BRUCE STEVENS VS. JOSEPH CAPPADORA, C.P.A. (L-2957-15, PASSAIC COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited . R.1:36-3.

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1717-18T1

BRUCE STEVENS, individually
and on behalf of TERRAFORM,
LLC,

Plaintiffs-Appellants,

v.

JOSEPH CAPPADORA, C.P.A.,
and BERKSHIRE VALLEY
ASSOCIATES, LLC,

Defendants-Respondents.

Argued September 19, 2019 – Decided October 22, 2019

Before Judges Alvarez and Suter.

On appeal from the Superior Court of New Jersey, Law
Division, Passaic County, Docket No. L-2957-15.

Kenneth S. Thyne argued the cause for appellant (Roper
& Thyne, LLC, attorneys; Kenneth S. Thyne, on the
briefs).

Peter Alfred Basso argued the cause for respondent
(Gold Law PC, attorneys; Peter Alfred Basso, on the
brief).
PER CURIAM

Plaintiffs Bruce Stevens and Terraform, LLC, appeal from a November

15, 2018 order granting defendants' Joseph Cappadora, C.P.A. and Berkshire

Valley Associates, LLC's motion to dismiss the complaint and compel

arbitration. We vacate the order and reinstate the complaint.

The relevant procedural history is set forth in great detail in our prior

unpublished remand opinion — the outcome of plaintiffs' earlier appeal from

the Law Division's similar order. See Stevens v. Cappadora, C.P.A. and

Berkshire Valley Associates, LLC, No. A-1266-16 (App. Div. 2018), slip op. at

2-4. For our purposes, it suffices to reiterate the following circumstances.

On August 27, 2015, plaintiffs filed a complaint alleging breach of

contract arising from a joint venture agreement (JVA) with defendants. The

JVA contained a clause in which the parties agreed to arbitrate disputes arising

from the contract. On September 24, 2015, defendants filed an answer, but made

no mention of the arbitration clause, contrary to Rule 4:5-1(b)(2) ("Each party

shall include with the first pleading a certification as to whether the matter in

controversy is the subject of any other action[s] . . . , or whether any other action

or arbitration proceeding is contemplated . . . ."). In February 2016, plaintiffs

moved to suppress the answer and affirmative defenses without prejudice due to

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defendants' failure to respond to plaintiffs' interrogatories. In April, plaintiff s

renewed the motion — this time seeking dismissal with prejudice. In June,

defendants answered interrogatories, and plaintiffs withdrew the motion. The

parties filed a consent order agreeing to extend the discovery end date from

August 2, 2016, to October 2, 2016, with an anticipated trial date of October 24,

2016.

That September, however, defendants filed two separate motions. One

sought to dismiss the complaint on the merits, or in the alternative, for leave to

file an amended answer. The other motion sought to compel arbitration pursuant

to the JVA.

The Law Division judge denied the motion to dismiss and amend on

October 19. The following day, October 20, the court entered an order

compelling arbitration, which we vacated in the prior remand. Stevens, slip op.

at 3.

The judge orally issued his remand decision on November 15, 2018. He

granted defendants' application dismissing the complaint and for arbitration

because he did not view the case as fitting within the Cole v. Jersey City Medical

Center, 215 N.J. 265 (2013) analysis. The judge reviewed the Cole factors, but

did not consider 360 days of discovery to be "prolonged litigation for a case of

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this complexity." He correctly noted that a waiver required clear and convincing

evidence. See Spaeth v. Srinivasan, 403 N.J. Super. 508, 515 (App. Div. 2008).

"There is a presumption against waiver of an arbitration agreement, which can

only be overcome by clear and convincing evidence that the party asserting it

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); Sherrock Bros.,

Inc. v. DaimlerChrysler Motors Co., LLC, 260 Fed. Appx. 497, 500 (3d Cir.

2008)). "There is no single test for the type of conduct that may waive

arbitration rights. In fact, 'the mere institution of legal proceedings . . . without

ostensible prejudice to the other party' does not constitute a waiver." Spaeth,

403 N.J. Super. at 515 (quoting Hudik-Ross, Inc. v. 1530 Palisade Ave. Corp.,

131 N.J. Super. 159, 167 (App. Div. 1974)); see also Hudik-Ross, 131 N.J.

Super. at 167 (no waiver of arbitration when not demanded until four months

after the start of the lawsuit and promise to arbitrate was pleaded in affirmative

defense); Angrisani v. Fin. Tech. Ventures, L.P. 402 N.J. Super. 138, 150 (App.

Div. 2008) (the absence or presence of prejudice helps determine the issue of a

waiver); Fareses v. McGarry, 237 N.J. Super. 385, 394 (App. Div. 1989) (right

to arbitration waived when landlord failed to allege arbitration as a defense when

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he filed complaint for injury to property and an answer to a counterclaim until

the counterclaim was amended nine months later and two weeks before trial.).

The judge also found defendants' failure to earlier raise mandatory

arbitration as a defense was due to the neglect of defendants' first attorney, who

failed to "engage in aggressive motion practice to extend discovery, and to take

depositions . . . ." The judge stated that the limited discovery in this case

supported his decision because the litigation was "somewhat complex" and

"probably should have had 450 days of discovery, [but] did not." Since he

thought the case had been "bungled" by defendants' first attorney, he did not

find defendants voluntarily or intentionally relinquished a known right.

Defendants' second attorney raised the arbitration issue because he was

attempting to defend the case in a more comprehensive fashion. Since the judge

did not find a waiver of the right to arbitration by clear and convincing evidence,

he granted the application to send the matter to arbitration.

Plaintiffs contend the judge misapplied the Cole factors. We review the

court's decision de novo, as it was a legal determination. Cole, 215 N.J. at 275.

The facts are essentially undisputed. We begin from the premise that arbitration

is favored in our system, and that contract clauses requiring them are

enforceable. Ibid.

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 The issue is, as the Law Division judge properly framed it, whether

defendants' litigation conduct constitutes a waiver of the arbitration clause. See

id. at 276-77. In making the determination, we apply a fact-sensitive totality of

the circumstances test. Id. at 280. We weigh the following factors:

(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.

[Id. at 280-81.]

Even when arbitration is raised in the answer in compliance with the rules, if no

other steps are taken to preserve the affirmative defense, it can be found to have

been waived. Id. at 281. As we are instructed in Cole, we will not consider one

factor dispositive.

In Cole, the length of time was twenty-one months, while here the length

of time was approximately a year: fourteen months if calculated from the filing

of plaintiffs' complaint to the October dismissal and order for arbitration, or

thirteen months if calculated from the filing of the answer in September 2015.

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Plaintiffs engaged in motion practice to compel discovery, filing motions for

dismissal, but did not receive a meaningful response until the motion to dismiss

with prejudice. The record does not indicate whether the matter was ready to be

tried on the initial scheduled date of October 24.

Defendants' new counsel responded to the discovery requests in June

2016, and agreed to extend discovery from August 2 to October 2. One of the

September motions, which plaintiffs defended, was a motion to dismiss the

complaint on the merits, or in the alternative, to grant defendants leave to file

an amended answer.

The imposition upon plaintiffs who engaged in motion practice, including

defending a motion on the merits, before the issue of arbitration was raised,

when joined with the length of time this action was pending, leads to the

conclusion that defendants waived that right. Seeking to compel arbitration

three days before the trial date, albeit the trial judge speculated it was an

innocent oversight on the part of defendants' second counsel, does not avoid the

Cole analysis. Once new counsel became involved in the matter and answered

interrogatories, that would have been the time to raise the issue of arbitration.

Had the issue been addressed earlier, it would have avoided the prejudice to

plaintiffs of having to engage in discovery and prepare for trial. These plaintiffs

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"invested considerable time in the lawsuit and anticipated a judicial

determination in the near future . . . ." Id. at 282. The Cole Court defined

prejudice as "'the inherent unfairness—in terms of delay, expense, or damage to

a party's legal position—[then prejudice] occurs when a party's opponent forces

it to litigate an issue and later seeks to arbitrate that same issue.'" Id. at 282

(citing PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 107 (2d Cir.

1997) (quoting Doctors Assocs., Inc. v. Distajo, 107 F.3d 126, 134 (2d Cir.

1997)). In this case, defendants engaged in litigation efforts for approximately

a year before deciding to switch forums. They did not raise the issue until days

before trial.

We vacate the dismissal and reinstate the complaint. We do not retain

jurisdiction.

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