New Jersey Supreme Court Holds That Parties Waived Contractual Right to Arbitration By Their Conduct

Wein, et al. v. Morris, et al., 2008 WL 1699421 (N.J. 2008) – Although New Jersey courts will enforce valid arbitration agreements (including agreements requiring the arbitration of employment disputes), the New Jersey Supreme Court recently made clear that parties may waive their right to arbitration by engaging in litigation activities rather than diligently pursuing arbitration under their agreement.

In the Wein case, the parties entered into two lease commission agreements in 1997, both of which contained an arbitration clause. In 1998, a dispute arose over whether commissions were due, and plaintiffs filed suit in Superior Court alleging breach of contract. Neither party sought arbitration until defendants moved to compel it in 2002, but later withdrew the motion. In 2003, after almost five years of court-supervised discovery, both parties moved for summary judgment.  Although neither party requested it, and in fact both objected to it, the trial court ordered the matter to arbitration and dismissed the action.

The Supreme Court held that the trial court erred in ordering the matter to arbitration, finding that the arbitration agreements had been mutually waived by the parties’ conduct. The Wein decision thus reminds employers who have mandatory arbitration agreements that they must act quickly and diligently to compel arbitration when a plaintiff attempts to litigate a dispute in court rather than proceed to arbitration. Participation in the judicial process can result in a waiver of the right to arbitrate.

Note: This article was published in the May 2008 issue of the New Jersey eAuthority.