Property Owner Did Not Waive Arbitration Clause by Participating in Lawsuit
In an unpublished case, the Appellate Division recently affirmed the trial court’s decision that defendant property owner did not waive the arbitration clause of its AIA construction contract with plaintiff construction company by participating in plaintiff lawsuit for a year before invoking the arbitration clause. Delam Construction Corp. v. 15 Thornton Road, L.L.C., A-0582-06T1 (App. Div., December 10, 2007. After weighing a variety of factors, including plaintiff’s incurring the expenses of litigation, plaintiff’s bringing a lawsuit although it must have known of the arbitration clause, and defendant’s “playing fast and loose” with the court until invoking the arbitration clause on the eve of trial, the court concluded that plaintiff would not be prejudiced by remitting the case to an arbitrator since the discovery accomplished during the pendency of the lawsuit would be useful in the arbitration.
Neither party disputed that $187,368 plus interest remained unpaid to plaintiff following its completion of construction of defendant’s building. The parties had signed an AIA standard construction contract, which required the parties to submit their disputes to arbitration. Nonetheless, plaintiff sued on the contract in May 2005, amending its complaint in October 2005.
In its answer to the amended complaint, filed in December 2005, defendant counterclaimed for damages attributable to construction deficiencies in plaintiff’s work. Nonetheless, in October 2005, in response to plaintiff’s interrogatories, defendant certified that it had retained no experts to offer opinions on the alleged construction deficiencies. The discovery end date was April 24, 2006.
One month later, plaintiff moved for partial summary judgment, citing defendant’s lack of expert testimony regarding the alleged construction difficulties. On June 6, 2006, defendant responded by amending its interrogatory answers to disclose the names of two experts and providing copies of their reports. Plaintiff moved to bar defendant’s experts since they were named after the discovery end date. The motion’s return date was June 28, 2006, the scheduled trial date.
The trial court’s decision emerged from a blur of motion practice. The court heard oral argument on plaintiff’s summary judgment motion on June 23. On June 27, 2006, the court denied the summary judgment motion pending the outcome of the motion to bar defendant’s experts but granted defendant’s motion to set aside plaintiff’s construction lien. Thereafter, defendant withdrew its supplementary interrogatory answers naming its construction experts.
When the parties appeared for trial on June 28, 2006, plaintiff sought to postpone the trial to allow reconsideration of its summary judgment motion in light of defendant’s withdrawal of its experts. The judge adjourned the trial to allow plaintiff to re-file its summary judgment motion and defendant to file whatever new motions it deemed appropriate.
On June 30, plaintiff moved for partial summary judgment. On July 19, defendant retained new counsel. On July 29, defendant cross-moved to, among other things, dismiss plaintiff’s complaint based on the parties’ contractual duty to arbitrate their differences. Defendant certified that it had been unaware that its prior counsel had missed the deadline for naming its expert witnesses.
After hearing oral argument on August 17, the trial judge decided that the matter should be submitted to arbitration even though defendant’s original counsel had pursued the unusual strategy of “neither raising the arbitration clause [nor] presenting any expert reports.” The court order declared that plaintiff’s summary judgment motion was moot, granted defendant’s motion to dismiss plaintiff’s amended complaint, reinstated plaintiff’s construction lien and ordered defendant to file its demand for arbitration by August 31, 2006. Defendant demanded arbitration on August 30, 2006.
Plaintiff appealed, contending that the trial court’s decision caused it undue prejudice. It argued that defendant waived its right to arbitration by participating in the lawsuit, by failing to raise arbitration as an affirmative defense, and by failing to demand arbitration at an earlier date. Defendant responded by citing contractual language requiring the waiver of any right under the contract to be written.
The appellate court acknowledged the trial court’s reliance on Wasserstein v. Guild Contracting Corp., 261 N.J. Super. 277, 290 (App. Div.), certif. denied, 133 N.J. 440 (1993), which recognized a trial judge’s right to refer a case to arbitration at any time before judgment. Nonetheless, the appellate court viewed its task as reconciling two other competing lines of authority. The first line, including cases such as Ohio Casualty Ins. Co. v. Benson, 87 N.J. 191, 199 (1981) and Marchak v. Claridge Commons, Inc., 134 N.J. 275, 281 (1993), favors arbitration as a cheap and speedy alternative to litigation. The other line, including Wein v. Morris, 388 N.J. Super. 640 (App. Div. 2006), certif. granted, 190 N.J. 254 (2007), holds that active and prolonged litigation of disputes will result in the court’s finding that the parties have waived their right to compel arbitration.
The court resolved its dilemma by reference to Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 925 (3d Cir. 1992), which recognized prejudice as the relevant factor in determining whether or not the right to arbitration has been waived. Here, said the appellate court, plaintiff was not greatly prejudiced since the knowledge gained during discovery would be useful in the arbitration proceeding. Further, to the extent that any prejudice does result from remitting the parties to arbitration, plaintiff shared the fault by bring the action in derogation of the contract. Accordingly, the appellate court affirmed
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