Arbitration is meant to be an alternate to litigation. Yet arbitration is itself the subject of much litigation over who must arbitrate, what must be arbitrated, whether and how the arbitration should proceed, and the deference courts must show to arbitration awards. This blog is intended to be a resource for litigators, in-house counsel, arbitrators and anyone else who wants to stay on top of the many thorny issues that arise under the Federal Arbitration Act. Our Bloggers →

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Filing Claim In Court Is Not Enough To Waive Arbitration Right

By Liz Kramer | September 18, 2015 in Waiver of Right to Arbitrate

The issue in analyzing whether a party waived its right to arbitrate is usually whether the defendant waited too long to assert the arbitration obligation.  But, this week the Second Circuit had the opportunity to address whether a plaintiff waives its right to arbitrate by the simple fact of bringing a case in court.

In LG Electronics, Inc. v. Wi-LAN USA, Inc., 2015 WL 5254894 (2d Cir. Sept. 10, 2015), the appellate court affirmed the district court’s decision that defendant Wi-LAN had not waived its right to arbitrate.  The court found that Wi-LAN’s four month delay in asserting arbitration was not sufficient to show waiver, when LG could not prove prejudice other than litigation expenses.  Furthermore, the court noted that Wi-LAN had not waived its right to arbitration merely by bringing suit in federal court in the first place.

The Supreme Court of Alabama made that same point earlier this year in IBI Group, Michigan, LLC v. Outokumpu Stainless USA, 2015 WL 2161150 (Ala. May 9, 2015).  In that case, clients had sued the designer of their facilities in federal court.  After the parties had engaged in Rule 26 disclosures and served discovery (and even debated whether there was complete diversity of citizenship to support federal jurisdiction), the clients/plaintiffs demanded arbitration and asked the federal court to stay litigation.  In response, the designer brought its counterclaims in state court and the clients moved to compel arbitration of the state court claims.

The Alabama courts enforced the arbitration clause, despite the clients’ initial filing of the federal action.  The Alabama Supreme Court noted it had previously held that plaintiffs are not barred from exercising contractual arbitration rights just because they initiated litigation.  But the complicating factor in this case was that the arbitration agreement gave the clients the “sole discretion” to choose whether a dispute would be arbitrated or litigated, and the designer argued that once the clients made that decision, it was “irrevocable.”  The Alabama courts disagreed, interpreting the arbitration agreement to allow the clients to change their mind about the dispute resolution forum.

Finally, in a more run-of-the-mill waiver case, the Sixth Circuit recently concluded that the defendant had waived its contractual right to arbitrate by participating in federal litigation for 15 months, including filing dispositive and non-dispositive motions.  Gunn v. NPC Int’l, Inc., 2015 WL 5061545 (6th Cir. Aug. 28, 2015).

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