Opinion
DOCKET NO. A-0679-15T3
04-11-2016
LAKELAND WEST CAPITAL VIII, LLC, Plaintiff-Respondent, v. REITNOUR INVESTMENT PROPERTIES, L.P., REITNOUR PROPERTY CORP., and PHILIP A. REITNOUR, INDIVIDUALLY, Defendants-Appellants.
Joshua W. Denbeaux argued the cause for appellants (Denbeaux & Denbeaux, attorneys, Nicholas A. Stratton, on the briefs). William R. Tellado argued the cause for respondent (Sills Cummis & Gross, P.C., attorneys; Mr. Tellado, of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Sabatino and O'Connor. On appeal from the Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-0234-14. Joshua W. Denbeaux argued the cause for appellants (Denbeaux & Denbeaux, attorneys, Nicholas A. Stratton, on the briefs). William R. Tellado argued the cause for respondent (Sills Cummis & Gross, P.C., attorneys; Mr. Tellado, of counsel and on the brief). PER CURIAM
This case arises from efforts by plaintiff Lakeland West Capital VIII, LLC ("Lakeland") to enforce as assignee a promissory note and an associated personal guaranty after defendants allegedly defaulted on a $3.3 million commercial loan. The promissory note was executed by a limited partnership, defendant Reitnour Investment Properties, L.P., and the personal guaranty was executed by defendant Philip A. Reitnour. The partnership's general partner is defendant Reitnour Property Corp., a corporation headed by Reitnour.
At the end of discovery, fifteen months after the complaint was filed, Lakeland moved for summary judgment. Defendants did not directly oppose the summary judgment motion. Rather, they unsuccessfully cross-moved to compel arbitration pursuant to a permissive arbitration clause (entitled a "Dispute Resolution Provision") contained in the guaranty. That clause reads, in pertinent part, as follows:
This Dispute Resolution Provision is a material inducement for the parties entering into this agreement.
(a) This Dispute Resolution Provision concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this agreement . . . ; or (ii) any document related to this agreement (collectively a "Claim"). For the purposes of this Dispute Resolution Provision only, the term "parties" shall include any parent corporation, subsidiary or affiliate of the Bank involved in
the servicing, management or administration of any obligation described or evidenced by this agreement.
(b) At the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the "Act"). The Act will apply even though this agreement provides that it is governed by the law of [New Jersey].
. . . .
(g) The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.
The guaranty does not describe the manner in which a party may request arbitration. Nor does it provide a deadline for making such a request once a claim arises.
[(Emphasis added).]
Significantly, the guaranty does not make arbitration mandatory absent a request by one of the parties. Consistent with that optional approach, the guaranty in another provision contemplates other potential forums:
Governing Law and Jurisdiction. This Guaranty shall be governed by and construed and enforced in accordance with federal law and the law of the State of New Jersey.
Jurisdiction and venue for any action or proceeding to enforce this Guaranty shall be the forum appropriate for such action or proceeding against Borrower, to which jurisdiction Guarantor irrevocably submits and to which venue Guarantor waives to the fullest extent permitted by law any defense asserting an inconvenient forum in connection therewith.Reitnour, in his individual capacity, is the only defendant that is party to the guaranty. The promissory note does not contain any cognate arbitration provisions.
[(Emphasis added).]
During the course of the litigation and the discovery period leading up to the summary judgment motion, defendants gave no indication to Lakeland and the court that they intended to have the dispute submitted to arbitration. Indeed, defendants actively engaged in various discovery disputes, motions and other pretrial matters. It was not until defendants filed their cross-motion responding to Lakeland's summary judgment motion that defendants' desire for arbitration surfaced.
Given these circumstances, the motion judge concluded that defendants by their conduct had waived Reitnour's right to trigger the guaranty's arbitration clause. In particular, the motion judge observed in his written decision the following significant chronology:
The complaint was filed on May 22, 2014. Defendants filed an answer and affirmative defenses on July 18, 2014. The discovery end date was July 16, 2015. The within cross-motion to compel arbitration was filed on August 12, 2015 and was in response to a motion for summary judgment filed by Plaintiff which was returnable on August 21, 2015.The judge found this chronology reflective of a waiver of the optional right to arbitrate. As he reasoned:
Paragraph 25 subsection (g) of the guaranty agreement states that the filing of a court action is not intended by the parties to constitute a waiver. However, the Court finds persuasive that Defendants' failure to timely advise Plaintiff of its intent to arbitrate until after discovery was closed and a dispositive motion filed constitutes a waiver of the right to arbitrate.
[(Emphasis added).]
The judge then turned to Lakeland's summary judgment motion. He noted that defendants "did not provide any substantive opposition" to the application and accordingly granted it. The judge ruled that the partnership had defaulted on the note, struck defendants' affirmative defenses, and declared defendants all jointly and severally liable for the partnership's non-payment of the note.
On appeal, defendants argue that the judge erred in finding a waiver of the right to arbitration. They contend that the "seven-factor totality of the circumstances test" adopted by the Supreme Court in Cole v. Jersey City Medical Center, 215 N.J. 265 (2013), is controlling, and argue that each of the Cole factors either weigh against finding waiver, or do not apply. Notably, they do not substantively contest the grant of summary judgment in favor of Lakeland.
Lakeland, on the other hand, contends that the Cole factors weigh in favor of waiver and that the judge's decision was sound. In particular, Lakeland stresses the considerable amount of time that transpired and litigation activity that occurred before defendants raised an arbitration demand. Lakeland also emphasizes that the guaranty's arbitration provision, even if it had not been waived and was enforced, would not affect Lakeland's claims against the partnership and the corporation, thereby causing the dispute to be impractically bifurcated into two forums.
Having considered these arguments, we affirm the finding of waiver, substantially for the sound reasons identified by the motion judge. We amplify those reasons with the following comments.
We are mindful that, as a general policy, commercial arbitration is a favored means of dispute resolution within New Jersey, and "its object is 'the final disposition, in a speedy, inexpensive, expeditious and perhaps less formal manner, of the controversial differences between the parties.'" Barcon Assocs., Inc. v. Tri-County Asphalt Corp., 86 N.J. 179, 186-87 (1981). An arbitration agreement is enforceable and irrevocable "except upon a ground that exists at law or in equity for the revocation of a contract." Cole, supra, 215 N.J. at 276 (quoting N.J.S.A. 2A:23B-6).
The Supreme Court has recognized, however, that parties "may waive their right to arbitrate in certain circumstances," although such waiver is "never presumed." Ibid. An agreement to arbitrate a dispute can be overcome where there is "clear and convincing evidence that the party asserting [arbitration] chose to [litigate] in a different forum." Ibid. (quoting Spaeth v. Srinivasan, 403 N.J. Super. 508, 514 (App. Div. 2008)). We are satisfied that defendants' active conduct here during the life of the lawsuit and their lengthy silence concerning arbitration provide a clear basis for the judge's finding of waiver.
The Court instructed in Cole that in analyzing whether a party has waived its right to arbitration, a court "must focus on the totality of the circumstances." Id. at 280. Courts should consider, among other factors, the following:
(1) the 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.This analysis is fact-sensitive, and is reviewed de novo on appeal. Id. at 275, 280.
[Id. at 280-81.]
Although the motion judge did not explicitly address in his opinion all of the Cole factors, his finding of waiver is consistent with their application to the circumstances here. Defendants delayed fifteen months in demanding arbitration after the complaint was filed. That lengthy period is considerably longer than the four-month delay in Hudik-Ross, Inc. v. 1530 Palisades Ave. Corp., 131 N.J. Super. 159, 167 (App. Div. 1974), and the six-month delay in Spaeth, supra, 403 N.J. Super. at 516. The delay here is more akin to the twenty-one-month delay in Cole, which the Supreme Court concluded was excessive and indicative of waiver. Cole, supra, 215 N.J. at 281; see also Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 925-26 (3d Cir. 1992) (holding that an eleven-month delay in demanding arbitration coupled with participation in discovery and the filing of motions, including a motion to dismiss, was sufficient to find that waiver had occurred).
Moreover, as Lakeland correctly points out, Spaeth and Hudik-Ross, where no waiver was found, are both distinguishable in that the defendant in Spaeth was self-represented, and the defendant in Hudik-Ross had provided advance notice by asserting the arbitration clause in its answer, which defendants failed to do here. --------
Here, defendants had multiple opportunities to make it known that they intended to seek arbitration. Instead, they filed an answer that asserted multiple affirmative defenses, but not the arbitration clause, in July 2014. They requested an extension of time to comply with discovery demands. They opposed a motion to strike their answer in January 2015. They participated in discovery. They consented to a two-month extension of discovery sometime between February and May 2015. They allowed the discovery period to expire in July 2015. They finally asserted that the matter be arbitrated in response to an otherwise unopposed motion for summary judgment in August 2015.
This pattern of conduct is similar to the circumstances in Cole. In that case, the defendant did not assert an arbitration clause as an affirmative defense, participated in discovery and motion practice, and led the opposing party to "anticipate[] a judicial determination in the near future[.]" Id. at 282. Within the context of this relatively uncomplicated lawsuit to recover on a defaulted loan, we discern no justification for defendants to have waited so long to voice a desire to arbitrate. Thus, the first Cole factor of delay is very compelling.
Most of the remaining Cole factors manifestly weigh in favor of the finding of waiver. Defendants engaged in motion practice, albeit on non-dispositive motions, before demanding arbitration (factor two). Discovery, although it only included a single deposition, was time-consuming, particularly because defendants did not comply with document demands and thus forced Lakeland to file a motion to compel compliance (factor four). Defendants provided no earlier notice of their desire to arbitrate in their answer or otherwise (factor five). The prejudice to Lakeland in having to arbitrate this dispute on the verge of prevailing on a dispositive motion in court is obvious in terms of expended litigation costs and delay (factor seven). Although it is not necessary to our analysis, a fair inference can be made that defendants' belated arbitration demand was consistent with a litigation strategy to delay the entry of a final judgment enforcing the note and compelling its payment (factor three). These factors supporting waiver, along with factor one regarding the length of delay, far outweigh factor six (proximity to the date of trial), which does not apply because no trial date had yet been set.
As a final point, we agree with Lakeland that the absence of any arbitration clause in the promissory note strengthens its position that an arbitration demand under the separate guaranty should have been made much sooner. Although defendants are correct that the court would have had the authority to stay the lawsuit against the partnership and the corporation pending the completion of an arbitration of the guaranty, their delay in demanding arbitration increased the prejudice to Lakeland in having to expend funds in the lawsuit without knowing for over a full year that it would then have to litigate the guaranty in an entirely different forum.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION