News & Noteworthy

Authored - NJ Contract Law Update - Arbitration Waiver: A Primer
DECEMBER 07, 2012 | Windels Marx - Commercial Litigation

One of the most sui generis areas of contract law1 is arbitration. Arbitration is the product of agreement; and yet the statutory and common law on the issue, both state and federal, is highly complex. (Consider, by way of example only, the statutory and case law arising under the Federal Arbitration Act, 9 U.S.C. ยง 1 et seq.) So this article is simply an introduction to one sub-issue: when arbitration can be waived.

Some practioners feel that waiving an arbitration clause (in the view of most judges) is the hardest things parties can do, in light of our State's strong public policy in favor of arbitration.

The most frequent waiver issue revolves around whether--after filing (or responding to) litigation, in an area where there should instead be arbitration--the party later seeking arbitration has let the litigation go on too far, or caused or allowed too much to occur in the litigation. The case-law results are uneven, although they decidedly tilt towards finding waiver if possible. See generally Spaeth v. Srinivasan, 403 N.J.Super. 509, 514-515 (App.Div. 2008) ("There is a presumption against waiver of an arbitration agreement which can only be overcome by clear and convincing evidence"; possible exception where "underlying litigation has [or] ... prolonged"; an express assertion and/or preservation of right to arbitrate (e.g., a Separate Defense in that vein) is deemed weighty).

As to case results, compare, e.g., Wasserstein v. Kovatch, 261 N.J.Super. 277, 290-291 (App.Div. 1993), certif.den. 133 N.J. 440 (1993) ("Unless and until the law suit [sic] reaches a point, usually judgment, that it can be concluded that there was an abandonment of arbitration...the court may refer the matter to arbitration"; various specified court proceedings insufficient to constitute waiver), with Cole v. Jersey City Medical Center, 425 N.J.Super. 48, 61 (App.Div. 2012)(waiver found where dispute fully litigated for twenty months, and enforcement sought only three days before the trial date), and Angrisani v. Financial Technology Ventures, 402 N.J.Super. 138 (App.Div. 2008)("waiver of a right to arbitration based on a delay in seeking that relief will be found only if that delay has resulted in demonstrable prejudice to the party opposing arbitration"); no prejudice found where a four-month delay, and a motion in court, had ensued).

Iudici v. Iudici, 2012 WL 4839539 (N.J.App.Div. Oct. 12, 2012), took a slightly different tack. There, the parties to an intended matrimonial arbitration continually--and, ostensibly, willfully--ignored their obligation to arbitrate. Instead, they continually appeared in court until one of the main issues was "moot". The Appellate Division concluded that the trial Court had "acted well within its discretion by terminating the parties' obligation to arbitrate their dispute". Neither court specified whether the issue was one of waiver, abandonment, or some form of discretion perhaps unique to the matrimonial sphere.

The moral of the story is that waiver or abandonment of the right to arbitrate is extremely fact-sensitive, and sometimes unpredictable. The context may affect the outcome. If you are a proponent of arbitration in a particular matter, please remember this: when facing litigation of an arbitrable matter, you should seek to stay or dismiss the litigation pending arbitration--and pursue the arbitration--at your earliest opportunity. If you institute litigation of an arbitrable matter--except for the purpose of preserving the status quo during an already-filed or immediately-to-be filed arbitration (through, for example, a temporary restraining order)--you run an unnecessary risk.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 Please see my prior Article, "Some Types of Contracts are Sui Generis", Sept. 24, 2012.

Windels Marx helps you harness opportunity and mitigate risk with a team that provides your business with the service, quality and value essential to a trusted relationship.