DOUGLAS LYON v. KULL AUTO SALES, INC

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

DOUGLAS LYON,

Plaintiff-Appellant,

v.

KULL AUTO SALES, INC., d/b/a

AVALON HONDA, STEVE MAW,

d/b/a KULL AUTO SALES, INC.,

d/b/a AVALON HONDA, DAN

SWADIS d/b/a KULL AUTO SALES,

INC., d/b/a AVALON HONDA, and

AMERICAN HONDA FINANCE CORP.,

Defendant-Respondents.

________________________________________

January 24, 2017

Submitted July 20, 2016 Decided

Before Judges Leone and O'Connor.

On appeal from Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-0456-14.

Matthew B. Weisberg, attorney for appellant.

Gruccio, Pepper, DeSanto & Ruth, P.A., attorneys for respondent Kull Auto Sales (Joseph E. Ruth, on the brief).

Lavin, O'Neil, Cedrone & DiSipio, attorneys for respondent American Honda Finance Corporation (Gerard Cedrone, Leona McFadden and Alysa Talarico, on the brief).

The opinion of the court was delivered by

O'CONNOR, J.A.D.

Plaintiff Douglas Lyon appeals from a November 21, 2014 order dismissing with prejudice his complaint against defendant American Honda Finance Corporation (American) for failure to state a claim upon which relief can be granted, see R. 4:6-2(e). Plaintiff also appeals from an April 16, 2015 order dismissing without prejudice his complaint against the remaining defendants for lack of subject matter jurisdiction, see R. 4:6-2(a), and for failure to state a claim upon which relief can be granted. After reviewing the record and applicable legal principles, we affirm in part and reverse in part.

I

A

We first address plaintiff's appeal from the November 21, 2014 order, which dismissed his complaint against American for failure to state a claim upon which relief can be granted. See R. 4:6-2(e).

When a trial court considers an application for relief under this rule, it is required to search "the complaint in depth and with liberality to ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement of claim, opportunity being given to amend if necessary." Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989) (quoting Di Cristofaro v. Laurel Grove Mem'l Park, 43 N.J. Super. 244, 252 (App. Div. 1957)). The court must "accept as true all factual assertions in the complaint." Smith v. SBC Commc'ns, Inc., 178 N.J. 265, 268-69 (2004). Moreover, in doing so, every reasonable inference to be drawn from the factual assertions must be accorded to the plaintiff and the motion granted only in rare instances and ordinarily without prejudice. Id. at 282. "Obviously, if the complaint states no basis for relief and discovery would not provide one, dismissal is the appropriate remedy." Banco Popular N. Am. v. Gandi, 184 N.J. 161, 166 (2005).

We note Rule 4:6-2(e) specifically provides that only the pleading sought to be struck may be considered by the court to determine if it fails to state a claim upon which relief may be granted. If matters outside of the pleading are presented to and not excluded by the court, the motion is to be treated as one for summary judgment and disposed of as provided by Rule 4:46. R. 4:6-2(e). However, a motion to dismiss under Rule 4:6-2(e) is not converted into a motion for summary judgment if a party submits and a court reviews a document that is specifically referenced in a pleading. See Pressler & Verniero, Current N.J. Court Rules, comment 4.1.2 on R. 4:6-2 (2017) (citing New Jersey Sports Productions, Inc. v. Bobby Bostick Promotions, LLC, 405 N.J. Super. 173, 178-79 (Ch. Div. 2007)).

"We review a grant of a motion to dismiss a complaint for failure to state a cause of action de novo, applying the same standard under Rule 4:6-2(e) that governed the motion court." Wreden v. Township of Lafayette, 436 N.J. Super. 117, 124 (App. Div. 2014). Moreover, our examination of the complaint should be one "that is at once painstaking and undertaken with a generous and hospitable approach." Id. at 125 (quoting Printing Mart-Morristown, supra, 116 N.J. at 746).

The complaint alleges the following. On February 28, 2013, plaintiff bought a 2013 Honda Civic from defendant Kull Auto Sales, Inc. (Kull). Before doing so, defendants Steve Maw and Dan Swadis, both Kull employees, represented to plaintiff the car was new, defect-free, and had never been in an accident or damaged. After he was induced to buy the car, plaintiff determined to obtain financing through Kull and signed a retail installment sales contract (RISC). The complaint indicates the RISC is attached to the complaint, but in fact the document attached was the purchase order, not the RISC.

After purchasing the car, plaintiff claims he discovered the car had been sold with a damaged and distorted "frame/structure." Although Kull initially denied the car had been damaged, later its representative stated, "We are only human." Plaintiff demanded a replacement car or, in the alternative, the cancellation of the contract and the return of all of the money he had paid to Kull, but Kull refused to accede to plaintiff's demands. Plaintiff claims had he known the car had been damaged or defective and was not in "new vehicle condition," he would not have purchased the car.

Plaintiff alleges the misrepresentations by Kull, Maw, and Swadis amounted to unfair or deceptive acts or practices in violation of the Consumer Fraud Act (CFA or Act), N.J.S.A. 56:8-1 to -204, causing him to suffer financial loss and emotional distress. Plaintiff further contends that, pursuant to the express terms of the RISC, the common law of assignments, and statutory law, "American Honda Finance Corp. stepped into the same shoes as dealer [Kull] and became derivatively, jointly, severally, and fully liable for all of [Kull's] misconduct."

In lieu of filing an answer, American filed a motion to dismiss the complaint for failure to state a claim pursuant to Rule 4:6-2(e). In its brief, American argued the exhibit attached to the complaint failed to show there was an express assignment of the RISC. American also contended that not only had plaintiff failed to allege in its complaint American had committed an act of fraud, but also had neglected to identify the "particulars of the wrong, with dates and items if necessary" required to be pled when asserting a fraud. See R. 4:5-8(a).

In his responding brief, plaintiff argued, consistent with his complaint, the allegation against American was not that it had committed a direct fraud but, as assignee of the RISC signed by both plaintiff and Kull, American "stepped into the shoes of the dealership and is now subject to the claims arising out of that transaction, including Consumer Fraud Act claims." In support of his legal argument, plaintiff cited 16 C.F.R. 433.2(a) and N.J.S.A. 17:16C-38.2. Plaintiff argued this federal regulation and State statute place the assignee of a consumer loan contract in the shoes of the seller of the product or service, making the assignee liable to the buyer for all claims and defenses the buyer could have asserted against the seller. Thus, plaintiff claimed American was derivatively liable for misrepresentations to plaintiff by Kull and its employees.

In its reply brief, American argued the Truth In Lending Act (TILA), 15 U.S.C.A. 1601 to 1667f, trumped 16 C.F.R. 433.2(a) and preempted N.J.S.A. 17:16C-38.2. American did not address whether TILA immunizes assignees for all forms of consumer fraud, or whether the protections afforded by this law are confined to only those claims asserting a violation of TILA, see Psensky v. American Honda Finance Corp., 378 N.J. Super. 221, 231 (App. Div. 2005). After all, "[a]ssignees are immunized only when New Jersey law is inconsistent with the TILA." Ibid. (citing Richardson v. Standard Guar. Ins. Co., 371 N.J. Super. 449, 479 (App. Div. 2004)). As clarified by our Supreme Court in Kent Motor Cars, Inc. v. Reynolds and Reynolds, Co., 207 N.J. 428, 455 (2011),

truth-in-lending . . . laws . . . ensure that certain specific information is provided in connection with the extension of credit. TILA, for example, specifies that terms including annual percentage rates, method of determining finance charges, amount subject to the finance charge, total number and amount of payments, and due dates for repayment of the debt all be disclosed.

[Id. at 455].

Here, the claims in plaintiff's complaint are not about the credit extended to plaintiff. There is no allegation or suggestion the consumer loan plaintiff acquired through Kull was the product of deceptive financing practices, or that the loan in any way violated TILA. The claims in the complaint concern the misrepresentations of Kull and its employees to plaintiff about the quality of the car plaintiff purchased.

In its reply brief, American asserted for the first time it could not be held liable under the CFA because it had not directly engaged in any acts prohibited by this Act. Because initially asserted in a reply brief, plaintiff did not have an opportunity to respond to this argument. We note here it is inappropriate for a party to raise an issue for the first time in a reply brief, for the very reason an adversary does not have an opportunity to respond to the newly asserted argument. See Warren Tp. v. Suffness, 225 N.J. Super. 399, 412 (App. Div. 1988).

The trial court ultimately decided the motion on narrow grounds. It determined the purchase order attached to the complaint did not expressly reference an assignment of the loan from Kull to American, and the complaint was otherwise devoid of evidence American was a subsequent holder of the RISC. Thus, the court concluded, there was no indication American stepped into Kull's shoes. Further, the trial court noted the complaint did not "aver any facts as to what representations were made by [American]." Finding no facts in the complaint from which a cause of action could be found, the trial court dismissed plaintiff's complaint against American, and did so with prejudice.

In its decision the court did reference 16 C.F.R. 433.2(a) and N.J.S.A. 17:16C-38.2, but the court did not address American's contention TILA trumped the former and preempted the latter. The court also did not address American's contention it was not liable to plaintiff under the CFA. It is not known if the court declined to address these arguments because it disagreed with them or preferred to decide the motion on narrower grounds.

B

On appeal, plaintiff contends that, pursuant to 16 C.F.R. 433.2(a) and N.J.S.A. 17:16C-38.2, as assignee of the RISC, American is responsible for any misrepresentations of Kull and its employees that violated the CFA. Plaintiff also claims the trial court made an "inaccurate assessment" of the complaint. American responds TILA immunizes it from liability and, because American did not make the subject misrepresentations, it cannot be liable to plaintiff under the CFA.

In our view, the trial court mistakenly exercised its discretion when it determined a cause of action could not be gleaned from the complaint. A trial court is to search a complaint in depth and with liberality to see if a cause of action can be discerned from even "an obscure statement of claim," see Printing Mart-Morristown, supra, 116 N.J. at 746 (quoting Di Cristofaro, supra, 43 N.J. Super. at 252), and must undertake a generous and hospitable approach in its search. Wreden, supra, 436 N.J. Super. at 124.

Moreover, before dismissing a complaint, a plaintiff should be afforded an opportunity to amend the complaint either by clarifying or amplifying the allegations. See Printing Mart-Morristown, supra, 116 N.J. at 746. Only under the rarest of circumstances should a motion to dismiss be granted, see Smith, supra, 178 N.J. at 282, and ordinarily a complaint should not be dismissed with prejudice. See ibid.

Here, in his complaint, plaintiff alleges he signed a RISC in which he and Kull agreed to the terms of a financed sale of the car. Although plaintiff refers to a document attached to the complaint that purports to be the RISC, it is obvious he attached the wrong document; plaintiff mistakenly attached the purchase order when he had intended to attach the RISC.

But, by stating in the complaint, "pursuant to the express terms of the RISC, [the] common law of assignments, . . . American Honda Finance Corporation stepped into the same shoes as dealer [Kull] and became derivatively . . . and fully liable for all of [Kull's] misconduct[,]" it is implicit plaintiff is alleging, as evidenced by the RISC, that American became an assignee of the loan, assumed Kull's position, and is liable for Kull's alleged misconduct. Kull's misconduct was its employees, defendants Maw and Swadis, misrepresented the quality of the car to plaintiff before he purchased it. Although the attachment of the wrong document raised questions about what he was endeavoring to allege, plaintiff should have been given an opportunity to attach the RISC or amend the complaint to clarify his claim against American. Certainly, the complaint should not have been dismissed with prejudice.

Accordingly, we reverse the November 21, 2014 order to the extent its dismissal of plaintiff's complaint was with prejudice. The trial court shall re-enter its dismissal without prejudice and grant plaintiff the opportunity to attach the RISC or amend the complaint to clarify his claim against American.

Because the trial court did not address American's contentions TILA precludes plaintiff's cause of action against it, or American is not liable for the misconduct by Kull, Maw, and Swadis under the CFA, we decline to do so in the first instance. See Duddy v. Gov't Emps. Ins. Co., 421 N.J. Super. 214, 221 (App. Div. 2011). Our ruling is without prejudice to American filing a motion properly raising these contentions or, if appropriate, seeking arbitration and a stay of the complaint as discussed below.

II

A

We turn next to plaintiff's appeal of the April 16, 2015 order dismissing the complaint without prejudice against defendants Kull, Maw, and Swadis. We shall refer to these three parties as "defendants" for the balance of the opinion. The trial court dismissed the complaint against defendants on the grounds it lacked subject matter jurisdiction, see R. 4:6-2(a), and plaintiff failed to state a claim upon which relief can be granted against them, see R. 4:6-2(e).

The purchase order plaintiff and a representative from Kull signed contained an arbitration provision, which stated in pertinent part

AGREEMENT TO ARBITRATE ANY CLAIMS. READ THE FOLLOWING ARBITRATION PROVISION CAREFULLY, IT LIMITS YOUR RIGHTS, INCLUDING THE RIGHT TO MAINTAIN A COURT ACTION.

The parties to this agreement agree to arbitrate any claim, dispute, or controversy, including all statutory claims and any state or federal claims, that may arise out of or relating to the sale or lease identified in this agreement. By agreeing to arbitration, the parties understand and agree that they are waiving their rights to maintain other available resolution processes, such as a court action or administrative proceeding to settle their disputes[.] Consumer Fraud, Used Care Lemon Law, and Truth-in-Lending claims are just three examples of the various types of claims subject to arbitration under this agreement. . . . The arbitration shall be conducted in accordance with the rules of the American Association before a single arbitrator, who shall be a retired judge or an attorney. . . . In the event that any subsequent lease, finance, or other agreement between the parties contains a provision for arbitration of claims which conflicts with or is inconsistent with this arbitration provision, the terms of such subsequent arbitration provision shall govern and control to the extent of such conflict or inconsistency. THIS ARBITRATION PROVISION LIMITS YOUR RIGHTS, INCLUDING YOUR RIGHT TO MAINTAIN A COURT ACTION. PLEASE READ IT CAREFULLY, PRIOR TO SIGNING.

The RISC does not contain an arbitration provision.

In support of their motion to dismiss the complaint pursuant to Rules 4:6-2(a) and (e), defendants' counsel submitted a certification clarifying his clients sought relief under these rules in the form of enforcing the arbitration clause in the purchase order.

Plaintiff opposed the motion, arguing the complaint should not be dismissed but merely stayed. He further contended the arbitration provision in the purchase order was unenforceable because it failed to specifically state the parties to the provision waived their rights to a jury trial.

In the alternative, plaintiff requested defendants be compelled to produce its "dealer file," so plaintiff could investigate whether there existed any documents that precluded the enforcement of the arbitration provision in the purchase order. Plaintiff did not file a motion or cross motion in its pursuit of this latter relief.

The trial court declined to consider his request for discovery because plaintiff had failed to file a motion. Finding the arbitration provision in the purchase order enforceable, the court granted defendants' motion and dismissed the complaint without prejudice.

B

On appeal, plaintiff claims the court erred when it found the arbitration clause enforceable, dismissed rather than stayed the complaint against defendants, and denied him the discovery he had requested.

The "interpretation of an arbitration clause is a matter of contractual construction that this court addresses de novo." NAACP of Camden Cnty. E. v. Foulke Mgmt. Corp., 421 N.J. Super. 404, 430 (App. Div. 2011) (quoting Coast Auto. Grp., Ltd. v. Withum Smith & Brown, 413 N.J. Super. 363, 369 (App. Div. 2010)), appeal dismissed, 213 N.J. 47 (2013). We review orders compelling or denying arbitration mindful of the strong preference to enforce arbitration agreements. Hirsch v. Amper Fin. Servs., LLC, 215 N.J. 174, 186 (2013). A "trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

We first address whether the arbitration provision was fatally defective because it failed to state the parties waived their right to a jury trial. Plaintiff contends that, in Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014), our Supreme Court held a provision in a contract which compels the parties to submit all disputes to arbitration is unenforceable if the provision fails to explicitly inform the contracting parties the right to a trial by jury is relinquished. We disagree.

Among other things, Atelese instructs an arbitration clause must convey to the contracting parties they are releasing their right to bring their "claim[] in court or have a jury resolve the dispute." Id. at 447 (emphasis added). However, the Court "emphasize[d] that no prescribed set of words must be included in an arbitration clause to accomplish a waiver of rights. Whatever words compose an arbitration agreement, they must be clear and unambiguous that a consumer is choosing to arbitrate disputes rather than have them resolved in a court of law." Ibid. The Court did not require that, in order to be enforceable, an arbitration clause expressly state the contracting parties are relinquishing their right to a jury trial.

Moreover, the Court examined the language in an arbitration clause identical to that which appears in the clause at issue here, and determined the language adequately alerted the contracting parties they had chosen to submit all disputes to arbitration rather than to a court. Specifically, the Court approved an arbitration clause we had considered in Griffin v. Burlington Volkswagen, Inc., 411 N.J. Super. 515, 518 (App. Div. 2010), where the parties, in "agreeing to arbitration," expressed their "understand[ing] and agree[ment] that they are waiving their rights to maintain other available resolution processes, such as a court action or administrative proceeding, to settle their disputes." See Atalese, supra, 219 N.J. at 445 (quoting Griffin, supra, 411 N.J. Super. at 518). The Court observed this language "show[s] that, without difficulty and in different ways, the point can be made that by choosing arbitration one gives up the 'time-honored right to sue.'" Ibid. (quoting Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 135 (2001)).

Plaintiff next argues the complaint should have been stayed and not dismissed. We agree. As our Supreme Court observed in GMAC v. Pittella, 205 N.J. 572 (2011), the Revised Uniform Arbitration Act (Act), N.J.S.A. 2A:23B-1 to -32, "only provides for stays, rather than dismissals, of actions pending arbitration." GMAC, supra, 205 N.J. at 582 n.6 (citing N.J.S.A. 2A:23B-7(g) ("If the court orders arbitration, the court on just terms shall stay any judicial proceeding that involves a claim subject to the arbitration.")); see also Kleine v. Emeritus at Emerson, 445 N.J. Super. 545, 554 n.13 (App. Div. 2016).

In Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C. v. Lowenstein Sandler, P.C., 365 N.J. Super. 241 (App. Div. 2003), we commented: "A party is entitled to maintain the stayed action so that a prompt application may be made to confirm an arbitration award, and to facilitate resort to the court for interim relief, such as an injunction or a receivership, in aid of arbitration." Id. at 247 (citations omitted).

At the time we made this observation, the newly-enacted Revised Arbitration Act had not yet taken effect and, in support of the latter premise, we relied upon the previous New Jersey Arbitration Act, N.J.S.A. 2A:24-1 to -11, and in particular, N.J.S.A. 2A:24-4. See Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C., supra, 365 N.J. Super. at 247. However, we expressly noted N.J.S.A. 2A:23B-7(f) and (g) of the "new arbitration statute" were substantially similar to N.J.S.A. 2A:24-4. See id. at 247 n.1.

Accordingly, to the extent the April 16, 2015 order dismisses the complaint, it is reversed, and the trial court is instructed to state that proceedings under the complaint against Kull, Maw, and Swadis are stayed pending arbitration.

Finally, as for plaintiff's claim the trial court erred when it denied him discovery, the court correctly determined plaintiff's failure to file the appropriate motion deprived the court of the ability to consider plaintiff's request for relief. See R. 1:6-2(a) ("An application to the court for an order shall be by motion[.]").

In summary, we reverse the November 21, 2014 order dismissing the complaint against American to the extent its dismissal of plaintiff's complaint against American was with prejudice. We affirm the April 16, 2015 order finding plaintiff's complaint against Kull, Maw, and Swadis lacks subject matter jurisdiction and that plaintiff failed to state a claim upon which relief can be granted to the extent it enforces the arbitration clause regarding claims against Kull, Maw, and Swadis; however, we reverse that part of the order that dismisses the complaint. On remand, the trial court shall amend the April 16, 2015 order to state that proceedings under the complaint against Kull, Maw, and Swadis are stayed pending arbitration. Finally, we affirm the trial court's decision not to consider plaintiff's request for discovery.

Affirmed in part, reversed in part, and remanded for proceedings consistent with this opinion. We do not retain jurisdiction.