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Grella v. Prebon Yamane Inc.


December 11, 2007


On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-79-05.

Per curiam.


Argued November 7, 2007

Before Judges Coburn, Grall and Chambers.

Plaintiff Gary T. Grella, formerly employed by defendant Prebon Yamane (USA) Inc. (Prebon) and supervised by defendant Keith Miles, appeals from an order dismissing his complaint alleging violations of the Conscientious Employee Protections Act (CEPA), N.J.S.A. 34:19-1 to -14, and compelling arbitration of his CEPA claims. Although an order compelling arbitration is interlocutory, see Wein v. Morris, 388 N.J. Super. 640, 652-55 (App. Div. 2006), certif. granted, 190 N.J. 254 (2007), in the interest of justice we exercise our discretion and grant leave to appeal as if a timely motion were filed. See R. 2:2-4; R. 2:5-6(a). We conclude that Prebon waived the right to compel arbitration. For that reason, we reverse and remand for further proceedings.

Plaintiff was first employed by Prebon in 1989. He reported to Miles for approximately five years. On January 5, 2004, Miles, who was then President and CEO of Prebon, told plaintiff that his contract would not be renewed. Plaintiff's employment with Prebon was terminated effective April 5, 2004. He is currently employed by ICAP North America (ICAP). In his complaint, plaintiff alleges that Miles and Prebon took adverse action against him based on his objection to misleading financial reporting practices.

On January 4, 2005, plaintiff filed his complaint alleging CEPA violations by Miles and Prebon. Plaintiff also named Collins Stewart Tullet PLC, a company that plaintiff alleged had recently acquired Prebon, as a defendant. On February 22, 2005, plaintiff filed an amended complaint. Prebon filed its answer to the amended complaint on February 24, 2005. Prebon's answer does not include a reference, claim or defense based on a contractual right to compel arbitration.

Plaintiff was unable to serve Miles in New Jersey. On October 21, 2005, the court dismissed plaintiff's complaint against Miles due to plaintiff's failure to effectuate service. Prebon acknowledges that it first gave plaintiff Miles' address in Turks and Caicos Islands, in its December 2005 response to plaintiff's interrogatories, which were served on March 8, 2005. Plaintiff did not effectuate the overseas service until May 2006.

Miles did not file an answer, although plaintiff had agreed to extend the time within which Miles was required to answer until June 30, 2006. Rather, on June 30, 2006, Prebon and Miles, then represented by the same attorney, moved to dismiss the complaint and compel arbitration. The motion was granted on August 7, 2006.

During the twenty months between the filing of the complaint and the entry of the order compelling arbitration, the parties conducted the litigation as follows.

As noted above, plaintiff served his interrogatories on March 8, 2005. On March 10, 2005, Prebon and plaintiff filed a stipulation dismissing with prejudice all claims against Collins Stewart Tullet PLC. The parties were referred to a court-appointed mediator, and they attended mediation. The court entered two orders extending the mediation period, one on December 5, 2005, and the other on April 5, 2006.

Depositions were taken. Prebon deposed plaintiff on two separate occasions. Prebon also deposed plaintiff's former executive coach and his treating psychologist. Plaintiff deposed two employees of Prebon.

The parties litigated and negotiated discovery issues. Prebon subpoenaed plaintiff's current employer and his wife. Plaintiff moved to quash both of those subpoenas. Prebon and plaintiff reached an agreement on the subpoena directed to plaintiff's employer, and plaintiff withdrew his motion. The court denied plaintiff's motion to quash the subpoena directed to plaintiff's wife. Prebon also moved for a protective order prior to producing its records. Plaintiff and Prebon were able to negotiate an order acceptable to both.

The discovery end date was extended. A discovery end date of May 21, 2006, was set. On Prebon's motion, the end date was extended until August 31, 2006.

Documents were exchanged. By the time Prebon and Miles filed their joint motion to compel arbitration, Prebon had surrendered more than 2700 documents and plaintiff had surrendered 250 documents.

Our courts recognize that despite an agreement to arbitrate disputes, "active and prolonged litigation of such disputes in the trial court will require a finding of the wavier of the right to compel arbitration." Wein, supra, 388 N.J. Super. at 649-50. We explained, "a waiver resulting from the parties' voluntary pursuit of their positions in Superior Court will preclude the enforcement of a contractual promise to arbitrate." Id. at 650. This court has noted that "[u]ntil a final judgment is entered, the viability of enforcement of the arbitration of the arbitration clause continues to exist." Lucier v. Williams, 366 N.J. Super. 485, 500 (App. Div. 2004). We have recognized, however, that the right to enforce the agreement may be waived.

Our courts and others considered several factors in determining whether a party's conduct in pursuit of litigation in court amounts to a waiver. See Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 222-25 (3d Cir. 2007) (noting "prejudice is the touchstone," discussing relevant factors, and concluding that prejudice to legal position is not required and that prejudice in terms of investment of time and expense suffices). The relevant factors include timeliness of the motion to compel arbitration or prior notice of that intention to the opposing party; pretrial litigation; exchange of discovery; and submission to pretrial orders. Ibid. The focus is on a course of litigation conduct that is indicative of the moving party's amenability to resolution in a judicial, not arbitral, forum and that is misleading and costly from the perspective of that party's adversary. See id. at 224-25.

Recognition of wavier based on litigation conduct is consistent with the policy that "favor[s] arbitration as a means of resolving disputes," Martindale v. Sandvik, Inc., 173 N.J. 76, 84-85 (2002), when the parties have agreed to that forum with the goal of resolving their disputes "in a speedy, inexpensive, expeditious and perhaps less formal manner . . . ." Barcon Associates, Inc. v. Tri-County Asphalt Corp., 86 N.J. 179, 187 (1981) (internal quotations omitted). The purpose and intent of an agreement to arbitrate is not furthered when courts permit use of arbitration as a "springboard" for litigation.

See Barcon, supra, 86 N.J. at 187. It is equally inconsistent with an agreement to arbitrate to permit use of the judicial process as a means of delaying or preparing for arbitration. "'The courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration.'" Shevlin v. Prudential Commercial Ins. Co., 256 N.J. Super. 691, 700-01 (Law Div. 1991) (quoting Sherrill v. Grayco Builders, Inc., 475 N.E.2d 772, 777 (N.Y. 1985)).

Notice of the party's intention to seek arbitration is one factor. Notice is relevant because a litigant who has been informed of another party's intention to demand arbitration can consider the validity of the claim and guide his or own litigation conduct accordingly. In Hudik-Ross, Inc. v. 1530 Palisade Ave. Corp., 131 N.J. Super. 159, 167 (App. Div. 1974), this court found no waiver where the party seeking to compel arbitration in accordance with an agreement gave notice by way of assertion of an affirmative defense and demanded arbitration four months after the complaint was filed. In contrast, in Farese v. McGarry, 237 N.J. Super. 385, 394 (App. Div. 1989), we found that a party who made no mention of arbitration until nine months after the action was commenced and two weeks before trial had waived the right to compel arbitration.

The extent to which the party seeking to compel arbitration has invoked the litigation process before asserting the right is also relevant. In Lucier, we characterized the conduct of the defendant who sought to enforce an arbitration clause after filing an answer and one motion for partial summary judgment as "an acceptable effort to preserve the status quo pending arbitration [that did] not constitute waiver." 366 N.J. Super. at 500.

We conclude that the protracted pre-trial litigation in this case amounts to a wavier based on the obvious burden of expense and delay plaintiff shouldered without notice of Prebon's intention to demand arbitration. Prebon first gave plaintiff notice of its intention to assert that his claim could not be heard in court when it filed its motion to dismiss and compel arbitration. That motion was not filed until twenty months after plaintiff filed the initial complaint. In the interim, plaintiff had submitted to depositions on two separate occasions and produced his psychologist and former executive coach for depositions. He had litigated and negotiated protective orders in response to Prebon's motions to resist discovery and Prebon's issuance of subpoenas to his wife and employer. He had participated in mediation. He had consented to an extension of time to permit Miles to answer. The court had extended discovery, ruled on motions and entered orders. Under these circumstances, we do not find it necessary to speculate about whether Prebon obtained discovery that it would not have obtained if it submitted to arbitration. Prejudice in the form of expense and delay is apparent, and a party who engages in discovery to the extent that plaintiff did here should not be required to prove that his or legal position has been prejudiced. Ehleiter, supra, 482 F.3d at 223-25.

We are not persuaded by Prebon's attempt to shift responsibility for its litigation conduct to plaintiff by pointing to his delay in serving Miles. First, Prebon acknowledges that plaintiff's interrogatories, which were served on March 8, 2005, requested Miles' address. Prebon did not provide that address for nine months, and after Miles was served, plaintiff, still unaware of any intention on the part of Prebon to compel arbitration, consented to a request to extend time for Miles to file an answer. Had Prebon asserted a right to arbitration in its answer and provided the address more swiftly, plaintiff's contribution to the delay and Prebon's legitimate interest in resolving the matter in one proceeding would weigh in Prebon's favor.

The record in this case compels a finding that Prebon waived any contractual right to compel arbitration that it may have had. Accordingly, we reverse and remand for further proceedings.


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