A New Jersey appellate court determined that an employer waived its right to compel arbitration because it engaged in extensive discovery prior to filing its motion to compel arbitration.

In Grella v. Prebon Yamane (USA) Inc., 2007 WL 4302083 (N.J. Super. Ct. App. Div. Dec. 11, 2007), Grella began working for Prebon in 1989. Grella was terminated in 2004. Grella filed a complaint against Prebon alleging violations of the New Jersey Conscientious Employee Protections Act (CEPA).

Prebon answered Grella's complaint. The answer did not include a reference, claim or defense based on a contractual right to compel arbitration. Following, the parties engaged in discovery. Grella submitted to depositions on two different occasions, and produced his psychologist and former executive coach for depositions.

At the end of discovery, twenty months later, Prebon moved to dismiss the complaint and compel arbitration. The lower court granted Prebon's motion and dismissed Grella's complaint and compelled arbitration of his CEPA claims.

On appeal, the Court recognized that despite an agreement to arbitrate, active and prolonged litigation requires the court to find a waiver of the right to compel arbitration. There are several factors considered in determining whether a party's conduct in pursuit of litigation amounts to a waiver.

These factors include timeliness of the motion to compel arbitration or prior notice of the intention to the opposing party; pretrial litigation; exchange of discovery; and submission to pretrial orders. The focus is on a course of litigation conduct that is indicative of the moving party's amenability to resolution in a judicial, not arbitral, forum.

The Court concluded that the pre-trial litigation in this case amounted to a waiver, based on the burden of expense and delay that Grella shouldered without notice of Prebon's intent to demand arbitration. Prebon did not file its motion to dismiss and compel arbitration until twenty months after Grella filed his initial complaint.

The Court noted that prejudice in the form of expenses and delay was apparent. Further, a party who engaged in discovery to the extent that Grella did should not be required to prove that his legal position has been prejudiced. The Court concluded that Prebon waived any contractual right it may have had to compel arbitration.