Prolonged Litigation Can Constitute Implicit Waiver of Right to Arbitrate

The New Jersey Supreme Court has ruled that a party’s active participation in a lawsuit for 21 months, up to the eve of trial, constitutes an implicit waiver of its right to invoke an arbitration clause. The plaintiff in Cole v. Jersey City Medical Center was a certified registered nurse anesthetist providing anesthesiology services on behalf of third-party defendant Liberty Anesthesia Associates, LLC (“Liberty”) at the defendant medical center. The plaintiff’s employment with Liberty was governed by a contract containing an arbitration clause. Liberty terminated the plaintiff when the medical center detected that controlled substances had gone unaccounted for and plaintiff refused to submit to a drug test.

The plaintiff filed suit against the medical center who, in turn, impleaded Liberty. The plaintiff added direct claims against Liberty and the parties engaged in discovery for more than one year. Eventually, the medical center settled with plaintiff prior to summary judgment. After the medical center settled, and three days before the trial date, Liberty invoked its arbitration clause. The trial court granted the motion to compel arbitration, but the Appellate Division reversed.

In affirming the Appellate Division, the Supreme Court noted that while “[w]aiver is the voluntary and intentional relinquishment of a known right[,]” it can occur implicitly under certain facts. Liberty had waived its right to arbitrate the plaintiff’s claim, the Court held, based on the totality of the circumstances:

• Liberty waited 21 months before notifying the plaintiff of its intent to invoke the arbitration clause;
• Liberty failed to mention the arbitration clause in its affirmative defenses;
• The proximity to the trial date—a mere three days—could prejudice the plaintiff; and
• Liberty had filed a dispositive motion, receiving partial judgment in its favor, thereby submitting to the court’s authority.

Going forward, a party to an arbitration agreement involved in litigation can protect its rights by “asserting arbitration in its answer as an affirmative defense, moving to compel arbitration in a timely manner, moving to stay the judicial proceeding, or notifying the other party to the arbitration agreement that its litigation conduct should not be considered a waiver of its right to arbitrate the dispute.”