A New Jersey Appeals Court has overturned a lower court’s ruling in favor of a defendant that had granted arbitration in a collection lawsuit more than a year after the complaint had been filed and litigated. The appellate court found that the defendant ultimately waived its right to arbitration due to its litigation activities.
The background: The case arose from a collection lawsuit filed in January 2022. The plaintiff responded by filing a class-action counterclaim, arguing that the defendant and its assignors lacked the necessary licenses under the New Jersey Consumer Finance Licensing Act, rendering any claim to the debt void and unenforceable.
- Following initial motions and procedural maneuvers, the plaintiff formally filed a separate lawsuit against the defendant in May 2022, claiming violations of the CFLA, the Consumer Fraud Act, and the Fair Debt Collection Practices Act.
- The defendant actively participated in the litigation, including filing a motion to dismiss part of the plaintiff’s claims, which was partially granted. However, it did not assert a right to arbitration until September 2023, more than 16 months after the lawsuit began.
- The lower court judge granted the defendant’s motion to compel arbitration, concluding that the parties had not engaged in the kind of “prolonged litigation” that would warrant a finding of waiver. The judge initially assumed that the defendant had raised arbitration as a defense earlier in the case and did not closely analyze the extent of the litigation before the motion was filed.
- Even after acknowledging that the defendant had previously represented to the court that arbitration was not contemplated, the judge maintained that the case had not reached a level of litigation that justified denying arbitration.
The ruling: The appellate court found that the defendant’s failure to timely assert its arbitration rights constituted a waiver. The court applied a “totality of the circumstances” test, assessing several key factors, including the defendant’s delay, prior litigation strategy, and whether it had initially raised arbitration as an affirmative defense.
The appellate decision noted that the defendant:
- Did not assert arbitration as an affirmative defense in its initial filings.
- Opposed motions that would have streamlined the litigation.
- Filed a motion to dismiss that partially succeeded before seeking arbitration.
- Engaged in discovery delays and only moved to compel arbitration two days after the plaintiff sought to compel responses to outstanding discovery requests.
The appellate panel disagreed with the lower court’s determination of whether a prolonged litigation had taken place, stating that the defendant’s actions were inconsistent with an intent to arbitrate. Quoting precedent, the court emphasized, “The filing of a dispositive motion is a significant factor demonstrating a submission to the authority of a court to resolve the dispute.”
