A Resnick Law Group Victory: Last Minute Arbitration Will Not Be Upheld in New Jersey

April 5, 2012

952313_gavel.jpgOn March 29, 2012, the Appellate Division held, in Cole v. Jersey City Medical Center, et al., A-4914-09T1 (N.J. App. Div. Mar. 29, 2012), that an employer, Liberty Anesthesia Associates, LLC ("Liberty"), was equitably estopped from enforcing an arbitration clause contained in an employment contract. Because Liberty actively participated in the litigation -- and opted to wait until three days before trial to first invoke the arbitration clause -- the Court reasoned that Liberty had "voluntarily and intentionally decided to relinquish its right to arbitration as a forum to adjudicate plaintiff's claims as a matter of litigation strategy." Plaintiff, who is represented by New Jersey employment lawyers at the Resnick Law Group, will indeed have her day in court on her claims that the wrongful termination of her employment as a nurse anesthetist violated the Conscientious Employee Protection Act ("CEPA") and the New Jersey Law Against Discrimination ("LAD").

Background and Procedural History

Karen Cole ("Ms. Cole" or "plaintiff") was a dedicated and highly regarded Nurse Anesthetist, employed by Liberty, which provided anesthesia care at Jersey City Medical Center ("JCMC"). After months of complaining about questionable, and what she believed to be unlawful, medical practices at the hospital, Ms. Cole was accused of making unauthorized withdrawals from a Pyxis machine, which dispenses narcotics in the operating rooms. When the hospital advised her that hospital privileges would be temporarily suspended pending an investigation, her employer, Liberty, fired her, which then resulted in JCMC permanently terminating her services.

On September 21, 2007, Ms. Cole filed a lawsuit against Jersey City Medical Center (JCMC) alleging, inter alia, that JCMC violated CEPA by firing her in retaliation for her objections about defendants' fraud and violations of law, and violated the LAD by firing her because of her disability. On June 3, 2008, she filed an Amended Complaint which included Liberty as a defendant. Although Liberty asserted thirty-five affirmative defenses, it failed to mention or set forth as an affirmative defense anything about an arbitration agreement in its Answer.

Liberty participated extensively in discovery, and in January 2010, Liberty and JCMC each filed a motion for summary judgment. Prior to the oral argument, Ms. Cole settled her claims against JCMC. The Court denied Liberty's motion with respect to Ms. Cole's claims under CEPA and the LAD, but granted Liberty's motion with respect to Ms. Cole's common law claims. As in its Answer, Liberty failed to make any argument or mention of arbitration in connection with its motion for summary judgment.

On Friday, March 19, 2010, one business day before the scheduled trial, Liberty filed numerous motions in limine, including a motion to compel arbitration of all of Ms. Cole's claims, based on an arbitration clause in a standard employment contract signed by plaintiff. This was the first time Liberty made any attempt to compel arbitration in the case.

Trial Court Decision

Liberty's much dilatory explanation for not invoking the arbitration clause earlier in the litigation, was that arbitration was inappropriate until plaintiff settled her claims against JCMC. Liberty reasoned that, since JCMC was not a party to the employment agreement, plaintiff had "an absolute right to have a jury trial with respect to all of the claims that she had brought" against JCMC. Accordingly, Liberty argued that "it would have not made sense to arbitrate" plaintiff's claims against Liberty, while simultaneously litigating virtually identical claims against JCMC, because of the potential risk of inconsistent findings. Plaintiff opposed Liberty's motion, arguing that Liberty had waived its right to compel arbitration by virtue of both its failure to raise the issue as an affirmative defense and its active participation in the litigation up until trial.

Though the parties were preparing for jury selection, the trial judge dismissed the case and ordered the matter to proceed to aritration. Plaintiff appealed.

Appellate Division Decision

The Appellate Division noted, early in its published opinion, that "an arbitration agreement is construed and enforced under the same legal principles applicable to contracts in general." It went on to say that the doctrine of waiver applies in the context of enforcing a contractual provision to arbitrate.

The Court then emphasized facts that distinguished cases where defendants were held to have not waived their right to arbitration. It pointed out that, in Spaeth v. Srinivasan, 403 N.J. Super. 508, 516 (App. Div. 2008), the defendant filed its motion to compel arbitration "well before any meaningful exchange of discovery -- much less the discovery end date -- and well in advance of fixing a trial date." Moreover, it distinguished Hudik-Ross, Inc. v. 1530 Palisade Avenue Corp., 131 N.J. Super. 159, 166-67 (App. Div. 1974) on the grounds that in that case, the defendants raised the arbitration issue as an affirmative defense and filed their motion to compel arbitration only four months into the litigation.

The Court also relied on Farese v. McGarry, 237 N.J. Super. 385, 394 (App. Div. 1989), in which a defendant was held to have waived his contractual right to arbitration where he amended his answer to allege the arbitration issue as a defense nine months after the complaint was filed and just two weeks before trial. The Court further stated that "Liberty knowingly decided not to raise its rights to arbitration because, as a matter of litigation strategy, it wanted to avoid the risk of inconsistent findings by two separate fact-finders. Liberty's actions operated to the detriment of plaintiff."

In concluding its analysis, the Court shifted its focus to the doctrine of equitable estoppel, applying the principles enunciated in Lopez v. Patel, 407 N.J. Super. 79 (App. Div. 2009). In Lopez, the defendants were equitably estopped from asserting their right to dismiss the complaint on collateral estoppel grounds because they unjustifiably waited until the morning of trial to raise the defense. Indeed, "the [p]laintiffs relied on the trial dates set by the court and unchallenged by defendants with the expectation that their negligence claims would be tried.... [The p]laintiffs . . . paid thousands of dollars in fees for expert testimony and other services at the trial they expected to start on January 7, 2008."

Similarly holding that Liberty was equitably estopped from enforcing the arbitration clause in Cole, the Court reasoned, "Our holding in Lopez, and the principles animating our analysis therein, apply with equal force here." It noted that "getting a case ready for trial before a jury requires a great deal more preparation than presenting a case before a panel of arbitrators. During the twenty months leading to the scheduled trial date, plaintiff actively engaged in discovery and prepared the case for trial." It concluded by stating that the decision to wait until three days before trial to first invoke an arbitration clause is "precisely the type of conduct we repudiated in Lopez," reversing and remanding the trial court's decision.

Impact of the Decision

The decision in Cole speaks loudly and clearly to employers who seek to enforce arbitration agreements. As a matter of litigation strategy, employers simply cannot have it both ways -- taking their chances at obtaining summary judgment after nearly two years of litigation, and when that fails, seeking to enforce an arbitration agreement, for the very first time, just days before trial. Equity will not stand for that sort of conduct. And, neither did Ms. Cole.

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About the Resnick Law Group

The Resnick Law Group, P.C. has been handling employment law matters on behalf of employees, for more than 30 years in and around New Jersey and New York. If you feel your employer has violated your rights, contact the Resnick Law Group, P.C. at 973-781-1204 or 646-867-7997. We are located in East Hanover, N.J. and Midtown Manhattan on Broadway.