Opinion
DOCKET NO. A-0686-12T1
05-02-2013
STEPHEN LERNER, individually and as a partner of Lerner-Heidenberg Associates, Plaintiff-Appellant, v. ROBERT HEIDENBERG, individually and as a partner of Lerner-Heidenberg Associates, Defendant-Respondent, and HEIDENBERG FAMILY PARTNERSHIP, DJJM GALILEO, L.L.C., FLEMINGTON REALTY INVESTORS, L.L.C. and ROBERT HEIDENBERG, individually and derivatively on behalf of Heidenberg Family Partnership, DJJM Galileo, L.L.C. and Flemington Realty Investors, L.L.C., Third-Party Plaintiffs, v. STEPHEN LERNER, MARTIN KAHN, GROB THIRD GEN, L.L.C., GROFAM L.P., JEFFREY GROSS, ADAM GROSS, DAVID GROSS and JONAS CLOJO, Third-Party Defendants.
Leda Dunn Wettre argued the cause for appellant (Robinson, Wettre & Miller, L.L.C., attorneys; Ms. Wettre and Keith J. Miller, on the brief). Laurence B. Orloff argued the cause for respondent (Orloff, Lowenbach, Stifelman & Siegel, P.A., attorneys; Mr. Orloff, of counsel and on the brief; Alissa Pyrich, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Axelrad, Sapp-Peterson and Haas.
On appeal from Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-0064-12.
Leda Dunn Wettre argued the cause for appellant (Robinson, Wettre & Miller, L.L.C., attorneys; Ms. Wettre and Keith J. Miller, on the brief).
Laurence B. Orloff argued the cause for respondent (Orloff, Lowenbach, Stifelman & Siegel, P.A., attorneys; Mr. Orloff, of counsel and on the brief; Alissa Pyrich, on the brief). PER CURIAM
Plaintiff Stephen Lerner appeals from an August 27, 2012 order of the Chancery Division granting defendant Robert Heidenberg's motion to compel arbitration. After reviewing the record in light of the contentions advanced on appeal, we affirm substantially for the reasons set forth by Judge Harry Carroll in his written opinion.
I.
Plaintiff and defendant were partners in Lerner-Heidenberg Associates (LHA), a New Jersey general partnership and real estate management company. Paragraph 13 of their partnership agreement states that "[a]ny controversy or claim arising out of or relating to this contract, or breach thereof, shall be settled pursuant to the laws of New Jersey by arbitration in accordance with the rules, then obtaining, of the American Arbitration Association[.]"
The parties had a falling out. Rather than pursuing arbitration, however, on February 28, 2012, plaintiff filed a complaint against defendant in the Chancery Division seeking to dissolve LHA. Defendant immediately sought to depose plaintiff and the first day of this deposition was conducted on April 16, 2012.
The deposition was never completed.
On April 23, 2012, defendant filed an answer and a five-count counterclaim. In count one of the counterclaim, defendant sought the dissolution of more than thirty additional entities in which he and plaintiff shared an interest because they were interrelated with LHA. In counts two, three, four, and five, defendant sought to dissolve four additional entities in which he had an interest with plaintiff. On that same date, defendant also filed an order to show cause, which the trial court converted into a motion. In that motion, defendant sought to enjoin plaintiff from interfering with his right to partnership distributions and to require plaintiff to restore distributions plaintiff had allegedly stopped with respect to one of the entities.
Plaintiff opposed defendant's request for preliminary injunctive relief and he also filed a motion to dismiss counts one through four of defendant's counterclaim. Plaintiff argued that the operating agreements for the entities involved in those counts required that the parties resolve any disputes through arbitration. He also argued the court lacked jurisdiction over some of the entities because they had been organized under the laws of New York, rather than New Jersey.
On May 24, 2012, the parties entered into a stipulation concerning their access to information in LHA's possession which had been stored electronically.
On June 8, 2012, Judge Carroll heard oral argument on the parties' motions. The judge asked defendant's counsel whether it was his intention to invoke the arbitration provision of the parties' partnership agreement for LHA. In response, defense counsel stated:
Your Honor, I can't tell you in all candor that we have made a final decision on that. I can only tell you this, that we are in court, we have not sought to put the matter into arbitration, and our view of this entire dispute is that everything really is - - and I'll come to that when I address the cross[-]motion - - everything is interrelated and really has to be, it should be determined in one forum, and they've chosen this court and there is no reason to have it handled anywhere else.Later in the argument, defense counsel opposed plaintiff's request to send certain of the disputes involving the parties' entities to arbitration, stating this was "really a single integrated dispute involving an entity [LHA] which is interconnected with all of the others[.]" Counsel further stated:
We prefer to be here. If it's going to be an arbitration, it should be all in one place and not all over the place, and while, I, too, don't want to burden your Honor with more than is necessary, the fact is that they're now in this court and here we are, and unless we wind up in one place, that's where we should remain[.]
At the conclusion of oral argument, Judge Carroll issued a written decision denying defendant's request for injunctive relief. The judge also granted plaintiff's motion to dismiss counts two, three, and four of defendant's counterclaim. The judge found that the parties were required to pursue arbitration regarding those entities as required by the applicable operating agreements. Thus, as a result of the judge's ruling, some of the parties' disputes concerning entities other than LHA would be referred to arbitration, while others would remain in the Chancery Division.
Less than a week later, on June 14, 2012, the judge held a case management conference with counsel. At that point, defendant's attorney advised the court that defendant wished to invoke paragraph 13 of the parties' agreement and compel arbitration of the matters raised in plaintiff's complaint and in count one of defendant's counterclaim. Plaintiff opposed this request and defendant was directed to file an appropriate motion. At the conference, however, the parties also agreed to first submit the case to mediation in an attempt to resolve their differences. Thus, defendant was directed to defer the filing of his motion until the parties explored the possibility of a settlement. In addition, the discovery deadlines were extended, with February 25, 2013 being set as the deadline for the completion of all discovery.
On July 30, 2012, defendant filed his motion to compel arbitration and stay or dismiss the remaining LHA-related proceedings. Plaintiff opposed this request and argued that defendant had waived his right to compel arbitration by "aggressively litigating" the matter in the Chancery Division.
In a written decision and order issued on August 27, 2012, Judge Carroll granted defendant's motion to compel arbitration of the claims raised in plaintiff's complaint and in count one of defendant's counterclaim and he dismissed these claims without prejudice pending the outcome of the arbitration. The judge found defendant had not waived his right to arbitrate the remaining partnership disputes by participating in the litigation up to that point. The judge explained:
The parties subsequently filed a stipulation of dismissal as to count five of defendant's counterclaim.
Other than one court proceeding resulting in the entry of the June 8, 2012 Order, this court's involvement in this litigation has been minimal. At the first Case Management Conference on June 14, 2012 defendant promptly advised the court of its position that these disputes should be arbitrated. At the time this motion was filed[,] only one day of plaintiff's deposition had occurred, no other depositions were scheduled, and neither party had served answers to interrogatories or responses to document requests. No trial date has been set. The court finds no prejudice to plaintiff in compelling the claims to arbitration in accordance with the clear and express terms of the parties' Partnership Agreement.
The judge also rejected plaintiff's contention that defendant's motion to compel arbitration was barred by the doctrine of judicial estoppel. The judge noted that defendant's intent was to try to keep all of the matters in one proceeding. However, once that was no longer possible when plaintiff successfully compelled arbitration on some of the matters, the judge found that defendant promptly moved to send everything to arbitration. This appeal followed.
II.
On appeal, plaintiff argues that the judge erred in granting defendant's motion to compel arbitration. We disagree.
"[O]rders compelling or denying arbitration are deemed final and appealable as of right as of the date entered." GMAC v. Pittella, 205 N.J. 572, 587 (2011). We review the judge's decision to compel arbitration de novo. Frumer v. Nat'l Home Ins. Co., 420 N.J. Super. 7, 13 (App. Div. 2011).
Plaintiff initially alleges that defendant waived arbitration when he failed to raise it in his answer. Plaintiff adopts this position based on the inclusion of arbitration as an affirmative defense under Rule 4:5-4, and his assertion that an affirmative defense is waived unless pleaded. However, we have recognized that the failure to raise arbitration as an affirmative defense is not dispositive on the issue of waiver. See Spaeth v. Srinivasan, 403 N.J. Super. 508, 516-17 (App. Div. 2008) (finding the defendant did not waive arbitration despite not raising arbitration as an affirmative defense); Garfinkel v. Morristown Ob. & Gvn., 333 N.J. Super. 291, 296 (App. Div. 2000) ("'[T]he mere filing of a complaint or an answer to the complaint is not a waiver of arbitration[.]'") (quoting Wasserstein v. Kovatch, 261 N.J. Super. 277, 290 (App. Div.), certif. denied, 133 N.J. 440 (1993)), rev'd on other grounds, 168 N.J. 124 (2001). Therefore, this argument lacks merit.
Plaintiff next alleges that defendant waived his right to arbitration through his litigation conduct. Plaintiff contends defendant "aggressively litigated" this matter by filing an answer and counterclaim, seeking injunctive relief, and making discovery requests. We disagree.
A party can waive his or her right to arbitration either expressly or by implication. Spaeth, supra, 403 N.J. Super. at 514. Whether a party waives arbitration implicitly depends on the totality of the circumstances. Ibid. ("There is no single test for the type of conduct that may waive arbitration rights."). Indeed, "[t]here is a presumption against waiver of an arbitration agreement, which can only be overcome[] by clear and convincing evidence that the party asserting [arbitration] chose to seek relief in a different forum." Ibid. (citing Am. Recovery Corp. v. Computerized Thermal Imaging, 96 F. 3d 88, 92 (4th Cir. 1996)).
Because "'[n]ot every foray into the courthouse effects a waiver of the right to arbitrate,'" Lucier v. Williams, 366 N.J. Super. 485, 500 (App. Div. 2004) (alteration in original) (quoting Shevlin v. Prudential Commercial Ins. Co., 256 N.J. Super. 691, 700 (Law Div. 1991)), it is "the presence or absence of prejudice [that] has been deemed determinative of the issue of waiver." Spaeth, supra, 403 N.J. Super. at 515. Citing a decision of the Second Circuit, we recognized that "simply wasting a party-opponent's time and money [is] insufficient to constitute prejudice . . . ." Ibid. (citing Rush v. Oppenheimer & Co., 779 F. 2d 885, 888 (2d Cir. 1985)). However, when it is a defendant seeking to compel arbitration, it is more likely that arbitration is waived when a defendant "use[s] the litigation process improperly, such as to gain pretrial disclosure not generally available in arbitration." See Lucier, supra, 366 N.J. Super. at 500 (citing Shevlin, supra, 256 N.J. Super. at 700-01).
Contrary to plaintiff's contention, this case is not like Farese v. McGarry, 237 N.J. Super. 385, 394 (App. Div. 1989), where we found that the plaintiff waived his right to compel arbitration where he affirmatively filed a complaint and then filed an answer to a counterclaim without alleging arbitration. There, the plaintiff did finally raise arbitration in an amended answer filed nine months after the complaint, but it was a mere two weeks before trial was set to begin. Ibid. This case is also plainly distinguishable from Cole v. Jersey City Med. Ctr., 425 N.J. Super. 48 (App. Div.), certif. granted, 212 N.J. 198 (2012). In that case, the defendant participated in the litigation for twenty months and completed all reciprocal discovery. Id. at 51. The defendant did not raise the issue of arbitration until three days before the scheduled trial date. Ibid. Under those circumstances, we held that the defendant had waived its right to seek arbitration. Ibid.
Here, defendant notified plaintiff of his intention to compel arbitration on June 14, 2012, less than four months after plaintiff filed his complaint on February 28. Six weeks later, after mediation did not lead to a settlement, defendant filed a formal motion to compel arbitration. The parties engaged in limited discovery. Only one day of depositions was completed; the parties had exchanged written requests for discovery, but no written responses were held; and they had entered a stipulation to permit them to exchange electronic data related to LHA. Other than the motion to compel arbitration, the only motions filed were defendant's motion for injunctive relief to maintain the status quo and plaintiff's cross-motion to move the bulk of defendant's counterclaim to arbitration. Only one case management conference had been held, the discovery deadline was set far in the future and, obviously, no trial date had been set.
Under these circumstances, we find no basis to disturb Judge Carroll's well-supported conclusion that defendant had not waived his right to seek arbitration. Indeed, we have consistently held that similar cases were properly sent to arbitration. For example, in Spaeth, the plaintiff filed a complaint on December 15, 2006 after voluntarily dismissing a complaint filed four months earlier on August 10, 2006. Supra, 403 N.J. Super. at 512. On February 9, 2007, the defendant filed an answer, in which it did not raise the defense of arbitration, and also filed counterclaims. Ibid. The parties engaged in "[m]inimal discovery" and mediation in May 2007. Ibid. Then, on June 25, 2007, the defendant "assert[ed] for the first time, just six months after the filing of the complaint, that [the] plaintiff's cause of action was barred by the contractual arbitration clause . . . ." Ibid. In support of the decision sending the matter to arbitration, we found
[the d]efendant, who appeared pro se throughout, asserted her right to arbitration only six months after [the] plaintiff filed his Superior Court complaint, well before any meaningful exchange of discovery - - much less the discovery end date - - and well in advance of fixing a trial date. Indeed, the litigation had not even reached the point of noticing and taking depositions or filing dispositive motions, save, of course, for [the] defendant's efforts to dismiss the lawsuit. And when [the] defendant did assert her right to arbitration-twice in very short order-she acted thereafter in accordance with her intention to seek arbitration.Likewise, in Lucier, we found no waiver of the right to invoke arbitration where the defendant answered the complaint, filed a partial motion for summary judgment, which was granted, and only then filed a motion for summary judgment on the basis that the contract required arbitration. Supra, 366 N.J. Super. at 490-91. We determined that answering a complaint is "an acceptable effort to preserve the status quo pending arbitration . . . ." Id. at 500.
[Id. at 516.]
In Angrisani v. Fin. Tech. Ventures, L.P., 402 N.J. Super. 138, 146, 150-51 (App. Div. 2008), we also found no waiver where the defendants filed a motion to strike the plaintiff's demand for a jury trial, and then, four months later filed a motion to compel arbitration. We concluded that the plaintiff suffered no prejudice because it "did not actively litigate th[e] case during the four-month interval between the filing of his complaint and the filing of defendants' motion to compel arbitration." Id. at 150-51.
Here, the case was less than four months old when defendant filed his motion to compel arbitration. Discovery had just begun and a trial date had not been set. Based on the limited litigation that occurred prior to the defendant's motion, we believe Judge Carroll properly concluded that defendant did not waive his right to arbitration through litigation conduct.
On August 14, 2012, plaintiff's counsel submitted a certification in which she certified that her law firm had spent "hundreds of hours of attorney time" reviewing documents as part of the electronic discovery exchange pursuant to the parties' May 24, 2012 stipulation. However, this time was expended after defendant apprised plaintiff of his intention to seek arbitration. This, coupled with the fact that plaintiff would be able to make use of this information in arbitration, undermines plaintiff's claim that he would be prejudiced by an order compelling arbitration.
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Finally, plaintiff argues that defendant is judicially estopped from asserting his right to arbitration. Again, we disagree. Judicial estoppel is an "'extraordinary remedy,'" and applies only when a party "'advocates a position contrary to a position it successfully asserted in the same or a prior proceeding.'" Ali v. Rutgers, 166 N.J. 280, 288 (2000) (quoting Kimball Int'l, Inc. v. Northfield Metal Prods., 334 N.J. Super. 596, 608 (App. Div. 2000), certif. denied, 167 N.J. 88 (2001)). Courts recognize the doctrine of judicial estoppel "'to protect the integrity of the judicial process.'" Ibid. (quoting Kimball Int'l, Inc., supra, 334 N.J. Super. at 608). For judicial estoppel to apply, "'[a party must] have convinced the court to accept its position in the earlier litigation.'" Ibid. (alteration in original) (quoting Kimball Int'l, Inc., supra, 334 N.J. Super. at 608).
Here, defendant advised the court that his primary goal was to keep all of the claims involving the numerous entities together in one forum. Once plaintiff successfully moved to compel arbitration on the claims concerning some of the entities on June 8, 2012, defendant advised the court of his decision to seek arbitration for all the remaining claims less than a week later. Thus, defendant's conduct did not trigger the "extraordinary remedy" of judicial estoppel.
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION