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Spaeth v. Srinivasan

November 20, 2008


On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-9325-06.

The opinion of the court was delivered by: Parrillo, J.A.D.



Submitted October 16, 2008

Before Judges Parrillo, Lihotz and Messano.

This matter is before us by order of the Supreme Court granting defendant Vathsala Srinivasan leave to appeal from interlocutory orders of the Law Division denying defendant's motion to dismiss plaintiff's complaint based on plaintiff's failure to arbitrate and summarily remanding on the limited issue of whether defendant waived her contractual right to arbitration. For the following reasons, we reverse.

The pertinent facts are essentially undisputed. On December 1, 2005, the parties executed a contract in which defendant agreed to sell plaintiff, a certified public accountant, her list of 242 clients for whom she had been preparing annual tax returns and providing other tax services. Consideration was to be an initial, non-refundable payment of $20,000, together with 50% of the balance sum (a figure calculated by totaling all collections received from clients since the turnover date minus the $20,000 down payment), payable on June 1 of each year plus interest. The contract included an arbitration clause, which reads:

Any controversy or claim arising out of or relative to this AGREEMENT, of the breach thereof, shall be submitted to arbitration before a single arbitrator, subject to the commercial arbitration rules of the American Arbitration Association, with venue for all proceedings to be held in Union County, New Jersey, with the non prevailing Party to pay the cost of the Arbitrator.

The parties also provided that their contract was to be governed by New Jersey law.

Disputes arose soon after the contract's execution. Plaintiff alleged that defendant did not refer all of her clients to him and had misrepresented the fees she charged them.

Defendant denied these claims and blamed plaintiff's inflexibility and ineptitude for his business shortfall. Because of this conflict, plaintiff refused to make any payments to defendant after the initial $20,000 installment.

After failing to make the scheduled June 1, 2006 payment, on August 10, 2006, plaintiff filed suit against defendant in the Special Civil Part, small claims division, which he later voluntarily dismissed on September 13, 2006. Three months later, on December 15, 2006, plaintiff filed anew in the Law Division, this time alleging breach of contract, fraud in the inducement and tortious interference with prospective economic advantage. Defendant pro se answered on February 9, 2007, raising various affirmative defenses exclusive of the arbitration clause, and counterclaimed, asserting plaintiff's breach of contract, tort and fraud. Plaintiff never answered, and consequently, default was entered against him on the counterclaim on January 10, 2008, pursuant to Rule 4:43-1; 4:43-4; and 4:6-1(a).

As a Track II case, the discovery period was set at 300 days with an end date of December 6, 2007. Minimal discovery transpired, however. In the meantime, the parties attempted unsuccessfully to mediate their dispute on May 10, 2007. And less than three months after filing her answer, defendant moved for summary judgment, which was denied by order of June 4, 2007. Defendant, still proceeding pro se, then moved on June 25, 2007, for a stay of discovery pending appeal, reconsideration of the court's June 4, 2007 order, and dismissal of plaintiff's complaint with prejudice, asserting for the first time, just six months after the filing of the complaint, that plaintiff's cause of action was barred by the contractual arbitration clause, which deprived the court of jurisdiction in the matter. Defendant reiterated this defense less than two months later in her July 21, 2007 opposition to plaintiff's motion to suppress her answer, raising once again the issue of mandatory arbitration under their contract. By order of October 3, 2007, the judge denied defendant's motions for stay of discovery, reconsideration, and dismissal. Defendant then moved for leave to appeal the Law Division's interlocutory orders of June 4 and October 3, 2007, and for a stay, which relief we denied. Thereafter, as noted, the Supreme Court granted leave to appeal, limited to the issue of whether defendant waived her right to arbitration.

At the outset, we note that no one contests the validity or enforceability of the contract's mandatory arbitration clause under governing New Jersey law, or that the claims of both parties ...

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