CORCHADO et al v. FOULKE MANAGEMENT CORP. et al
MEMORANDUM OPINION AND ORDER denying without prejudice Defendants 3 Motion to Compel Arbitration and Stay proceedings and 14 Motion to Compel Arbitration and Stay proceedings. ORDERED that Defendants are granted leave to file a renewed Motion to Compel after limited discovery re: arbitrability issue, etc.. Signed by Magistrate Judge Joel Schneider on 5/6/2016. (TH, )
[Doc. Nos. 3, 14]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
MICHELE RENN CORCHADO,
Civ. No. 15-6600 (JBS/JS)
FOULKE MANAGEMENT CORP., et
MEMORANDUM OPINION AND ORDER
This Opinion addresses whether plaintiffs are required to
arbitrate this dispute in view of their contention that they were
agreements. The Court holds that it will make this gateway or
arbitrability ruling after limited discovery is taken.
This matter is before the Court on two “Motion[s] to Compel
Arbitration and Stay Proceedings” [Doc. Nos. 3, 14]. The first
motion was filed by defendant Foulke Management Corp. (“Foulke”)
directed towards plaintiffs Michele Renn Corchado (“Corchado”) and
Jonathan Musso (“Musso”) [Doc. No. 3]. The second motion was filed
by defendant Wells Fargo Dealer Services (“Wells Fargo”) directed
solely to Musso [Doc. No. 14].1
The Court received Corchado and
Musso’s (collectively “plaintiffs”) joint brief in opposition to
Foulke and Wells Fargo’s (collectively “defendants”) motions,
[Doc. No. 16], as well as defendants’ joint reply [Doc. No. 17].2
PREJUDICE. Because there are fact issues as to whether the parties
mutually assented to arbitration, the Court will grant the parties
defendants may refile their motion requesting to refer plaintiffs’
claims to arbitration. The Court also rules that the gateway issue
of arbitrability will be decided by the Court rather than an
Hereinafter, the Court will refer to the first motion as “Foulke
Motion” and the second motion as “Wells Fargo Motion.”
2 Defendants Foulke and Wells Fargo are represented by the same
arbitrations for both plaintiffs. Foulke Mot. at 12 [Doc. No. 31]. Subsequently, counsel filed the Wells Fargo motion, seeking to
compel arbitration as to Musso only. Wells Fargo Mot. [Doc. No.
14-2]. Wells Fargo is a defendant by virtue of count three of the
complaint, which avers that Wells Fargo is the “holder in due
course” of Musso’s retail installment contract. See Compl. at ¶
140 [Doc. No. 1]. Although the need for limited discovery prevents
a determination as to arbitrability at this time, the Court will
sever the claims of Corchado and Musso in a separate Order entered
concurrently with this ruling. After severance, the cases will be
consolidated for purposes of discovery and case management.
This action arises out of two separate incidents in which
Corchado and Musso made separate, aborted attempts to purchase
purchase began January 28, 2015 when she attempted to buy a used
Toyota pickup truck from Mt. Ephraim Chrysler Dodge. Compl. at ¶¶
87, 88 [Doc. No. 1]. Musso’s transaction took place at Cherry Hill
Mitsubishi, and occurred on and about the weekend of April 25-26,
2015. During that period Musso went to Cherry Hill Mitsubishi on
several occasions in an attempt to buy a used Ford Edge using a
trade-in vehicle to offset the purchase price. Id. at ¶¶ 8, 9, 27.
During their time at the respective dealerships, Corchado and
Musso signed stand-alone arbitration agreements in addition to
other contract documents. See Foulke Mot. Ex. C [Doc. No. 3-4];
Wells Fargo Mot. Ex. A [Doc. No. 14-3]. Although plaintiffs do not
dispute that their signatures appear on the arbitration agreements
at issue, they contend their signatures were obtained by fraud,
trickery, and deceit and, therefore, they did not assent to
arbitration. More specifically, Corchado contends that a salesman
at Mt. Ephraim Chrysler Dodge induced her to sign her arbitration
agreement by misrepresenting that the papers she was signing were
intended merely to confirm that she had sufficient insurance to
take a vehicle home for a weekend-long test drive. Pltfs’ Opp. at
3 [Doc. No. 16]; Declaration of Michele Renn Corchado at ¶ 19 [Doc.
No. 16-2] (“Corchado Declaration”). In addition, Corchado alleges
that employees of Foulke used their hands to physically cover up
portions of the documents she signed. Pltfs’ Opp. at 4 [Doc. No.
16]; Corchado Dec. at ¶ 36 [Doc. No. 16-2].
Musso also alleges that the arbitration agreement he signed
was manually covered up while he signed it, and that he was induced
to sign by Foulke’s disingenuous practices. Pltfs’ Opp. at 6-7;
Declaration of Jonathan Musso at ¶¶ 23-25, 31 [Doc. No. 16-4]
(“Musso Declaration”). The purported scheme to secure Musso’s
employee. The employee told Musso that Musso must sign certain
documents before he could use the dealership’s free short-term
loaner vehicle. Pltfs’ Opp. at 6-7 [Doc. No. 16]; Musso Dec. at ¶¶
22-26 [Doc. No. 16-4]. The dealership offered Musso the use of a
loaner to replace his trade-in vehicle while his Ford Edge was
being prepared for final delivery. Id. This circumstance put
pressure on Musso, as he was forced to choose between signing the
documents or being without a vehicle until the Ford Edge was ready.
Id. Musso signed the arbitration agreement in question, among other
documents, at that time. Pltfs’ Opp. at 5-6 [Doc. No. 16].
identical. In relevant portion they read:
“DISPUTES COVERED: This agreement applies to all claims
and disputes between you and us. This includes, without
limitation, all claims and disputes arising out of, in
connection with, or relating to: ...
Any negotiation between you and us;
Any Claim or dispute based on an allegation of fraud or
misrepresentation, including fraud in the inducement of
this or any other agreements;
Any claim or dispute based on a federal or state statute
including but not limited to the N.J. Consumer Fraud
Act, N.J.S.A. 56:8-1, et seq. and the Federal Truth in
See Foulke Mot. at 4 [Doc. No. 3-1]; Wells Fargo Mot. at 3.
[Doc. No. 14-2].
Plaintiffs’ complaint contains six counts alleging defendants
violated several state and federal statues including the New Jersey
Consumer Fraud Act and the Federal Truth in Lending Act. Compl. at
¶¶ 126, 144, 147, 150 [Doc. No. 1]. Plaintiffs’ complaint contains
signings of their arbitration agreements were based on defendants’
“material misrepresentations and concealments[.]” Id. at ¶¶ 134137 [Doc. No. 1]. In other words, plaintiffs allege fraud in the
inducement of their arbitration agreements.
Defendants argue that plaintiffs’ claims fall within the
parameters of their arbitration agreements and request that the
case be stayed pending arbitration. See Foulke Mot. at 6 [Doc. No.
3-1]; Wells Fargo Mot. at 6 [Doc. No. 14-2]. Defendants’ argument
is predicated on the arbitration agreements signed by Musso and
Corchado, which defendants contend show plaintiffs clearly and
dispute. Id. at 10. In support of their position defendants note
arbitration agreement, including claims that the Plaintiffs were
fraudulently induced into signing the arbitration agreements is to
be decided by the Arbitrator and not the Court.” Joint Reply at 4
[Doc. No. 18]. Defendants support this argument by highlighting
the language in their arbitration agreements which state that the
arbitrator decides disputes “based on an allegation of fraud or
misrepresentation, including fraud in the inducement of this or
any other agreements.” Id.
arbitration agreements, as creatures of contract law, can only be
enforced if they are predicated on the mutual assent of the
parties. Pltfs’ Opp. at 10 [Doc. No. 16]. Plaintiffs deny they
assented to arbitration. Accordingly, plaintiffs argue, their
defendants’ request to arbitrate be denied. Id.
1. Standard of Review
The Third Circuit has dictated a two-tier standard of review
a court must apply in deciding a motion to compel arbitration. See
Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764
(3d Cir. 2013). If it is apparent on the face of the complaint and
contained within the complaint are subject to arbitration, the
case is considered under a motion to dismiss standard pursuant to
Fed. R. Civ. P. 12(b)(6). Id. at 774-76. The motion to dismiss
standard is, however, inappropriate where “either the motion to
compel arbitration does not have as its predicate a complaint with
the requisite clarity to establish on its face that the parties
agreed to arbitrate or the opposing party has come forth with
reliable evidence that is more than a naked assertion ... that it
did not intend to be bound by the arbitration agreement, even
though on the face of the pleadings it appears that it did.” Id.
at 774 (quotation and citations omitted). In such circumstances,
“the parties should be entitled to discovery on the question of
arbitrability before a court entertains further briefing.” Id. at
776. After this limited discovery is completed, “the court may
entertain a renewed motion to compel arbitration, this time judging
the motion under a summary judgment standard.” Id.
2. General Principles of Arbitration
Arbitration provisions are creatures of contract law. RentA-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010). The validity
of an arbitration provision is governed by black-letter contract
principles such as offer, acceptance, consideration, and mutual
assent. See, e.g., Harrison v. Nissan Motor Corp. in U.S.A., 111
F.3d 343, 348 n.8 (3d Cir. 1997) (“[T]he warranty constituted an
offer to arbitrate that was accepted by the written request for
arbitration[.]”); Par-Knit Mills, Inc. v. Stockbridge Fabrics Co.,
636 F.2d 51, 53 (3d Cir. 1980) (”Par-knit’s duty to arbitrate, if
any, rests upon a determination as to whether or not the documents
in issue were intended by Par-knit to be contracts.”). Due to their
contractual nature, arbitration provisions are only enforceable if
“predicated upon the parties’ consent.” Guidotti, 716 F.3d at 771.
Arbitration is also governed by statute. In this case the
Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq., and the New Jersey
Uniform Arbitration Act of 2003 (“NJUAA”), N.J.S.A. 2A:23B–1, et
seq. Washington v. CentraState Healthcare Sys., Inc., C.A. No. 106279 (AET/LHG), 2011 WL 1402765, at *4 (D.N.J. Apr. 13, 2011). The
FAA embodies a “liberal federal policy favoring arbitration.”
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24
(1983). It was passed by Congress in 1925 to combat “widespread
judicial hostility to arbitration agreements.” AT&T Mobility LLC
v. Concepcion, 563 U.S. 333, 339 (2011). With the FAA in place,
courts must “place arbitration agreements on an equal footing with
other contracts and enforce them according to their terms.” Id.
(citations omitted). Essentially, the FAA prohibits courts from
subjecting arbitration provisions to more rigorous requirements
than other contracts or invalidating them based on defenses unique
to arbitration. Id.
Section 2 of the FAA provides: “A written provision in ... a
contract evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of such contract
... shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. The “saving clause” at the end of Section
2 indicates that the purpose of Congress “was to make arbitration
agreements as enforceable as other contracts, but not more so.”
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404
Under Section 3 of the FAA, a party may apply to a federal
court for a stay of the trial of an action “upon any issue referable
to arbitration under an agreement in writing for such arbitration.”
9 U.S.C. § 3. Section 4 of the FAA directs courts to compel parties
arbitration or the failure to comply therewith is not in issue.”
9 U.S.C. § 4. “The NJUAA has a substantive provision nearly
identical to the FAA's § 2, see N.J.S.A. 2A:23B–6(a), and a
mechanism for staying court proceedings and compelling arbitration
Washington, 2011 WL 1402765, at *4.
3. The Determination of Arbitrability/Gateway Issue
Before the Court decides whether the parties’ arbitration
agreements cover the dispute at issue, the Court must address who
decides the gateway question of arbitrability. Defendants argue
the arbitrator should make the decision. Plaintiffs argue this is
a decision for the Court. The Court sides with plaintiffs. As noted
by the Supreme Court, “if the claim is fraud in the inducement of
the arbitration clause itself—an issue which goes to the ‘making’
of the agreement to arbitrate—the federal court may proceed to
adjudicate it.” Prima Paint, 388 U.S. at 403-04.
In Rent-A-Ctr., the Supreme Court affirmed that in certain
circumstances, “parties can agree to arbitrate ‘gateway’ questions
of ‘arbitrability,’ such as whether the parties have agreed to
controversy.” 561 U.S. at 68. The Court’s reasoning extends from
the contractual nature of arbitration agreements. Id. In the
Supreme Court’s view, “[a]n agreement to arbitrate a gateway issue
is simply an additional, antecedent agreement the party seeking
arbitration asks the federal court to enforce.” Id. at 70. Where
parties “clearly and unmistakably” agree to submit gateway issues
arbitration is appropriate. Id. at 69 n.1 (citing First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). However, in
making its ruling the Supreme Court affirmed that arbitration
defenses, such as fraud, duress, or unconscionability.” Rent-ACtr., 561 U.S. at 68. Here, plaintiffs raise a generally applicable
contract defense as to their stand-alone arbitration agreements,
i.e., fraud in the inducement. Pltfs’ Opp. at 11 [Doc. No. 16].
Thus, the gateway issue must be decided by the Court.
Generally, to determine whether the Court or an arbitrator
should decide the gateway issue the Court must ascertain whether
the parties agreed to arbitrate. Defendants rely on the language
decides claims of fraud in the inducement. However, under New
Jersey law, “[a]rbitration’s favored status does not mean that
every arbitration clause, however phrased, will be enforceable.”
Atalese v. U.S. Legal Servs. Grp., L.P., 99 A.3d 306, 312 (N.J.
2014), cert. denied, 135 S. Ct. 2804 (2015). “An agreement to
arbitrate, like any other contract, must be the product of mutual
assent, as determined by customary principles of contract law.”
Id. at 312-13. Customary principles of contract law require a
“meeting of the minds” between the parties. Id. at 313. This
meeting of the minds, also called “[m]utual assent[,] requires
that the parties have an understanding of the terms to which they
have agreed.” Id. Where contract formation requires one or more
parties to waive their rights, such waiver is only effective if
the waiving party has “full knowledge of his legal rights and
intent to surrender those rights.” Id. Stated another way, a party
cannot be required to submit a dispute to arbitration which he has
not agreed to submit. Angrisani v. Financial Technology Ventures,
L.P., 952 A.2d 1140, 1148 (N.J. Super. Ct. App. Div. 2008).
In Atalese, the plaintiff contracted for debt-adjustment
services with the defendant. 99 A.3d at 309. The arbitration
provision indicated that claims against the defendant would be
subject to arbitration, but failed to specify that the plaintiff
was waiving her right to seek relief in court. Id. The defendants
argued that the term arbitration has a commonly accepted meaning
that put the plaintiff on notice she was waiving her right to seek
relief in court. Id. at 311. The New Jersey Supreme Court rejected
the defendant’s argument and found the agreement to arbitrate
unenforceable. Id. at 316.
The Atalese decision was based on the State’s substantive
body of contract law, under which a party may only agree to
contractual provisions waiving the party’s rights by “clearly and
unmistakably” agreeing to its terms. Id. at 314. Under New Jersey
law waiving a right requires a “clear, unequivocal, and decisive
act of the party.” Id. Arbitration provisions necessarily contain
at least one right which must be waived, “the right to pursue a
particular care in assuring the knowing assent of both parties to
arbitrate.” Id. This “particular care” is not the product of animus
against arbitration provisions. Instead, New Jersey’s waiver-ofrights requirements are enforced as to all contracts containing a
waiver of rights. Id. at 314.
Here, plaintiffs maintain defendants’ alleged fraud prevented
them from assenting to their arbitration agreements. Corchado and
Musso support their contentions with declarations from themselves
and at least one third-party witness.3 Plaintiffs’ allegations
qualify as “more than a naked assertion” that plaintiffs “did not
intend to be bound by the arbitration agreement[s].” See Guidotti,
716 F.3d at 774. Defendants argue that if the Court accepts
plaintiffs’ position a party can avoid or delay arbitration by
simply alleging fraud. The Court disagrees. The Guidotti decision
addressed this exact argument. 716 F.3d at 778. The decision
concluded that sworn statements which factually support a nonmoving
agreement to arbitrate are generally sufficient to raise fact
questions warranting further discovery. Id. This is precisely what
has occurred here.
Defendant argues that an arbitrator should decide the gateway
arbitrability issue even when a colorable fraud in the inducement
claim exists as to a stand-alone arbitration agreement. This
argument disregards the holding in Atalese as well as Prima Paint.
As noted, plaintiffs have made a colorable claim of fraud.4 In view
of plaintiffs’ evidence alleging fraud in the inducement of their
See Declaration of Brandy Corchado [Doc. No. 16-3]; Declaration
of Morgan Risko [Doc. No. 16-5]; Declaration of Debbie Bertolini
[Doc. No. 16-6].
4 To be sure, the Court is not making any findings of fact; the
Court is simply ruling that plaintiffs’ fraud claims are supported
by competent evidence (i.e. declarations) and are more than naked
stand-alone arbitration agreements, and therefore no assent to
arbitration, it would be anomalous to hold an arbitrator should
decide the gateway arbitration issue. If a valid arbitration
agreement does not exist, then an arbitrator is “out of the
picture.” The Court will not give effect to defendants’ contract
provision regarding fraud in the inducement that is inconsistent
with Atalese and Prima Paint.
As noted, the Court rejects defendants’ argument that an
arbitrator should decide the gateway question of arbitrability.
Considering Atalese, Guidotti and Prima Paint in concert, the
Court’s holding is well supported. Pursuant to these authorities,
there can be no agreement to arbitrate absent the mutual assent of
the parties, including a clear and unmistakable waiver of the right
to litigate. Plaintiffs’ allegations directly implicate mutual
assent and the knowing and voluntary waiver of the right to sue.
In other words, plaintiffs’ allegations are targeted at the moment
of formation of the parties’ arbitration agreements. Under Section
4 of the FAA the Court is instructed to compel arbitration only
after the Court is satisfied an agreement to arbitrate exists. On
the present record, the Court cannot hold as a matter of law that
valid arbitration agreements were entered into because there is a
factual dispute as to whether there was mutual assent. Given the
present state of the record, a “restricted inquiry into factual
issues” is necessary in order for the Court to “properly evaluate
whether there was a meeting of the minds on the agreement to
arbitrate.” Guidotti, 716 F.3d at 775.
Substantial federal and state precedent supports plaintiffs’
position. As noted, in Prima Paint the Supreme Court specifically
stated that where a party alleges fraud in the inducement of an
arbitration agreement a federal court should hear the dispute, not
an arbitrator. Prima Paint, 388 U.S. at 402. The Third Circuit
also favors judicial determination on questions of arbitrability.
See Guidotti, 716 F.3d at 775; Quilloin v. Tenet HealthSystem
Philadelphia, Inc., 673 F.3d 221, 228 (3d Cir. 2012) (“[Q]uestions
agreement’s validity, are presumed to be questions for judicial
consistent with the approach of the New Jersey Appellate Division
Companies, 101 A.3d 1126, 1132 (App. Div. 2014) (holding lack of
explicit waiver of right to litigate prevented mutual assent of
the parties); Epstein v. Wilentz, Goldman & Spitzer, P.A., No. A1157-14T1, 2015 WL 9876918, at *3 (N.J. Super. Ct. App. Div. Jan.
22, 2016) (“The parties must have full knowledge of the legal
rights they intend to surrender.”); see also Min Fu v. Hunan of
Morris Food Inc., 2103 WL 5970167, at *5 (App. Div. Nov. 6,
2013)(“To establish lack of assent to a contract, courts look to
evidence of fraud or misrepresentation by the other party[.]”).
Defendants’ requested result runs contrary to the language of
the FAA. The saving clause of Section 2 of the FAA gives federal
invalidate them based on generally applicable contract defenses.
Section 4 directs federal courts to compel arbitration after
evaluating “the making of the agreement for arbitration.” 9 U.S.C.
§ 4. The combination of these two sections evidences that Congress
intended to give federal courts a window of jurisdiction over the
“making” or formation of arbitration agreements during which they
may evaluate an arbitration agreement under generally available
contract defenses. To construe the FAA another way would read
Section 2’s saving clause out of the statute. The Court will not
As noted herein, the Court is not able at this time to issue
a final decision as to whether plaintiffs’ claims are subject to
arbitration. This is so because of the parties’ fact disputes. The
fact disputes preventing the immediate resolution of the gateway
arbitrability issue are directed to whether the parties mutually
include, but are not necessarily limited to, the representations
made by Foulke’s employees to Corchado and Musso, and whether
Foulke’s employees covered portions of the arbitration agreements
when plaintiffs signed them. After limited discovery is taken, the
Guidotti, 716 F.3d at 775; Thomas Global Grp., LLC v. Watkins,
C.A. No. 13-04864 SRC, 2014 WL 1371719, at *7 (D.N.J. Apr. 8, 2014)
("Limited discovery into the existence of an agreement to arbitrate
will presumably shed light on such interpretative evidence, should
any exist, which is one reason why Guidotti requires discovery
into the question in all but the clearest circumstances.”). The
standard. Guidotti, 716 F.3d at 776. If fact questions still exist,
they must be resolved by a factfinder. Id. at 780.
CONCLUSION AND ORDER
Accordingly, and for the foregoing reasons,
IT IS hereby ORDERED this 6th day of May, 2016, that the
“Motion[s] to Compel Arbitration and Stay Proceedings” [Doc. Nos.
3, 14] filed by defendants Foulke and Wells Fargo are DENIED
WITHOUT PREJUDICE; and it is further
ORDERED that defendants are granted leave to file a renewed
motion to compel arbitration after limited discovery regarding the
arbitrability issue; and it is further
ORDERED that in a separate Order the Court will schedule a
conference to address a schedule moving forward. Prior to the call
the parties shall meet and confer to identify the limited discovery
they request to take directed to whether the parties’ mutually
assented to their arbitration agreements.
s/ Joel Schneider
United States Magistrate Judge
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