By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Arbitration Attorney

Courts have been narrowing what qualifies as an enforceable arbitration agreement. A federal judge in Newark denied a motion by a big international electronics company to compel arbitration in a class action case over allegedly faulty batteries in the company’s smartwatches.

The basis for the court’s decision? “The clause in the consumer purchase contract requiring arbitration of disputes was not sufficiently conspicuous under New Jersey law to provide notice of the arbitration provision”, said the U.S. District Judge.

Nothing on the outside of the manual identifies it as a document that includes a waiver of legal rights, and to expect users to page through almost every page of the manual to find the arbitration agreement is unreasonable, the court said.

The court denied the company’s motion to compel arbitration, dismiss the class claims and stay the proceedings.

According to the suit, the manufacturer made claims on its website and in press releases that the watch’s battery would last 24 to 48 hours without charging.

But plaintiffs alleged that the battery in the smartwatch lasts about four hours before needing to be recharged.

Plaintiffs filed suit raising claims for fraud under the New Jersey Consumer Fraud Act and under common law, negligent misrepresentation, breach of express and implied warranty and unjust enrichment. The manufacturer moved to compel arbitration.

Applying a New Jersey Supreme Court’s ruling which holds that an agreement to arbitrate must be the product of mutual assent, mandatory arbitration clauses “must be” conspicuously presented so that the purchaser knows or reasonably should know, the legal rights he or she intends to surrender.

“That is not to say that arbitration clauses have to be set aside as separate freestanding documents or printed on packages,” said the court. “They do not. But, in order for an arbitration provision to be sufficiently conspicuous under New Jersey law, the consumer must have a fair opportunity to know that it exists. That is what the manufacturer failed to do, it did not give consumers that opportunity,” the judge said. “Therefore, no meeting of the minds could have occurred. Without that, the arbitration agreement is unenforceable.”

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