By Doyice Cotten
Reese Sayre was four years old when her father took her to a trampoline park. On entering, he signed an electronic agreement in which he agreed to arbitration in the event Reese was injured. The agreement stated that the father was waiving his child’s right to bring a claim in court against the park’s owners, employees, and agents and the child could pursue claims only through binding arbitration.
Reese broke her leg jumping on a trampoline and now appeals an order granting defendants’ motion to dismiss her personal-injury complaint and compelling her claims to arbitration. The Arbitration Provision stated that the father and plaintiff were waiving their rights to bring a lawsuit against the Sky Zone defendants and, instead, were agreeing to arbitrate any claims related to an injury at the park. Interestingly, the agreement had an unusual provision included:
I acknowledge that I have agreed that my sole remedy is to [arbitrate] such claim, and that such claim may only be brought against [Sky Zone] in accordance with the above Waiver of Trial, and Agreement to Arbitrate.
If, despite my express agreement to arbitrate any claims of injury and/or disputes regarding this agreement, I file or otherwise initiate a lawsuit against [Sky Zone], I agree to pay within 60 days liquidated damages in the amount of $5,000 to [Sky Zone]. Should I fail to pay this liquidated damages amount within the 60 day time period provided by this Agreement, I further agree to pay interest on the $5,000 amount calculated at 12% per annum.
The parents filed a complaint in the Law Division alleging that plaintiff had sustained a tibia fracture while participating in trampoline activities at the Sky Zone park in 2017. The Sky Zone defendants moved to dismiss the complaint and compel arbitration. The trial court order compelled plaintiff to arbitrate her claims against the Sky Zone.
This appeal followed (Sayre v. Sky Zone, LLC, 2022). Plaintiff made four arguments in the appeal. She argued that:
(1) her father did not agree to waive her right to a jury trial; (2) she cannot be compelled to arbitrate because the Arbitration Provision stated that the arbitration would be conducted by JAMS, but JAMS was not conducting arbitrations in New Jersey when her father signed the Agreement in 2017; (3) the Agreement contained unconscionable provisions that could not be severed; and (4) her complaint should not have been dismissed because her claims against Abeo and Fun Spot were not subject to arbitration.
The Enforceability of the Arbitration Provision
The court stated that The New Jersey Arbitration Act (NJAA), N.J.S.A. 2A:23B-1 to -36, enunciates a policy favoring arbitration. It added that such agreements are enforceable, but may be invalidated under principles of contract law. To be enforceable, there must be mutual assent, a meeting of the minds, and must clearly identify any legal rights being waived.
It cited Hojnowski, stating that “a parent can bind a minor to an arbitration agreement so long as the adult assents to the arbitration agreement on behalf of the minor.” The Hojnowski court reasoned that a parent can bind a minor to an arbitration agreement because an agreement to arbitrate is not a waiver of the right to bring a claim; rather, the arbitration agreement provides for the forum where the claim will be heard. However, in New Jersey a parent may not sign away the rights of a minor to bring a claim – such as by waiver of liability.
Here, the court ruled the language of the Arbitration Provision in the Agreement signed by plaintiff’s father clearly stated that if plaintiff is injured while at the trampoline park, she has waived her right to trial in a court of law before a judge and jury and that she could pursue personal-injury claims only through binding arbitration. The court added that as legal guardian, plaintiff’s father had the authority to waive her right to go to court.
The Liquidated Damages Clause and Unconscionable Provisions
Plaintiff argues that arbitration was optional under the Agreement because the Arbitration Provision included a liquidated damages clause allowing her to pay $5,000 if she chose to file a lawsuit against the Sky Zone defendants. The court rejected the liquidated damages claim “because it is inconsistent with the plain language of the liquidated damages clause. The clause does not give an option; rather, it sets forth a penalty if a plaintiff files a lawsuit rather than pursue arbitration.”
The court that courts scrutinize stipulated damages provisions for “reasonableness.” Courts closely scrutinize such damages because they may constitute an oppressive penalty. In this case, the $5,000 was viewed as a penalty rather than damages.
1 – Because a parent can waive a minor’s right to go to court, Hojnowski v. Vans Skate Park, 187 N.J. 323, 343 (2006), we affirm the portion of the order compelling arbitration of the claims against defendants Sky Zone, LLC, Sky Zone Franchise Group, LLC, MGB Monmouth, LLC, and CircusTrix Holdings, LLC (collectively, the Sky Zone defendants).
2 –We reverse and remand for entry of a new order compelling the claims against the Sky Zone defendants to arbitration and staying the Law Division action, including the claims against defendant Abeo North America, Inc. (Abeo) and Fun Spot Manufacturing, LLC (Fun Spot). Fun Spot and Abeo are not parties to the agreement or its arbitration provision. Nor are they agents of the Sky Zone defendants. Consequently, the claims against Fun Spot and Abeo are to be stayed until arbitration is completed.
3 – We also hold that the “liquidated damages” clause in the agreement is unenforceable because it is a penalty.
Risk Management Take-Away
Some of the defendants were not named in the agreement as protected parties. Take care to insure that all parties you want to protect are named.
Note: This writer fails to see the reasoning in New Jersey. If a parent cannot waive the rights of the minor, why should the parent be able to arbitrate the rights of the minor. In each case, the rights of the minor are at issue. Why allow the parent to make a “bad deal” on behalf of the minor.
Photo Credit: Thanks to Todd Van Hoosear via Flickr.