On May 24, 2024, the New Jersey Appellate Division decided three separate cases all involving arbitration. The issue in two of the three cases was, among other things, whether the party seeking arbitration waived its contractual right to compel arbitration because of its conduct in a prior lawsuit it filed. In the third, the issue was whether there was mutual assent to arbitrate at the time the parties entered into the contract.
Marmo and Sons
In the first case—and the only one that will be published—Marmo and Sons Gen. Contracting, LLC v. Biagi Farms, LLC, the Appellate Division ruled Marmo waived its right to arbitration. ___ A.3d___, 2024 WL 2492213, at *1 (N.J. App. Div. May 24, 2024). To do so, it applied waiver factors announced by the New Jersey Supreme Court in Cole v. Jersey City Medical Center, 215 N.J. 265, 280-81 (2013): “(1) the delay in making the arbitration request; (2) the filing of any motions, particularly dispositive motions, and their outcomes; (3) whether the delay in seeking arbitration was part of the party’s litigation strategy; (4) the extent of discovery conducted; (5) whether the party raised the arbitration issue in its pleadings, particularly as an affirmative defense, or provided other notification of its intent to seek arbitration; (6) the proximity of the date on which the party sought arbitration to the date of trial; and (7) the resulting prejudice suffered by the other party, if any.” In the end, the Appellate Division in Marmo decided Marmo waived its right to arbitration because (1) it filed claims as a plaintiff in the trial court beyond those necessary to assert a construction lien; (2) it certified in its complaint that no arbitration was contemplated; and (3) it waited to move for arbitration until after receiving discovery from its adversary, while failing to comply with its adversary’s discovery demands. Marmo, 2024 WL 2492213, at *1.
However, the bulk of the decision focused on the seventh factor listed in Cole—i.e., whether ordering arbitration will cause prejudice to the opposing party. Id. at *3-*7. The court declined the opposing party’s argument that prejudice should be removed from Cole’s multi-factor test. Id. at *7. Instead, the court kept prejudice as a factor that can be considered but noted that is not dispositive alone. Id. And the court also provided a thorough application of the Cole factors to the facts of the case. This decision is useful in gauging how the Appellate Division may rule in a future arbitration waiver case.
Ocean Fireproofing
In the second case, the Appellate Division ruled that the plaintiff’s complaint should be dismissed and arbitration should be compelled. Ocean Fireproofing, LLC v. 23rd St. Urb. Renewal JOF AAI III, LLC, No. A-0388-23, 2024 WL 2683968, at *1 (N.J. App. Div. May 24, 2024). Here, the application of the Cole factors weighed against waiver: litigation was active for just five months before the arbitration motion; no motion practice occurred other than the pre-answer motion to compel arbitration; there was no indication that the movant’s litigation strategy was to eschew litigation; the movant neither sought nor received discovery; the movant filed no pleading in the case inconsistent with its right to pursue arbitration (e.g., it didn’t certify there was no arbitration contemplated); no trial date was fixed; and there was “little, if any, demonstrable prejudice” to the plaintiff. Id. at *6-*7.
Ship to Shore
In the third case, the court addressed whether a business entity knowingly waived its right to litigate in court. After the trial court denied the motion to compel arbitration, the Appellate Division reversed and remanded the case to the trial court for discovery regarding whether the parties mutually agreed to the arbitration provision in their contract. Ship to Shore Counseling, P.C. v. Neuronetics, Inc., No. A-3755-22, 2024 WL 2679860, at *1 (N.J. App. Div. May 24, 2024). That discovery will involve whether the party opposing arbitration agreed to resolve disputes through arbitration instead of through the court system. For example, a representative for the party opposing arbitration could testify that the contractual provision specifying arbitration was confusing and did not make clear that its right to go to court would be forfeited. In other words, there must be a “meeting of the minds” that the parties will resolve disputes through arbitration and not court. Id. at *3. The court also declined to provide a bright-line rule that the waiver requirement announced by the New Jersey Supreme Court in Atalese is inapplicable when the parties are both business entities. Id. at *3-*4.
As these cases demonstrate, parties can waste a lot of time and money filing lawsuits in court when they should have filed an arbitration demand instead. Parties either planning to file, or about to respond to, a lawsuit must look carefully at their contract to see how it says disputes are to be resolved. If it is unclear, contact a lawyer who has experience with a wide array of arbitration clauses and how courts have interpreted them.
Josiah Contarino is a senior associate at Dhillon Law Group Inc. where he practices commercial litigation, First Amendment, Second Amendment, defamation, and election law matters in state and federal courts.
