Appendix — County Bank of Rehoboth Beach, Delaware v. Muhammad, 127 S. Ct. 2032 (2007) (No. 907)

WEIR & PARTNERS LLP

A Pennsylvania Limited Liability Partnership

Susan Verbonitz, Esquire

Marc J. Zucker, Esquire

20 Kings Highway West

Haddonfield, New Jersey 08033

(856) 740-1490

Attorneys for County Bank of Rehoboth Beach, Delaware

SWEENEY & SHEEHAN, P.C.

J. Michael Kunsch, Esquire

Sentry Office Plaza, Suite 500

216 Haddon Avenue

Westmont, NJ 08108

(856) 869-5600

MANATT PHELPH & PHILLIPS LLP

Claudia T. Callaway, Esquire

Pro hac vice

One Metro Center

700 12" Street N.W., Suite 1100

Washington, D.C. 20005

(202) 585-6504

Attorneys for Main Street Service Corp.

F2

JALIYAH MUHAMMAD, : SUPREME COURT OF

on her own behalf and all : NEW JERSEY

others similarly situated,

Plaintiff/Appellant, :

: Docket No. 58,430

v.

COUNTY BANK OF : NOTICE OF MOTION FOR

REHOBOTH BEACH, : RECONSIDERATION OF

DELAWARE, EASY : COURT DECISION OF

CASH TELECASH AND — : AUGUST 9, 2006

MAIN STREET SERVICE :

CORPORATION,

JOHN DOE AND

JOHN ROE,

Defendants/

Respondents

To: All counsel listed below:

PLEASE TAKE NOTICE that as soon as counsel

may be heard, the undersigned attorneys for

Defendants/Respondents, County Bank of Rehoboth Beach,

Delaware and Main Street Service Corporation, shall move

before the Supreme Court of New Jersey, Hughes Justice

Complex, 25 West Market Street, Trenton, New Jersey

08625, for an order granting their Motion for

Reconsideration of the Court’s decision dated August 9,

2006. A copy of the Court’s August 9, 2006 decision is

attached to this Notice of Motion. In support of this Motion,

Defendants/Respondents will rely upon the attached

Memorandum of Law, containing the basis and ground of

said Motion.

To:

F3

WEIR & PARTNERS LLP

A Pennsylvania Limited Liability Partnership

By:___/s/

Marc J. Zucker, Esquire

Susan Verbonitz, Esquire

20 Kings Highway West

Haddonfield, NJ 08033-2116

(856) 740-1490

Attorneys for County Bank of Rehoboth

Beach Delaware

SWEENEY & SHEEHAN, P.C.

By:___/s/

J. Michael Kunsch, Esquire

Sentry Office Plaza, Suite 500

216 Haddon Avenue

Westmont, NJ 08108

(856) 869-5600

MANATT PHELPH & PHILLIPS LLP

Claudia T. Callaway, Esquire

One Metro Center

700 12th Street N.W., Suite 1100

Washington, D.C. 20005

(202) 585-6504

Attorneys for Main Street Corp.

Donna Siegel Moffa, Esquire

TRUJILLO, RODRIGUEZ & RICHARDS, LLC

8 Kings Highway West

Haddonfield, NJ 08033

F4

Michael J. Quirk, Esquire Mark Cuker, Esquire

WILLIAMS CUKER BEREZOFSKY

One Penn Center at Suburban Station

1617 JFK Boulevard, Suite 800

Philadelphia, PA 19103-1819

William J. Pinilis, Esquire Pinilis Halpern LLP

237 South Street, Lower Level

Morristown, NJ 07960

Deborah M. Zuckerman, Esquire AARP Foundation

601 E Street, NW

Washington, DC 20049

Andrew B. Joseph, Esquire Drinker

Biddle & Reath LLP

500 Campus Drive

Florham Park, NJ 07932

Jeffrey J. Brookner, Esquire Wilentz,

Goldman & Spitzer

90 Woodbridge Center Drive

Suite 900, Box 10

Woodbridge, NJ 07095

Peter C. Harvey

Attorney General of New Jersey

R.J. Hughes Justice Complex

25 Market Street

Trenton, NJ 08625

F5

JALIYAH MUHAMMAD, : SUPREME COURT OF

on her own behalf and all : NEW JERSEY

others similarly situated, ;

Plaintiff/Appellant, :

: Docket No. 58,430

Vv.

COUNTY BANK OF : PROOF OF SERVICE

REHOBOTH BEACH,

DELAWARE, EASY

CASH TELECASH AND

MAIN STREET SERVICE

CORPORATION,

JOHN DOE AND

JOHN ROE,

Defendants/

Respondents

I hereby certify that two true and correct copies of

Defendants/Respondents’ Motion for Reconsideration and

this Certification of Service are being duly served upon each

of the counsel for the Plaintiff/Appellant and amici

applicants, by first class mail, on August 21, 2006, addressed

as follows:

Donna Siegel Moffa, Esquire

TRUJILLO, RODRIGUEZ & RICHARDS, LLC

8 Kings Highway West

Haddonfield, NJ 08033

Michael J. Quirk, Esquire

Mark Cuker, Esquire

WILLIAMS CUKER BEREZOFSKY

One Penn Center at Suburban Station

1617 JFK Boulevard, Suite 800

Philadelphia, PA 19103-1819

F6

William J. Pinilis, Esquire

Pinilis Halpern LLP

237 South Street, Lower Level

Morristown, NJ 07960

Deborah M. Zuckerman, Esquire

AARP Foundation

601 E Street, NW

Washington, DC 20049

Andrew B. Joseph, Esquire

Drinker Biddle & Reath LLP

500 Campus Drive

Florham Park, NJ 07932

Jeffrey J. Brookner, Esquire

Wilentz, Goldman & Spitzer

90 Woodbridge Center Drive

Suite 900, Box 10

Woodbridge, NJ 07095

Peter C. Harvey

Attorney General of New Jersey

R.J. Hughes Justice Complex

25 Market Street

Trenton, NJ 08625

[ hereby certify that the foregoing statements made

by me are true. | am aware that if any of the foregoing

statements made by me are willingly false, I am subject to

punishment.

wraieE | Ales

Marc J. Zucker, Esquire

Dated: August 21, 2006

JALIYAH MUHAMMAD,

~ on her own behalf and all

others similarly situated,

Plaintiff/Appellant,

V.

COUNTY BANK OF

REHOBOTH BEACH,

DELAWARE, EASY

CASH TELECASH AND

MAIN STREET SERVICE.

CORPORATION,

JOHN DOE AND

JOHN ROE,

Defendants/

Respondents

SAT BELOW:

F7

: SUPREME COURT OF

: NEW JERSEY

: Docket No.: 58,430

: ON INTERLOCUTORY

: REVIEW OF JULY 14,

: 2005 DECISION OF

: APPELLATE DIVISION

: STAYING ACTION AND

: COMPELLING

;: ARBITRATION

HON. HOWARD H. KESTIN, PJAD

HON. STEVEN L. LEFELT, JAD

HON. JOSEPH A. FALCONE, JAD

SUPERIOR CT OF NJ, APP. DIV.

Docet No. A-0558-04T3

MEMORANDUM OF LAW IN SUPPORT OF

DEFENDANTS’/RESPONDENTS’ MOTION FOR

RECONSIDERATION

F8

On the brief:

WEIR & PARTNERS LLP

A Pennsylvania Limited Liability Partnership

Marc J. Zucker, Esquire

Susan Verbonitz, Esquire

20 Kings Highway West

Haddonfield, New Jersey 08033

(856) 740-1490

Attorneys for County Bank of Rehoboth Beach, Delaware

SWEENEY & SHEEHAN, P.C.

J. Michael Kunsch, Esquire

Sentry Office Plaza, Suite 500

216 Haddon Avenue :

Westmont, NJ 08108

(856) 869-5600

Attorneys for Main Street Service Corp.

Of counsel for Main Street Service Corp.:

MANATT PHELPH & PHILLIPS LLP

Claudia T. Callaway, Esquire

Pro hac vice

One Metro Center

700 12" Street N.W., Suite 1100

Washington, D.C. 20005

(202) 585-6504

Date: August 21, 2006

F9

PRELIMINARY STATEMENT

As this Court noted, its August 9, 2006 holding that

NewJersey law on_ unconscionability prohibits class

arbitration waivers in "low value" consumer arbitration

agreements represented its first articulation of this legal

principle. The decision likewise is novel in elevating the

procedural device of class arbitration, never previously

addressed by the Court, into a substantive right under certain

circumstances.

The effects of the Court's ruling are both global and

casespecific. On a global level, the Court's ruling disregards

the preemptive effect of the Federal Arbitration Act, 9

U.S.C. §§116 ("the FAA"), because it interprets New Jersey

law in a way that discriminates against arbitration

agreements in certain consumer contracts. The Court's ruling

invites arbitrary interpretation among the lower courts of this

state, as well as forum shopping between state and federal

courts in New Jersey, because it gives no guidance regarding

its newly-created distinction between "high" and "low" value

consumer claims. The Court is unable to cure this problem

through line drawing because any attempt to do so would

itself be arbitrary. By severing the class arbitration waiver

from the arbitration agreement, the Court has redrafted the

parties’ agreement in a way that conflicts with the letter and

spirit of the FAA, again subjecting New Jersey law to federal

preemption, and more immediately, creating uncertainty for

New Jersey's lower courts, consumers and businesses.

In addition the Court's ruling presents problems

specific to the instant case:

° The ruling presents federal and equitable due

process and dormant commerce clause

concerns because it applies a new

interpretation of New Jersey law retroactively

to the arbitration agreements at issue here,

'

F10

unduly burdens commerce and effects a

wholesale modification to the nature of the

parties' bargain.

° The ruling is based on findings of "facts" not

contained in the record on appeal.

° The Court should have considered defendants’

arguments regarding the Delaware choice of

law clause contained in the contracts at issue.

Defendants invite the Court to give full

consideration to its choice of law arguments,

and/or remand for the trial court to do so.

For all of these reasons, defendants respectfully

request that the Court reconsider its August 9, 2006 ruling in

this matter.

ARGUMENT

I. FEDERAL LAW PREEMPTS THIS COURT'S

HOLDING THAT CLASS WAIVERS ARE

UNCONSCIONABLE.

State law is preempted whenever it "stands as an

obstacle to the accomplishment and execution of the full

purposes and objectives of Congress." Fid. Fed. Sav. & Loan

Assn v. de la Cuesta, 458 U.S. 141, 153 (1982) (internal

quotation marks omitted). In declaring class arbitration

waivers unenforceable in "low" value cases, this Court has

placed its own policy preference for class actions squarely

above Congress's policy of ensuring the enforcement of

arbitration agreements as written. See, e.g., Mastruobuono

v. Shearson Lehman Hutton, JInc., 514 U.S. 52, 53-54 (1995)

; Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr.

Univ., 489 U.S. 468, 475 (1989). When state and

Fl}

Congressional policies clash, Congress prevails. Perry v.

Thomas, 482 U.S. 482, 491 (1987).

The FAA preempts state laws which arbitrarily

hinder arbitration, including state law which prohibits class

action waivers. See Schultz v. AT&T Wireless Services, Inc.,

376 F. Supp. 2d 685 (N.D.W.V. 2005). In Shultz, a West

Virginia district court concluded that, if West Virginia law

were read to preclude class action waivers, it would run afoul

of the FAA and be preempted. The court cited a number of

federal cases holding that the FAA preempts "state rules of

contract formation which single out arbitration clauses and

unreasonably burden the ability to form arbitration

agreements." Jd. at 689, 690 (quoting Saturn Distrib. Corp.

v. Williams, 905 F.2d 719, 723 (4th Cir. 1990)). Shultz

rejected an argument that West Virginia law enshrined a

right to class actions that could not be vitiated by an

arbitration clause, and concluded that "the plaintiffs

argument that the arbitration clause is unconscionable due to

its foreclosure of class action relief also lacks merit." /d. at

691.

The conflict contemplated in Schultz is the precise

problem presented in Muhammad. Aside from conflicts with

' The United States Supreme Court has long recognized that, "[i]f the

federal court allows arbitration where the state court would disallow it,

the outcome of litigation might depend on the courthouse where suit is

brought." Bernhardt v. Polygraphic Co., 350 U.S. 198, 203 (1956). The

converse, of course, is equally true: . Parties to a contract evidencing

interstate commerce should not be permitted to avoid arbitration by filing

their action in a state court when,, had the action been brought in federal

court, they would have been compelled to arbitrate. See Burke Co. Public

Sch. Board of Education v. Shaver Partnership, 303 N.C. 408 (1981). To

prevent such conflicts, Congress specifically imbued the FAA with

preemptive force-where state and federal law would result in disparate

rulings, the state burdening arbitration while federal law promotes it, the

federal law must govern.

F12

other appellate courts, the decision at bench conflicts with

Johnson v. West Suburban Bank, 225 F.3d 366, 374 (3d Cir.

2000), thereby creating confused and conflicting law for

New Jersey litigants.

Until now, the jurisprudence of this state did not

conflict with the FAA. Having now articulated a new

interpretation of the law, the Court's ruling will be preempted

because, as demonstrated in the succeeding sections, it

directly conflicts with the FAA, in leti-r and in spirit.

II. A RULE AGAINST CLASS ARBITRATION

WAIVERS FOR "LOW VALUE CONSUMER

CLAIMS" NECESSARILY DISCRIMINATES

AGAINST ARBITRATION AND FRUSTRATES

THE PURPOSES OF THE FAA. :

The enforceability of an arbitration agreement does

not and cannot depend on the value of the claims sought to.

be arbitrated. To subject arbitration agreements to such an ad

hoc standard for enforceability, which is not generally

applicable to other types of contracts, violates the FAA. See

Martindale v. Sandvik, Inc., 173 N.J. 76, 86 (N.J. 2002)

(quoting Perry v. Thomas, 482 U.S. at 492 n.9 (1987)

("[S]tate law, whether of legislative or judicial origin, is

applicable if that law arose to govern issues concerning the

validity, revocability, and enforceability of contracts

generally." However, states may not "decide that a contract

is fair enough to enforce all its basic terms but not fair

enough to enforce its arbitration clause" because "that kind

of policy would place arbitration clauses on an unequal

‘footing,’ directly contrary to the Act's languasce and

Congress’ intent.") See also, Schultz v. AT&T |‘ ireless

Services, Inc., 37 F. Supp. 2d 685, 690-91 (2005) ; Park v.

Merrill Lynch, 159 N.C. App. 120, 122, 582 S.E.2d 375, 378

(2003).

F13

Though irue that the FAA permits states to

regulatearbitration agreements, including enforcing or

rejecting such agreements on "grounds as exist at law or in

equity for the revocation of any contract," 9 U.S.C. § 2, the

unconscionability rule applied in this case is not a ground

that exists for any contract, but rather only for the narrow

class of terms or agreements relating to the procedures

available to claimants in arbitration, and only to certain

entities whose business may generate small dollar consumer

claims. In short, New Jersey's general rule on

unconscionability does not prohibit arbitration agreements,

or even arbitration agreements containing class waivers.

There was no federal conflict until this Court created the new

subcategory of cases that this Court has ambiguously named

"low value consumer claims.”

Indeed, this arbitrary line between "low value” and

"high value" loans would also prove unworkable in practice,

because it necessarily would invite courts to draw post hoc,

arbitrary lines between claims that are substantial "enough"

to merit individual arbitration and claims that are thought to

be too small to justify it, and without knowing the size of

claims to be asserted by other members of the putative class.

Compare, Muhammad with Delta Funding Corp. v. Harris,

2006 WL 2277984 (N.J. 2006); see Allied-Bruce Terminix

Cos. v. Dobson, 513 U.S. 265, 282 (1995) (O'Connor, J.,

concurring) (emphasizing that courts should avoid

interpreting FAA in a way that would “foster pre-arbitration

litigation that would frustrate the very purpose of the

statute"). If such a bright line should be drawn, Congress is

in the best position to draw it.

The Court's opinion articulates a preference for class

actions over the policy preference of Congress in enacting

the FAA: to ensure enforcement of arbitration provisions as

written. See, e.g., Mastrobuono v. Shearson Lehman Hutton,

Inc., 514 U.S. 52, 53-54 (1995); Volt Info., supra, 489 U.S.

F14

at 479; Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213,

219-221 (1985). As noted above, when state and

Congressional policies clash on, application of the FAA, the

latter must prevail. Perry v. Thomas, supra, 482 U.S. at 491.

Il. SEVERING THE CLASS ARBITRATION

WAIVER RESULTS IN THE EFFECTIVE

DENIAL OF DEFENDANTS' MOTION TO

COMPEL ARBITRATION AND VIOLATES

THE DUE PROCESS CLAUSE OF THE

UNITED STATES CONSTITUTION.

Respectfully, this Court's decision to sever. the class

waiver effectively denies defendants' motion to compel

arbitration while purporting to compel it. Moreover, severing

the arbitration agreement is hostile to the FAA, contrary to

the agreement of the parties, and is a violation of defendants'

due process rights under the 14th Amendment of the U.S.

Constitution.

Section 2 of the FAA declares pre-dispute

arbitrationagreements "valid, irrevocable, and enforceable"

because "arbitration saves time, saves trouble, saves money."

Joint Hearings on S. 1005 and H.R. 646 Before the

Subcomms. of the Comms. on the Judiciary, 68th Cong., 1St

Sess. 7 (1924) (statement of Charles Bernheimer, N.Y.

Chamber of Commerce). As Congress later explained,

arbitration usually is "cheaper and faster than litigation," has

“simpler procedural and evidentiary rules," "minimizes

hostility," and is "more flexible in regard to scheduling."

H.R. Rep. No. 97-542 a 13 (1982). A limitation in an

arbitration agreement precluding class actions or arbitrations

is essential to preserve the "simplicity, informality, and

expedition of arbitration." Mitsubishi Motors Corp. v._ Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985).

F15

The Court's decision to eliminate class arbitration

waivers effectively denies defendants the benefit of their

bargain, and threatens to subject them to a massive

procedural morass and chilling threat of limitless damages.

Whether conducted by a court or by an arbitrator, all of the

procedures necessary to the fair administration of a class

action will make arbitration much more expensive and time

consuming. In fact, many commentators believe that "class

arbitration may actually prove more burdensome than class

litigation" because the simplified procedures in arbitration

were never designed with class actions in mind. Jack

Wilson, "No-Class-Action Arbitration Clauses," State-Law

Unconscionability and the Federal Arbitration Act: A Case

For Federal Judicial Restraint and Congressional Action, 23

Quinnipiac L. Rev. 737, 774 (2004). Subjecting the parties to

class arbitration has the same (or worse) effect as denying

defendants’ motion to compel arbitration and ordering the

case to proceed in court as a class action, and the Court's

ruling is not saved by blue penciling the parties’ agreement.

Indeed, the severance is more than the mere removal

of a few words which the Court believed to be

unconscionable. It effects a wholesale re-writing of the

parties' agreement, qualitatively (and, as discussed in greater

detail below, retroactively) changing a contract among three

parties - a borrower (Muhammad), lender (County Bank) and

servicer (Main Street) - into one with potentially thousands

of other parties.

Moreover, the Court's holding is directly in conflict

with the U.S. Supreme Court's holding in Green Tree

Financial v. Bazzle, 539 U.S. 444, 451-52 (2003). In Bazzle,

the Court held that the question of whether the parties’

dispute was subject to class arbitration did not fall into the

narrow exception of arbitration-related matters intended to

be decided by a court instead of an arbitrator. Rather, such

an issue was itself arbitrable, and therefore was for the

F16

arbitrator, not the courts, to decide. Jd Where, as here, the

arbitration agreement clearly reflected an intent against class

arbitration, ** result should be no different. An arbitrator,

not a cour “ould decide whether the parties, expressed

intent must ve disregarded.

IV. THE COURT'S RULING ARTICULATES A

NEW INTERPRETATION OF NEW JERSEY

LAW AND SHOULD NOT BE APPLIED

RETROACTIVELY.

In its Opinion, this Court expressly noted that the

issue of class arbitration "specifically has never before been

examined by this Court." Opinion at 17-18. The Court also

acknowledged that the legislature did not provide guidance

on the issue of class arbitration, noting that " [c] lass

arbitration is in its infancy and may provide a fertile ground

for establishing flexible class-action procedures" and

advising that "the United States Congress and/or [the] State

Legislature may amend class-action procedures should they

perceive deficiencies in the current process." Opinion, at 28.

Indeed, the ruling is doubly novel in elevating the class

action, for the first time, from a procedural device to a

substantive right. Because the Court has articulated a new

legal principle, it would violate defendants, due process

rights to apply that decision retroactively to these parties.

New Jersey law prior to Muhammad held that a

waiver of certain rights in an arbitration clause would be

enforced so long as they were sufficiently notorious and

specific. Gras v. Associates First Capital Co., 346 N.J.

Super. 42, 49-57 (App. Div. 2001), cert. denied, 171 N.J.

445 (2002). In Muhammad, the Court distinguished between

"low value" and "high value" plaintiffs' claims in

determining that a class arbitration waiver is unconscionable

and unenforceable when it involves an undefined small

amount of money, while a separate ruling on the same day in

F17

Delta Funding, supra, held that such waivers were

enforceable and not unconscionable when they involved a

larger monetary claim. The Court has retroactively applied

its holding to invalidate literally thousands of similar

agreements containing express waivers of a consumer's

ability to bring a class action in arbitration.

While the Court may determine that its ruling must

stand, it should not be applied retroactively to the parties

here because to do so would. cause manifest injustice.

Retroactivity is generally disfavored in the law. Bowen vy.

Georgetown Univ. Hospital, 488 U.S. 204, 208 (1988), see

H. Broom, Legal Maxims 24 (8th ed. 1911) ("Retrospective

laws are, as a rule, questionable policy, and contrary to the

general principle that legislation by which the conduct of

mankind is to be regulated ought to deal with future acts, and

ought not to change the character of past transactions carried

on upon the faith of the then existing law").. Both federal and

New Jersey law establish that there are explicit and implied

limitations on the legislature's power to impose laws

retroactively. Article I, Section 10 of the U.S. Constitution

provides that "([n]o State shall...pass any...law impairing the

obligation of contracts." Just as legislatures are barred, so are

the courts.

All statutes with retroactive elements are subject to

scrutiny under the due process clause of the Fourteenth

Amendment of the U.S. Constitution and the parallel

provision of the New Jersey Constitution. U. S. Const.

amend. XIV, § 1; N.J.Const., art. 1, 4 1. In fact, a court may

not automatically apply a change in the law retroactively

where the application of that law attaches new legal

consequences to completed, past conduct that was legal at

the time. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1,

15-16 (1976). In adopting the Usery standard, this Court

determined that "{a] consistent line of decisions by the

United States Supreme Court interpreting the Due Process

ee peteneentiadl

F18

Clause of the Fourteenth Amendment holds that retroactive

legislation does not deprive parties of due process if the

legislation "is supported by a legitimate legislative purpose

furthered by rational means." Nobrega v. Edison Glen

Assoc., 167 N.J. 520, 543 (N.J. 2001), citing Pension Ben.

Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729 (1984).

As this Court held in Montells v. Haynes,133 N.J.

282, 295, 627 A.2d 654,660 - 661 (1993):

Prospective application is appropriate when a

decision establishes a new principle of law by

overruling past precedent or by deciding an issue of

first impression. Coons y. American Honda Motor

Co., 96 N.J. 419, 427, 476 A.2d 763 (1984), cert.

y denied, 469 U.S. 1123, 105 S.Ct. 808, 83 L.Ed.2d

800 (1985) (Coons Il). Together with those

considerations, we must also weigh whether

retroactivity furthers the underlying purpose of the

rule and whether retroactive applications could

produce substantial inequitable results. Coons Il,

supra, 96 N.J. at 427, 476 A.2d 763. As Coons II

states, our case law roughly parallels that of the

United States Supreme Court on the issue of

prospectivity. 96 NJ. at 428, 476 A.2d 763. In

reversing a decision that followed the general rule of

retrospective effect, Coons II applied "principles

drawn from our own state court decisions as well as

from United States Supreme Court cases." Id. at 425,

476 A.2d 763. Coons II recognized that Chevron Oil

Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d

~ 296 (1971), best typified federal prospectivity

analysis. Just last month, however, the United States

Supreme Court cast doubt on the continuing vitality

of Chevron's prospectivity analysis in cases of federal

law. Harper V. Virginia Department of Taxation, 509

U.S. 86, 113 S.Ct. 2510, 125 L.Ed.2d 74 (1993).

F19

Whatever path that Court may follow, we believe that

in an appropriate case a purely prospective

application may provide the fairest and ‘most

equitable disposition.

133 N.J. at 295, 627 A.2d at 660 - 661.

In this case, there is no legitimate purpose for

retroactive application of the new rule articulated by the

Court. Indeed, the Court's holding is directly contrary to the

legitimate state and federal policy favoring the resolution of

disputes through arbitration. In addition, the Court's

distinction between the claims in Delta Funding and those in

Muhammad does not meet the "rational means" prong of the

Usery test because the Court has chosen to draw arbitrary

lines based on the undefined value of claims - including

unknown claims of putative class members - rather than

articulating a rule that can be uniformly applied.

In addition to the constitutional due process inquiry,

this Court has determined that a statute (or case law

interpreting a statute) may not be applied retroactively if to

do so would cause a manifest injustice. Nobrega, supra, 167

N.J. at 545. "The concern that is implicated by the standard

of ‘manifest injustice’ in assessing the retroactive application

of a statute need not reach constitutional levels. Hence, while

Our inquiry into whether there has been a ‘manifest injustice’

is informed by our consideration cf issues of constitutional

due process, it is not necessarily determined by those issues."

In re D. C., 146 N. J. at 58. The essence of the manifest

injustice inquiry is whether the affected party relied, to his or

her prejudice, on the law that is now to be changed as a

result of the retroactive application of the law, and whether

the consequences of this reliance "are so deleterious and

irrevocable that it would be unfair to apply the statute

retroactively." Gibbons v. Gibbons, 86 N.J. at 523-25.

F20

As set forth above, the Court's ruling in Muhammad

effectively may be deemed to invalidate thousands of

existing contracts in which the parties expressly waived

certain rights to court proceedings and class actions, and

impacts every lender and merchant that offers credit cards to

New Jersey residents, as well as all sellers of retail consumer

goods that rely on class action waivers in arbitration

agreements. Such a sweeping application of a fact-specific

analysis is arbitrary and irrational and cannot be the basis for

retroactive application of this ruling. Usery, supra, 428 U.S.

at 15. Not only does the ruling in Muhammad impose

additional obligations on defendants that were not negotiated

by the parties, but these terms directly contradict the express

agreement of the parties. A retrospective application of the

ruling in Muhammad will result in lengthy and expensive

class action arbitration against defendants that was not

anticipated by the parties at the time of entering into the -

contract, and it will have the chilling. effect of discouraging

other businesses from doing lending in this so-called "low

value" arena, an area in which customers arguably need

additional options, not fewer.

These burdens implicate not only the due process

clause but also the dormant commerce clause, as applied by

the U.S. Supreme Court. See, BMW of North America, Inc. v.

Gore, 517 U.S. 559, 572 n. 17 (1996); Leto v. Glock Inc.,

349 F.3d 1191, 1217 (9th Cir. 2003)(noting in dicta that a

dormant commerce clause claim may be premised on court

action in a civil lawsuit).

F21

¥. THE NON-RECORD - FINDINGS AND

ASSUMPTIONS RELIED UPON BY THIS

COURT SHOULD BE RECONSIDERED OR

TESTED ON REMAND.

In support of its holding that the class arbitration

waiver contained in the parties’ arbitration agreements is

unconscionable under New Jersey contract law, the Court

made a series of factual findings and assumptions which

either had no foundation in, the trial court record or were

contrary to the facts of record. Among those findings were

the following:

. The Court found that Muhammad's "small"

damage claim "render{s] individual

enforcement of her rights, and the rights of

her fellow consumers, difficult if not

impossible." Id. at 22. It found further that

"the availability of attorney's is illusory"

because "it is unlikely that counsel would be

willing to undertake the representation." /d. at

24. Respectfully, these findings are not

supported by the trial court record, and to the

contrary are contradicted by the trial court's

conclusion that Muhammad was able to

vindicate her rights in an_ individual

wad arbitration. (PA761-800).’

* Muhammad alleges violation of the New Jersey Consumer Finance Act

against the marketers (Count I) and County Bank (Count II) ; usury

against the marketers (Count III) ; violation of New Jersey's RICO statute

against the marketers (Count IV); and conspiracy to violate RICO against

County Bank (Count V). She secks a return of all monies paid on the

usury claims, and a subsequent trebling of that amount against each

defendant for the Consumer Finance Act and RICO claims, p/us pre-

judgment interest and attorney fees.

F22

As noted above, no information whatsoever is

known about the size of claims of other

putative class members.

° The Court found that the instant case involves

complicated financial arrangements (Opinion

at 26), even though the loan transaction at

issue was a small consumer loan, evidenced

by a one-sided, single page note, transacted

over a fax machir->.

° The Court found that the arbitration

agreements contain limits on discovery

(Opinion, p. 21), even though the arbitration

agreements do not mention discovery.

° The Court found that Muhammad and other

members of the putative class are under a

high degree of economic compulsion,

"compelling their acquiescence to loans

bearing exorbitant interest rates" (id., fn. 4),

even though there is no evidence on the

record that either Muhammad or any other

consumer who obtained a loan from County

Bank was under such compulsion.

Focusing for a moment solely on the Court's

“complexity” and "low value" findings, both Muhammad and

Delta Funding Corp. v. Harris, No. A-44-05 (N.J. Aug. 9,

2006), involve transactions by individual consumers with

multiple, heavily regulated, out-of-state financial services

entities. As a predicate to severing the prohibition on class

arbitration in the former but not in the latter, the Court found

that the transaction in Muhammad was "complicated" and

that its complexity was a factor that precluded enforcement

of the prohibition on class arbitration. See Muhammad, Slip

Op. at 25 ("One may be hard pressed to find an attorney

F23

willing to work on a consumer-fraud complaint involving

complex arrangements between financial institutions of other

jurisdictions when the recovery is so small."). Ignoring the

provisions in the contract and pertinent statutes for damages-

multipliers, recovery of costs and attorneys fees, as well as

substantial precedent to the contrary, the Court instead

summarily concluded that no attorney would be willing to

represent a consumer in such a ".complex" case absent-a

potential windfall recovery in the form of contingency fees.

Muhammad Slip Op. at 18 (noting that "attorney's actual

fees" insufficient incentive to bring action).

In a recent case squarely on point, the First Circuit

explicitly held that a deferred-deposit short-term loan

identical in all material respects to that at issue in

Muhammad did not present the sort of factual complexity

that may necessitate the severance of an arbitration provision

barring use of class mechanisms. See Kristian v. Comcast

Corp., 446 F.3d 25 (1st Cir. 2006). Distinguishing the

decisions of four other circuits that enforced consumer

arbitration provisions barring class mechanisms (including

the Third Circuit), the Court found that an antitrust action

was inherently more complex than the transactions at issue in

those cases and severed these provisions from the arbitration

agreement. The Court distinguished Snowden v. CheckPoint

Check Cashing, 290 F.3d 631 (4th Cir. 2002), in which the

Fourth Circuit had upheld a provision barring class

mechanisms in a dispute over a short-term loan transaction

that was identical in all material respects to that at issue in

Muhammad. The Court found that,

In a case such as Snowden, there is a specific

transaction at issue... This is not a_ particularly

difficult ,analysis....

Kristian, 446 F.3d at 57-58 (citation omitted). As the First

Circuit recognized, where as here, the terms governing the

F24

parties’ relationship (including the relationship between

County Bank and Main Street Service Corp.) are clearly set

forth in a comparatively short written agreement, the

applicable law is straightforward and well settled.

The assumptions made by the Court regarding the

size of plaintiff's claim and the complexity of her case have

no support in the record and therefore should not have been

relied upon. See Cipala v. Lincoln Technical institute, 179

N.J. 45, 52, 843 A.2d 1069 (2004). To the extent factual

findings such as those articulated by the Court are necessary

to determine the issue of unconscionability, then the matter

should be remanded to the trial court for such additional

findings.

VI. ON RECONSIDERATION, OR ON REMAND, A

COURT MUST DETERMINE WHETHER

DELAWARE LAW APPLIED TO THE

UNCONSCIONABILITY ANALYSIS.

In the course of addressing the enforceability of the

classarbitration waiver, the Court articulated and applied

new principles of New Jersey law, (Opinion, pp. 31, 32),

despite the fact that, to the extent state law applies at all, the

\ parties' contract, including .the arbitration agreement, is

governed by the state law of Delaware.

The three contracts signed by Muhammad contain a

clear and prominent Delaware choice of law provision

(Pal86-188). Muhammad accepted the choice of Delaware

law in connection with this transaction and made no attempt

at the trial court level or on appeal to challenge the Delaware

choice-of-law clause in the agreements she signed. To the

contrary, Muhammad conceded that, as a Delaware state-

chartered bank, County Bank is not subject to New Jersey

law. (Pal0, 329), and acknowledged that among the rights

F25

Muhammad waived was "the right to have New Jersey law

apply.” (Pa330) .

The Appellate Division stated in footnote 3 of its

opinion that the choice-of-law issue was not briefed or

addressed in the trial court, but rather was asserted by

defendants in a footnote in their appellate brief. Muhammad

v. County Bank of Rehoboth Beach, 379 N.J.Super. 222, 234

n.3, 877 A.2d 340, 347 n.3 (App.Div. 2005). In fact, despite

Muhammad's concession that as a Delaware state-chartered

bank, County Bank is not subject to New Jersey law, and her

failure to challenge the Delaware choice of law clause in the

agreements she signed, defendants nevertheless raised the

issue repeatedly before the trial court and on appeal. (See

Pa36, 43, 611 n. 3, 627; see also, February 11, 2005

appellate division reply brief in response to amici at pp. 9-

11, devoting an entire section to this argument).

While maintaining the mistaken view that the

application of Delaware law had been raised solely in a

footnote, the Appellate Division affirmed the trial court's

order compelling arbitration and staying the proceedings.

Given the favorable ruling, defendants had no reason to seek

review of the Appellate Division's choice of law discussion,

which itself was relegated to a footnote. 379 N.J.Super. at

234 n.3, 877 A.2d at 347 n.3. Indeed, since the Appellate

Division's enforcement of the class action waiver suggested

that there was no conflict between Delaware and New Jersey

law, no conflict of laws analysis was warranted. Fu v. Fu,

160 N.J. 108, 733 A.2d 1133 (1999) (first prong of conflict

analysis is whether there is an actual conflict).

On appeal to this Court, defendants once again

devoted a section of their brief to the choice of law issue,

offering this Court an alternate ground upon which to affirm

the Appellate Division. (DbI7-18) Nevertheless, in its August

9, 2006 opinion, this Court chose not to address the choice of

F26

law issue, concluding in footnote 2 that defendants "did not

seek review of the Appellate Division's determination of that

issue," and thereby hinting that defendants should have filed

a cross-appeal relating thereto and had waived the issue by

not doing so. Respectfully, such a procedure was neither

required nor appropriate under the circumstances, given

defendants’ unqualified victory below and the absence, until

now, of a conflict between the law of New Jersey and

Delaware on this issue.

Appeals are taken solely from orders or judgments,

not judicial opinions. Heffner v. Jacobson, 100 N.J. 550,

553, 498 A.2d 766 (1985). See Credit Bureau Collection

Agency v. Lind, 71 N.J. Super. 326, 328, 177 A.2d 36 (App.

Div. 1961) ("An appeal lies not from a written or oral

decision of the court, but only from a judgment or order.") A

respondent is not required to file a cross-appeal in order to

raise any argument supported by the record in defense of a

judgment entered below. Only when the respondent seeks to

obtain relief from any portion of the judgment entered below

is a cross-appeal necessary. The respondent can argue any

point on appeal to sustain the trial court's order. New Jersey

State Firemen's Mut. Benev. Ass'n. v. North Hudson

Regional Fire & Rescue, 340 N.J. Super. 577, 775 A.2d 43

(App. Div. 2001); New Jersey Div. of Youth and Family

Services v. B.G.S., 291 N.J. Super. 582, 677 A.2d 1170,

1172-1174 (App. Div. 1996).

> Moreover, an appellate court is capable of affirming the lower court's

grant of relief to a respondent in the absence of a cross-appeal if that

relief will sustain the trial court's judgment. Chimes v. Oritani Motor

Hotel, Inc., 195 N.J. Super. 435, 480 A.2d 218, 222 (App. Div. 1984).

This allows the respondent to raise an alternate theory to sustain the trial

court's judgment, without the necessity of filing a cross-appeal. Id. at 222

(holding that "a respondent can argue any point on the appeal to sustain

the trial court's judgment," because "appeals are taken from judgments,

not opinions.")

F27

As a result of this Court's August 9 decision, there

now exists a clear conflict between the law of New Jersey

and Delaware on the enforceability of class arbitration

waivers. Respectfully, the Court should direct the trial court

to determine on remand whether Delaware law governs the

unconscionability analysis of the arbitration agreement.

CONCLUSION

For all of the foregoing reasons, defendants-

respondents respectfully request that this Court reconsider its

ruling and affirm the decisions below. Should the Court

decline reconsideration, defendants respectfully request that

the case be remanded with additional instructions for the trial

court to first determine whether the parties' choice of law

provision should be enforced and second, for the trial court

to make findings of fact to determine whether the

assumptions underlying this Court's ruling are actually

present in this case.

Respectfully submitted,

WEIR & PARTNERS LLP

A Pennsylvania Limited Liability

Partnership

Bye

Marc J. Zucker, Esquire

Susan Verbonitz, Esquire

20 Kings Highway West

Haddonfield, New Jersey 08033

(856) 740-1490

Attorneys for County bank of

Rehoboth Beach, Delaware

F28

SWEENEY & SHEEHAN, P.C.

By:___/s/

J. Michael Kunsch, Esquire

Sentry Office Plaza, Suite 500

216 Haddon Avenue

Westmont, NJ 08108

(856) 869-5600

MANATT PHELPH & PHILLIPS LLP

Claudia T. Callaway, Esquire (Pro hac vice)

One Metro Center

700 12th Street N.W., Suite 1100

Washington, D.C. 20005

(202) 585-6500

Attorneys for Main Street Service Corp.