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Wein v. Morris

388 N.J. Super. 640, 909 A.2d 1186 (App. Div. 2006)

CONTRACTS; ARBITRATION—When two adverse parties have voluntarily litigated their claims or disputes in the New Jersey Superior Court for a prolonged period involving extensive discovery, their actions constitute a waiver precluding the enforcement of a contractual promise to arbitrate their dispute.

A real estate broker approached a controller of business entities that owned commercial real property. The broker suggested that, for a percentage, it could find good commercial tenants for those properties. The controller advised that he would pay a five percent commission if the broker pursued the marketing of three properties and procured a national drugstore to lead any of the three properties. A lease commission agreement was executed. It included a mandatory arbitration provision. The broker alleged that pursuant to the lease commission agreement, it located two national pharmacies for two of the three locations, and was owed corresponding commissions. The controller stated that he had been frustrated by the slow progress of negotiations conducted by the broker, and so he independently leased one property to one drug store, terminated the lease commission agreement, and then leased another property to a second drug store.

The broker filed suit to recover commissions pursuant to an alleged breach of the lease commission agreements. Extensive discovery ensued for two years. To the surprise of the parties, on an adjourned return date of the parties’ cross-motions for summary judgment, the lower court, on its own motion, concluded that the disputes had to be arbitrated. It entered an order denying the summary judgment motions as moot, compelling the arbitration of the disputes, and dismissing the complaint and all associated claims.

Despite the parties’ mutual assertion that the right to compel arbitration had been waived, no party then sought appellate review of the order, but instead completed the steps necessary to obtain arbitration of the disputes. The matter was heard by a chosen arbitrator, who rendered an initial and then an amended monetary award to the broker in full settlement of all claims. The broker moved to have the lower court approve the award, and the controller moved to vacate it. The lower court found for the broker and the controller appealed.

On appeal, the Appellate Division considered whether the lower court erred in compelling arbitration, and whether the controller’s company waived its right to complain of that lower court order by neither appealing nor seeking leave to appeal or by then engaging in arbitration. The Court first concluded, under all facts of the matter, that the parties waived their contractual right to arbitrate by actively litigating the matter in the lower court for a prolonged period, and as a result the lower court’s unilateral determination to compel arbitration was mistaken. In short, the Court found that, under legal precedent, a waiver resulting from the parties’ voluntary pursuit of their positions in the New Jersey Superior Court will preclude the enforcement of a contractual promise to arbitrate. In this matter, the lower court ordered arbitration after five years of litigation and extensive discovery - a prolonged period.

The Appellate Division also held that the lower court’s order to arbitrate was not a final action because it did not resolve all issues as to all parties, but instead anticipated future proceedings in this matter. Additionally, the lower court was not empowered to dismiss the pending claims, but only to stay the disposition of a lawsuit when enforcing an arbitration agreement. Accordingly, the Court concluded that the controller neither waived his right to complain about the lower court’s order to arbitrate, nor was the appeal time barred. Consequently, the Court reversed the order to compel arbitration and returned the parties to the status quo that existed when the order was first entered.


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