DEBBY DAILEY v. BOROUGH OF HIGHLANDS
Annotate this CaseNOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3475-18T2
DEBBY DAILEY,
Plaintiff-Respondent,
v.
BOROUGH OF HIGHLANDS,
BRIAN GEOGHEGAN,
PAUL VITALE and BRIAN
CHABAREK, ESQ.,
Defendants-Respondents,
and
BRIAN CHABAREK, ESQ.,
Third-Party Plaintiff-Respondent,
v.
MONMOUTH COUNTY MUNICIPAL
JOINT INSURANCE FUND,1
Third-Party Defendant-Appellant.
________________________________
1
Improperly pled as Monmouth County Joint Insurance Fund.
Argued December 12, 2019 – Decided October 28, 2020
Before Judges Suter and DeAlmeida.
On appeal from the Superior Court of New Jersey, Law
Division, Monmouth County, Docket No. L-3351-17.
Jessica V. Henry argued the cause for third-party
defendant/appellant (Cleary Giacobbe Alfieri Jacobs
LLC, attorneys; Jessica V. Henry, of counsel and on the
briefs).
James A. Paone, II argued the cause for third-party
plaintiff/respondent (Davison, Eastman, Muñoz, Paone,
PA, attorneys; James A. Paone, II, of counsel and on
the brief; Kaitlyn R. Campanile, on the brief).
The opinion of the court was delivered by
DeALMEIDA, J.A.D.
Third-party defendant Monmouth County Municipal Joint Insurance Fund
(JIF) appeals from the March 8, 2019 order of the Law Division denying its
motion to dismiss the third-party complaint of defendant/third-party plaintiff
Brian Chabarek, Esq. We vacate the order and remand.
I.
The following facts are derived from the record. Plaintiff Debby Dailey,
an employee of defendant Borough of Highlands, filed a complaint in the Law
Division against the borough and three municipal officials seeking damages for
physical injuries she suffered when she fell through the attic floor of a building
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owned by the municipality. Dailey alleges she was directed by Chabarek, the
township attorney, and defendant Brian Geoghegan, the borough administrator,
to enter the building, which had previously been deemed unsafe and in need of
demolition by defendant Paul Vitale, the borough code official. According to
plaintiff, the defendants sent her into the building to retrieve an archived file,
even though they were aware that other borough employees had been injured as
a result of the dangerous condition of the structure.
Chabarek requested defense and indemnification as a third-party
beneficiary of an insurance policy issued to the borough by JIF, a statutory
organization in which the borough is a member. JIF, through its administrator,
declined Chabarek's request, taking the position that the policy excludes
coverage for damages for personal injuries arising out of rendering a
professional service. Chabarek thereafter filed a third-party complaint against
JIF, seeking a declaratory judgment that he is entitled to defense and
indemnification coverage under the policy.
JIF moved to dismiss the third-party complaint, arguing the borough had
agreed on behalf of its third-party beneficiaries to arbitrate coverage disputes
under the policy. In support of its argument, JIF relied on the following
provisions of the policy:
A-3475-18T2
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6. LEGAL ACTION AGAINST US
No person or organization has a right under this Policy:
a. To join us as a party or otherwise bring us into a
suit asking for damages from any Member Entity; or
b. To sue us under this Policy unless all of its terms
have been fully complied with.
A person or organization may sue us to recover on an
agreed settlement or on a final judgment against a
Member Entity obtained after actual trial . . . . An
agreed settlement means a settlement and release of
liability signed by us, the Member Entity and either the
claimant or the claimant's legal representative.
10. ARBITRATION
Should an irreconcilable difference of opinion arise as
to the rights and obligations under the Policy, it is
hereby agreed, that, as a CONDITION precedent to any
right of action under or on account of this Policy, such
difference shall be submitted to arbitration. Such
arbitration may be requested or demanded by either you
or us. The requests or demand for arbitration shall be
made in writing and in accordance with the Notice
provisions of CONDITION 11 of these POLICY
CONDITIONS. In the event that arbitration is
requested or demanded, then we shall appoint one
arbitrator and you shall appoint one arbitrator within
thirty (30) days of the receipt of the written request or
demand for arbitration. The two arbitrators thus
appointed shall promptly confer the appointment of an
impartial umpire.
If either you or we fail to appoint an arbitrator within
thirty (30) days after being required [sic] by the other
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party in writing to do so, or if the arbitrators fail to
appoint an umpire within thirty (30) days of request in
writing by either of them to do so, or for any other
reason there shall be a lapse or failure in the naming of
an arbitrator or an umpire or in filling a vacancy, then
such arbitrator or umpire, as the case may be, shall at
your or our request be appointed by a Judge of the
Superior Court of New Jersey sitting in either the
County in which our offices are located or in the County
in which your offices are located in accordance with the
provisions of the New Jersey Arbitration Act . . . .
The arbitration shall take place at our offices, unless
some other location is mutually agreed upon by both of
us. The applicant shall submit its case within one
month after the appointment of the umpire by the
arbitrators or the Court and the respondent shall submit
its reply within one month after service of the
applicant's submission. The arbitrators and umpire are
relieved from all judicial formality and may abstain
from following the strict rules of law. They shall settle
any dispute under this agreement according to an
equitable rather than a strictly legal interpretation of its
terms, and their decision shall be final and not subject
to appeal.
Each party shall bear the expense of its arbitrator and
shall jointly and equally share with the other the
expenses of this [sic] umpire and of the arbitration.
It is unclear from the record whether the municipality took a position on JIF's
motion.
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The trial court issued an oral opinion denying the motion, relying
primarily on the holding in Atalese v. U.S. Legal Services Group, 219 N.J. 430
(2014). The trial court observed that in Atalese,
the Supreme Court has held that the absence of any
language in the [arbitration] provision that plaintiff was
waiving her statutory right to seek relief in a court of
law renders such a provision unenforceable. An
arbitration provision, like any other comparable
contractual provision that provides for surrendering of
a constitutional or statutory right, must be sufficiently
clear to a reasonable consumer.
In addition, the trial court reasoned that
[a]s in the case of Atalese, the provision at issue does
not explain what arbitration is nor does it indicate how
arbitration is different from a proceeding in a court of
law. . . . Most importantly, there is nothing in the plain
language that would be clear and understandable to the
average consumer that he or she is waiving statutory
rights for a jury.
Thus, the court concluded, there was no evidence of a "mutual assent to
waive adjudication by a court of law." A March 8, 2019 order memorializes the
court's decision.
This appeal followed. JIF raises the following arguments:
THE TRIAL COURT ERRED IN FAILING TO
ENFORCE THE MANDATORY ARBITRATION
PROVISION.
(A) THE STANDARD OF REVIEW IS DE NOVO.
A-3475-18T2
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(B) THE ARBITRATION PROVISION GOVERNS
THE THIRD[-]PARTY COMPLAINT.
(C) THE TRIAL COURT ERRED IN ITS
APPLICATION OF CONSUMER FRAUD
PRECEDENT TO THIS MATTER.
(D) THE TRIAL COURT DEPARTED FROM THE
SUPREME COURT'S MANDATE OF "EQUAL
FOOTING" FOR ARBITRATION AGREEMENTS.
II.
We apply a de novo standard of review to the trial court's determination
of the enforceability of a contract provision. Goffe v. Foulke Mgmt. Corp., 238 N.J. 191, 207 (2019). "The enforceability of arbitration provisions is a question
of law; therefore, it is one to which we need not give deference to the analysis
by trial court." Ibid.
Federal and state statutes express a general policy favoring arbitration.
Atalese, 291 N.J. at 440; see also 9 U.S.C.A. §§ 1 to 16; N.J.S.A. 2A:23B-1 to
-32. "The public policy of this State favors arbitration as a means of settling
disputes that otherwise would be litigated in a court." Badiali v. N.J. Mfrs. Ins.
Grp., 220 N.J. 544, 556 (2015). "Because of the favored status afforded to
arbitration, '[a]n agreement to arbitrate should be read liberally in favor of
arbitration.'" Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A.,
A-3475-18T2
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168 N.J. 124, 132 (2001) (quoting Marchak v. Claridge Commons, Inc., 134 N.J.
275, 282 (1993)). Although enforcement is favored, that "does not mean that
every arbitration clause, however phrased, will be enforceable." Atalese, 219 N.J. at 441.
A valid arbitration clause "must state its purpose clearly and
unambiguously." Id. at 435. In addition, an agreement to arbitrate "must be the
product of mutual assent," which "requires that the parties have an
understanding of the terms to which they have agreed." Id. at 442 (quoting
NAACP v. Foulke Mgmt., 421 N.J. Super. 404, 424 (App. Div. 2011)). A party
"cannot be required to arbitrate when it cannot fairly be ascertained from the
contract's language that she knowingly assented to the provision's terms or knew
that arbitration was the exclusive forum for dispute resolution." Kernahan v.
Home Warranty Adm'r of Fla., Inc., 236 N.J. 301, 322 (2019).
In Atalese, the Supreme Court invalidated an arbitration provision of a
consumer contract of adhesion because it: (1) did not include an explanation that
the plaintiff was waiving her right to seek relief in court; (2) did not explain
what arbitration is or how it differs from seeking judicial relief; and (3) lacked
the plain language necessary to convey to the average consumer that he or she
is waiving the right to sue in court. 219 N.J. at 446. The Court noted that "an
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average member of the public may not know – without some explanatory
comment – that arbitration is a substitute for the right to have one's claim
adjudicated in a court of law." Id. at 442. Thus, an arbitration clause "in some
general and sufficiently broad way, must explain that the plaintiff is giving up
her right to bring her claims in court or have a jury resolve the dispute." Id. at
447. "No particular form of words is necessary to accomplish a clea r and
unambiguous waiver of rights." Id. at 444.
The Court later recognized that its holding in Atalese was primarily driven
by the fact that it was examining a consumer contract. The Court explained:
We were guided essentially by twin concerns. First, the
Court was mindful that a consumer is not necessarily
versed in the meaning of law-imbued terminology
about procedures tucked into form contracts. The
decision repeatedly notes that it is addressing a form
consumer contract, not a contract individually
negotiated in any way; accordingly, basic statutory
consumer contract requirements about plain language
implicitly provided the backdrop to the contract under
review. And, second, the Court was mindful that plain
language explanations of consequences had been
required in contract cases in numerous other settings
where a person would not be presumed to understand
that what was being agreed to constituted a waiver of a
constitutional or statutory right.
....
The consumer context of the contract mattered.
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[Kernahan, 236 N.J. at 319-20.]
We do not agree with the trial court's conclusion that the circumstances
here are equivalent to those before the Court in Atalese. Chabarek is not a
consumer and did not sign a contract of adhesion. He is not a party to the JIF
policy. He is, instead, a third-party beneficiary of a contract between JIF and
the municipality. "Nonsignatories of a contract . . . may . . . be subject to
arbitration if the nonparty is an agent of a party or a third[-]party beneficiary to
the contract." Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 333 N.J. Super. 291, 308 (App. Div. 2000), rev'd on other grounds, 168 N.J. 124
(2001). For example, we have upheld application of an arbitration provision in
an insurance policy against the insured's minor son. Allgor v. Travelers Ins.
Co., 280 N.J. Super. 254 (App. Div. 1995). Chabarek, as an employee of the
municipality seeking defense and indemnification under its insurance policy, is
bound by the terms of the policy to which the municipality agreed.
It is the municipality's assent to arbitration, not Chabarek's, that is critical
to deciding JIF's motion. We, therefore, vacate the March 8, 2019 order and
remand for resolution of JIF's motion based on a determination of whether JIF
and the municipality agreed by mutual assent to arbitration of coverage disputes
under the policy. If so, Chabarek is bound by that agreement.
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In order to determine whether JIF and the municipality mutually assented
to submit coverage disputes to arbitration, the trial court must consider "the
contractual terms, the surrounding circumstances, and the purpose of the
contract." Marchak, 134 N.J. at 275. Municipalities are authorized by statute
to join other local government units to form a JIF for the purpose of providing
liability insurance. N.J.S.A. 40A:10-36. Each member municipality has the
authority to appoint an insurance commissioner who is eligible for election to
the JIF's executive committee. N.J.S.A. 40A:10-37. JIF has the statutory
authority to provide insurance to its members by self-insurance, as happened
here. N.J.S.A. 40A:10-42.
The record does not reflect the extent to which the municipality negotiated
the terms of the policy. Nor does the record illuminate the role played by the
municipality's JIF commissioner, who may have been a member of its executive
board, in formulating JIF's desire to have coverage disputes under its policies
decided by arbitration. That interest presumably is shared by the municipality,
given that arbitration would reduce costs and preserve resources for the
organization of which the municipality is a member.
In addition, the sophistication of the parties may bear on whether they
knowingly and voluntarily agreed to a contract's terms. See McMahon v. City
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of Newark, 195 N.J. 526, 546 (2008) (enforcing a contract between sophisticated
parties). While sophistication alone is a not a sufficient ground on which to
enforce an arbitration provision, Garfinkel, 168 N.J. at 136, the heightened
scrutiny given to an arbitration provision in a consumer contract is not warranted
where, as presumably is the case here, both parties to the contract were
represented by counsel at the time the agreement was executed.
We leave to the trial court's discretion whether an evidentiary hearing is
necessary to determine whether JIF and the municipality mutually assented to
arbitrate coverage disputes under the policy. The issue may be amenable to
resolution by submission of affidavits if the municipality agrees with JIF's
position.
The March 8, 2019 order is vacated and the matter is remanded to the trial
court for further proceedings consistent with this opinion. We do not retain
jurisdiction.
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