have recognized that “[i]f a contract contains an illegal provision and such provision is severable, courts will enforce the remainder of the contract after excising the illegal portion, so long as the prohibited and valid provisions are severable.” Schuran, Inc. v. Walnut Hill Assocs., 256 N.J. Super. 228, 233, 606 A.2d 885 (Law Div. 1991); see also Naseef v. Cord, Inc., 90 N.J. Super. 135, 143, 216 A.2d 413 (App. Div.) (stating “[i]t is true that if a contract contains an illegal provision, if such provision is severable the courts will enforce the remainder of the contract after excising the illegal portion.“), aff‘d, 48 N.J. 317, 225 A.2d 343 (1966). The instant contracts embrace that proposition in that the broad class-action waivers in both contracts use the language “[t]o the extent permitted by law.” Thus, the contracts reflect an intention that the arbitration agreement would be implemented whether and to whatever extent class-wide arbitration might be
IV.
The judgment of the Appellate Division is reversed and the matter is remanded to the Law Division for further proceedings consistent with this opinion.
Justice RIVERA-SOTO, concurring in part and dissenting in part.
To the extent the majority holds that the arbitration agreements in this case are enforceable, ante, 189 N.J. at 26, 912 A.2d at 103 (2006), I concur. However, to the extent the majority holds that the class-arbitration waivers in plaintiff‘s arbitration agreements are unconscionable, ante, 189 N.J. at 22, 912 A.2d at 100-01 (2006), I respectfully dissent for the reasons thoughtfully and exhaustively set forth by both the Appellate Division, Muhammad v. County Bank of Rehoboth Beach, Del., 379 N.J. Super. 222, 877 A.2d 340 (App. Div. 2005), and the trial court.
For reversal and remandment—Chief Justice PORITZ and Justices LONG, LaVECCHIA, ZAZZALI and WALLACE—5.
For concurrence in part; dissent in part—Justice RIVERA-SOTO—1.