In a recent decision by the New Jersey Appellate Division in the matter of Mill Race Village, Ltd. v. Main & Glen Associates, LLC, decided April 25, 2012, the Appellate Division sent a message to all attorneys that they must timely assert affirmative defenses available to their client or run the risk of waiving the defense.

In Mill Race Village, a dispute arose between the buyer and seller to a real estate contract.  The buyer and seller filed cross complaints, each alleging breach of contract against the other.  The contract had a liquidated damages clause which limited the seller’s damages to the buyer, upon the seller’s breach, to the return of the deposit monies paid under the contract.

R. 4:5-4 addresses affirmative defenses and requires that a “responsive pleading shall set forth specifically and separately a statement of facts constituting an avoidance or affirmative defense.”  In its answer the seller never pleaded the liquidated damages clause as an affirmative defense.

Discovery was conducted for a period of over 3 years before the seller sought to assert the contractual remedy limitation.  The court noted that the seller had every opportunity to assert this defense earlier, including in an initial motion for summary judgment, but failed to do so.  Because the seller delayed too long in seeking relief based upon the contractual remedy limitation, the trial court ruled that the seller had waived its right to assert this defense.  The Appellate Division affirmed, concluding that during the 3½ year period of delay, the buyer suffered prejudice as it conducted extensive discovery, incurred expenses and actively litigated the case.  Absent the protection of the contractual limitation remedy, judgment was entered against the seller for $2.7 million for its breach of contract.

The Appellate Division stated the general principle that “It is well settled that an affirmative defense is waived if not pleaded or otherwise timely raised.”  Brown v. Brown, 208 N.J. Super. 372, 384 (App. Div. 1986).  The court cited to cases where waivers have been found even where the party raises a meritorious defense prior to trial, but the defense is nevertheless asserted in an untimely fashion.  See Fees v. Trow, 105 N.J. 330, 335 (1987) (waiver of statute of limitations defense found because it was not pleaded, not raised in a motion for summary judgment, and not adverted to by either party at any time); White v. Karlsson, 354 N.J. Super. 284, 290-92 (App. Div.) (waiver found where statute of limitations defense asserted 16 months after complaint was filed and 1 week before trial),certif. denied, 175 N.J. 170 (2002); Kopin v. Orange Prods, Inc., 297 N.J. Super. 353, 375-76 (App. Div.) (waiver of entire controversy defense found where it was not asserted in an answer nor asserted during the 3-year period prior to grant of summary judgment), certif.denied, 149 N.J. 409 (1997); Wein v. Morris, 388 N.J. Super. 640, 646-47, 649-51 (App. Div. 2006), aff’d in part, rev’d in part on other grounds, 194 N.J. 364 (2008) (holding that the failure to assert a contractual arbitration clause constituted a waiver of the right to arbitrate under the contract).

The lesson of these cases is not only to assert all available affirmative defenses in the defendant’s initial pleadings, but to be sure to timely assert such affirmative defenses in any pre-trial dispositive motion well in advance of the trial date.  The failure to do so may result in a waiver of the defense which otherwise might have resulted in a dismissal of the lawsuit against the defendant had the defense been timely raised.  In that event the likely outcome will be a legal malpractice action against the attorney whose actions resulted in the loss of the client’s dispositive defense.