A class action waiver in a residential lease agreement was recently found enforceable by the New Jersey Supreme Court.
On July 10, 2024, the New Jersey Supreme Court issued its decision in William Pace v. Hamilton Cove, where the Court recognized a landlords’ right to protect its against class action lawsuits by including a waiver provision in its lease agreements. The case highlights the protections that can be afforded through a well drafted contracts and establishes an important precedent recognizing that businesses can generally protect themselves from class action lawsuits with well drafted consumer contracts. In its decision, the court held that class action waivers in consumer contracts are not inherently against public policy and can generally enforced. While there are circumstances when such waivers may be unconscionable or in violation of state contract law and, therefore, unenforceable; the Court found that waiver was enforceable in this case. The Court explained that the plaintiffs had executed a lease agreement which clearly waived their right to a class action, and the lease agreement was not unconscionable. As such, the landlord was entitled to enforce the class action waiver clause.
In reaching its decision, the Court made several notable determinations:
1. Class actions allow vulnerable groups with small claims to access the courthouse, promoting judicial economy, cost-effectiveness, convenience, consistent treatment, protection from inconsistent obligations, and shared litigation costs. The requirements for class certification are interpreted liberally.
2. Courts have upheld class waivers with arbitration agreements due to arbitration-protective policies under the Federal Arbitration Act (FAA) and state arbitration acts, but arbitration provisions are not necessary for class waiver enforceability. Despite the policy goals of class actions, they can still be waived contractually. New Jersey law supports the freedom to contract unless it violates public policy, and legislatures can override this freedom in specific cases. In this case, there was no statutory provision expressly permitting class actions or a clear public policy statement against class action waivers.
3. Class action waivers, even when not paired with mandatory arbitration provisions, are not inherently unenforceable. However, any specific class action waiver can be deemed unenforceable if it is found to be unconscionable or invalid based on general contract principles. This determination follows the same criteria whether or not the contract includes an arbitration clause.
4. When unconscionability is claimed as a defense, courts should perform a detailed analysis of both procedural and substantive unconscionability. A contract of adhesion, typically presented on a take-it-or-leave-it basis without negotiation opportunities, inherently involves some procedural unconscionability. New Jersey courts use the “Rudbart factors” to evaluate whether such contracts are enforceable, which were delineated in the Court’s 1992 decision, Rudbart v. N. Jersey Dist. Water Supply Comm’n, 127 N.J. 344, 356 (1992). Those factors are (1) the contract's subject matter, (2) the parties' bargaining positions, (3) economic compulsion, and (4) public interests. These factors help determine if a contract is so oppressive or contrary to public policy that it would be unconscionable to enforce it.
5. In this case, plaintiffs knowingly and voluntarily waived their right to a class action. The agreement was clear and understandable, satisfying the requirements of the New Jersey Consumer Fraud Act (CFA), and explicitly informed plaintiffs they could only sue individually. Although the lease could be seen as a contract of adhesion, this alone does not determine its enforceability. Applying the Rudbart factors the Court found that: (1) the contract is a consumer housing agreement under the CFA, (2) neither party had significantly more bargaining power, (3) there was no evidence of economic compulsion, and (4) the class action waiver does not prevent plaintiffs from individually enforcing their rights under the CFA. Therefore, the waiver was not unconscionable, and it was an enforceable provision of the lease agreement.
The New Jersey business transaction attorneys at Kemeny, Ramp & Renaud, LLC are available to assist in contract drafting and negotiation. The firm's business litigation attorneys are available if a business dispute has arisen. Call us at (732) 853-1725 to learn more.
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