Companies Beware: Pay Your Arbitration Fees Or Risk Losing Your Right to Arbitrate

A decision by a judge of the U.S. District Court for the District of New Jersey on October 17, 2019, in Rachel A. Page v. GPB Cars 12, LLC d/b/a North Plainfield Nissan et al. (link to: opinion), stands as a critical warning for companies seeking to enforce arbitration agreements – pay your arbitration fees or risk losing your ability to force arbitration.

The underlying case against the defendant car dealership involved allegations of violations of New Jersey’s Consumer Fraud Act and Consumer Service Contract Act. The plaintiff filed a demand for arbitration with the American Arbitration Association (AAA) per the terms of the parties’ agreement, which required North Plainfield Nissan to advance the fees for the arbitration. After serving the arbitration demand, and after two letters by AAA providing notice of the required fee, North Plainfield Nissan failed to pay and the AAA dismissed the arbitration. The plaintiff then filed suit in federal district court.

Refusing to compel arbitration, the district court ruled that the plaintiff’s service of the arbitration demand was valid under the AAA’s rules, which provide for broad means of service on a party or its representative. Citing a decision from the New Jersey Supreme Court, the federal district court held that North Plainfield Nissan’s failure to pay the fee was a material breach of the arbitration agreement, relieving the plaintiff of its obligations to arbitrate the dispute.

Although North Plaintiff Nissan won in the end – the district court went on to dismiss the plaintiff’s claims - for those companies with arbitration clauses in their commercial agreements, this decision is a reminder that diligent monitoring to ensure that all required fees are paid is critical. If required under the agreement, a party’s failure to pay fees can relieve the other party of its obligation to arbitrate.

For more information on this decision or arbitration agreements please contact Kathleen Barnett Einhorn, Esq., Chair of the Firm’s Complex Commercial Litigation Group, or Jennifer Borek, Esq., Partner in the Complex Commercial Litigation Group.