A New Jersey appeals court has ruled that a contract clause requiring arbitration is waived when a defendant fails to mention it until just before trial.

A trial judge had ruled the defendant's untimely effort to compel arbitration was an innocent oversight by counsel. But the appeals court said it would be unfair to switch forums because of the plaintiffs' investment of time engaging in discovery and preparing for trial more than a year after the lawsuit was filed.

The plaintiffs, Bruce Stevens and his business, Terraform, were represented by Kenneth Thyne of Roper & Thyne in Totowa.

"I think the court is sending a message here: don't wait until the last possible minute" to invoke an arbitration clause, Thyne said.

Stevens filed the lawsuit against certified public accountant Joseph Cappadora and his company, Berkshire Valley Associates. The dispute arose from a joint venture agreement that contains a clause in which the parties agreed to settle any dispute, claim or controversy with binding arbitration.

The suit was filed in August 2015, and the defendants filed an answer in September 2015, but did not set forth any defenses related to arbitration.

In February 2016, Stevens moved to suppress Cappadora's answer and affirmative defenses without prejudice due to his failure to respond to interrogatories. The motion was renewed in April 2016,  seeking dismissal with prejudice. Cappadora answered interrogatories in June 2016, and the motion was withdrawn. At this time the parties filed a consent order agreeing to extend the discovery until Oct. 20, 2016, with an anticipated trial date of Oct. 24, 2016.

However, Cappadora filed two motions on Sept. 15, 2016, raising the arbitration issue for the first time. One motion sought to dismiss the complaint on the merits, or to alternatively grant defendants leave to file an amended answer. The amended answer submitted with the motion raised the arbitration clause as an affirmative defense. The other motion sought to compel arbitration.

Superior Court Judge Thomas Brogan of Passaic County entered an order five days later dismissing the complaint with prejudice and compelled the parties to submit their claims to arbitration.

In a statement of reasons, Brogan said the facts of the case did not fit within the analysis in Cole v. Jersey City Medical Center, a 2013 New Jersey Supreme Court case that provides a checklist of seven factors to consider before waiving an arbitration clause. Brogan said the yearlong discovery period in the present case was not especially long given the complexity. He also found the failure to raise mandatory arbitration earlier was due to the neglect of the first attorney representing the defendants.

Because that attorney "bungled" the case before new counsel took over, he found Cappadora did not voluntarily relinquish the right to arbitration.

On appeal before the panel of Judges Carmen Alvarez and Karen Suter, Stevens claimed the trial judge misapplied the Cole factors. The panel agreed.

"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," Alvarez and Suter said in an unsigned ruling.

Noting that the Cole ruling defined prejudice as "the inherent unfairness—in terms of delay, expense, or damage to a party's legal position" that "occurs when a party's opponent forces it to litigate an issue and later seeks to arbitrate that same issue," Alvarez and Suter said.

"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 invested considerable time in the lawsuit and anticipated a judicial determination in the near future," Alvarez and Suter said.

The lawyer for Cappadora and Berkshire Valley, Peter Alfred Basso, did not respond to a request for comment on the ruling.