If a tree falls in the forest and nobody is around to hear it, does it make a sound? Similarly, if an arbitration agreement is in a contract, but neither party invokes it, can it be used to fight a collection lawsuit that is filed against you? A New Jersey Appeals Court has affirmed a lower court’s ruling that no, it can’t be used if it is never invoked.
The background: The defendant was sued for an unpaid debt that was owed to the plaintiff. The defendant answered the lawsuit and asserted a number of affirmative defenses, one of which was that the court lacked jurisdiction because the underlying agreement included an arbitration clause.
- The clause reads that disputes may be resolved by binding arbitration and that it could be requested at any time, even when there is a pending lawsuit. All that needed to happen was that either party needed to file a motion to compel arbitration if a lawsuit had been filed or commence arbitration by submitting the required forms.
- The defendant continued to argue that she never waived her right for arbitration, but also never filed a motion to compel arbitration.
- A state court judge awarded summary judgment to the plaintiff, leading to the defendant’s appeal.
The ruling: The defendant argued that the arbitration clause was mandatory and not discretionary. All it takes is one sentence from the Appeals Court to dispel that argument.
- “Applying these well-established principles, we conclude there is no merit in defendant’s arguments,” the court wrote. “We start with the plain language of the parties’ arbitration clause. The clause provides ‘that disputes may be resolved by binding arbitration’ and ‘[a]rbitration may be requested at any time.’ “
- Because the defendant never sought to compel arbitration and because her reliance on language in the agreement that created a mandatory obligation to arbitrate “is misplaced,” the appeals court affirmed the ruling.
