The New Jersey Supreme Court recently rejected an employer’s attempt to move a case to arbitration, finding that the employer delayed too long in bringing the issue to the court’s attention and had actively participated in the lawsuit.

Karen Cole was a certified registered nurse anesthetist. Liberty Anesthesia Associates LLC had a contract with Jersey City Medical Center to provide anesthesia services to JCMC. Liberty entered into an employment contract with Cole and assigned her to work at JCMC in 2004. The employment contract contained a mandatory arbitration clause covering all claims Cole might have related to her employment with Liberty.

After about three years on the job, JCMC identified certain discrepancies in Cole’s accounting of controlled substances. JCMC asked Cole to submit to drug testing, but she refused. JCMC then suspended her staff privileges. As a result, Liberty terminated Cole’s contract, citing a provision allowing it to do so if she were suspended at the hospital to which she was assigned.

In September 2007, Cole filed a lawsuit against JCMC, asserting whistleblowing, disability discrimination, and contract claims. In May 2008, JCMC brought Liberty into the lawsuit as a third-party defendant. A few weeks later, Cole filed an amended complaint naming Liberty as a direct defendant. In its answer, Liberty did not raise the arbitration provision in Cole’s employment contract. Instead, Liberty participated in discovery, including six days of Cole’s deposition, and filed various motions with the trial court.

In early 2010, on the eve of trial, JCMC reached a settlement with Cole. Liberty unsuccessfully sought summary judgment and engaged in the required pre-trial exchange of information, all without asserting the arbitration clause. Just three days before the scheduled trial date, Liberty filed a motion to compel arbitration, claiming that it could not have done so sooner because JCMC was not a party to the arbitration agreement and, thus, there would have been a risk of disparate results in two separate proceedings before JCMC settled with Cole. The trial court granted Liberty’s motion and dismissed Cole’s remaining claims, but the New Jersey Appellate Division reversed the trial court’s order.

The Supreme Court focused its analysis on the question of whether or not Liberty waived its right to force Cole’s claims to arbitration. The Court set forth the following non-dispositive factors for courts to consider when determining whether a party has waived its rights in an arbitration agreement:

  1. any delay in making the arbitration request;
  2. the filing of any motions, particularly dispositive motions, and their outcomes;
  3. whether the delay in seeking arbitration was part of the party’s litigation strategy;
  4. the extent of discovery conducted;
  5. whether the party raised the arbitration issue in its pleadings, particularly as an affirmative defense, or provided other notification of its intent to seek arbitration;
  6. the proximity of the date on which the party sought arbitration to the date of trial; and
  7. the resulting prejudice suffered by the other party, if any.

The Court noted that any overall determination on these issues will depend on the particular facts in each case.

Here, the Court found that Liberty had participated in the litigation for twenty-one months before seeking arbitration. During that time, it engaged in extensive discovery and motion practice before the trial court without asserting the arbitration agreement as a defense. According to the Court, “Liberty engaged in all of the usual litigation procedures for 21 months and only on the eve of trial invoked its right to arbitrate. Such conduct undermines the fundamental principles underlying arbitration and is strongly discouraged in our state.”