Court Says Parties Risk Waiver by Delaying Arbitration: Fish or Cut Bait

October 23, 2019

A case decided yesterday in the Superior Court of New Jersey, Appellate Division, illustrates the risk of delaying a demand for arbitration. Stevens v. Cappadora (Docket No. A-1717-18T1) involved a dispute arising from a joint venture. The parties’ agreement clearly provided for arbitration to resolve their disputes. The plaintiffs instead filed a lawsuit in the Superior Court, Law Division. Over one year later, after engaging in some discovery and motion practice, as well as a change of counsel, defendants moved to dismiss plaintiffs’ complaint and compel arbitration. The trial court granted that motion, a decision reversed by the Appellate Division in an eight page per curiam decision.  

Factors Supporting Denial of Motion to Compel Arbitration

The Court noted the “presumption against waiver of an arbitration agreement, which can only be overcome by clear and convincing evidence that the party asserting it chose to seek relief in a different forum.” But the Court found such evidence in this case, applying the “fact-sensitive totality of the circumstances test” established in Cole v. Jersey City Medical Center, 215 N.J. 265 (2013).

  • The defendants answered the complaint and failed to raise mandatory arbitration as a defense;
  • The defendants engaged in motion practice concerning discovery and other grounds for dismissal without raising the mandatory arbitration issue;
  • The defendants filed their motion to compel arbitration on the eve of trial, more than a year after the complaint was served;
  • Plaintiffs had invested substantial time and expense in the lawsuit in anticipation of a judicial determination;
  • Further delay and expense of switching forums at this time would prejudice the plaintiffs.

The Takeaways

  • Parties faced with a lawsuit who do not promptly assert a contractual right to mandatory arbitration risk waiving that right. Although there is a strong presumption against a finding of waiver, Stevens v. Cappadora illustrates the risk of trying to have it both ways.
  • At the least, a defendant served with a complaint must raise the right to arbitration as a defense, and disclose to the Court that another proceeding is pending or contemplated to resolve the matter. 
  • After asserting the right to mandatory arbitration, counsel for the defendant is in a better position to negotiate with plaintiff’s counsel as to the best way to resolve the dispute – negotiation, mediation, arbitration or litigation, as well as the scope of the process selected.
  • On the brighter side, being served with a complaint effectively provides the defendant an option to consider which forum the defendant would prefer – a choice which might be different than what the defendant believed when the parties’ contract was signed.  

(Photo by Jaymantri on Pexels)

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