Party Lost the Right to Employ an Arbitration Clause by Waiting Too Long to Invoke It

Cole v. Jersey City Medical Center, 425 N.J. Super. 48 (App. Div. 2012).  Plaintiff, a nurse anesthetist at Jersey Medical Center, sued the Medical Center and her immediate employer, Liberty Anesthesia Associates (“Liberty”), for retaliatory discharge, employment discrimination, and other things.  Plaintiff settled with the Medical Center, and Liberty won summary judgment on some of the claims against it.  Thereafter, three days before the scheduled trial date, and twenty months after the litigation began, Liberty invoked an arbitration clause in its employment agreement with plaintiff and filed a motion in limine to have the case dismissed and sent to arbitration.  The Law Division granted that motion.  Plaintiff appealed, and the Appellate Division reversed, in an opinion by Judge Fuentes.  The panel held that Liberty’s conduct waived or equitably estopped it from asserting the arbitration clause at that late date.  

Liberty had asserted 35 affirmative defenses to plaintiff’s amended complaint.  “Conspicuously missing from this otherwise comprehensive list of affirmative defenses was any reference to the arbitration clause in plaintiff’s Employment Agreement.”  The parties then went through a 450-day discovery period, during which Liberty did not invoke the arbitration clause.  Liberty contended that it did not wish to risk inconsistent rulings by an arbitrator as to Liberty and a jury as to the Medical Center’s cross-claims against Liberty.  Once the Medical Center settled, however, that risk was removed, and Liberty then asserted the arbitration clause.

Judge Fuentes was not persuaded by that argument.  Reviewing the decision to compel arbitration de novo, the panel observed that affirmative defenses not pleaded are ordinarily waived, but also that “[t]here is a 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.”  Judge Fuentes stated that there is “no single test” to determine whether a party has waived an arbitration clause.  However, “[t]he key to determining waiver is the absence or presence of prejudice to the party objecting to the arbitration.”     

Here, Liberty had “knowingly decided” not to raise the arbitration clause, “as a matter of litigation strategy,” in order to avoid inconsistent findings by different adjudicators.  This was “to the detriment of plaintiff.”  During the twenty months of litigation that led up to the trial date, plaintiff actively engaged in discovery and prepared the case for trial.  Judge Fuentes took “notice that getting a case ready for trial before a jury requires a great deal more preparation than presenting a case before a panel of arbitrators.”  The prejudice to plaintiff barred Liberty from belatedly invoking the arbitration clause.   

There have been a number of decisions, especially from the Supreme Court of the United States and other federal courts recently that have bent over backward to send cases to arbitration.  A recent proposed Court Rule amendment would give a scheduling preference to appeals regarding motions to compel arbitration.  Nonetheless, there are circumstances, such as those of this case, where arbitration cannot be permitted to be placed ahead of other values.   Judge Fuentes rightly reminded us of that here, just as Judge Sabatino correctly did in NAACP v. Foulke Management, 421 N.J. Super. 404 (App. Div. 2011), discussed here

For practitioners, the lesson is simple:  be sure to look for an arbitration clause in any applicable document, and if it appears there, promptly preserve your client’s right to invoke arbitration or that right may be lost, as it was here.