ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, May 1, 2017

Implied Waiver of an Arbitration Clause Is a High Burden

A recent case out of Texas, Legoland Discovery Centre (Dallas), LLC v. Superior Builders, LLC, No. 02-16-00425-CV (behind paywall), reaffirms how difficult it is to prove that a party waived its right to arbitration through substantially invoking the judicial process. 

In the case, Legoland notified Superior that it was terminating its contract due to alleged breaches on Superior's part. Superior then sued Legoland. Legoland responded, raising compulsory counterclaims. Superior than added as defendants the subcontractors that were identified by Legoland's counterclaims. A scheduling order was entered and the parties conducted some "basic" discovery, while Legoland systematically began settling with the subcontractors. A few days after it settled with the last subcontractor, twenty-two months after Superior had filed suit, Legoland moved to compel arbitration under the arbitration clause of its contract with Superior. Superior argued that Legoland had waived its right to arbitration because it had substantially invoked the judicial process, and the trial court agreed. 

The appellate court reversed, however, noting that the burden is high and implied waiver is seldom found. Legoland had participated in the ongoing court case, but only in a routine manner. The discovery conducted by the parties had not been extensive, and Legoland did not seek summary judgment. It was true that Legoland had brought counterclaims but they were compulsory. It was also true that Legoland waited almost two years after the filing of the complaint to seek arbitration but in the interim it had been settling with the subcontractors, who had not agreed to the arbitration clause that Superior was contractually bound by, and it sought arbitration almost as soon as the last subcontractor had settled out. Therefore, the appellate court ordered the parties to arbitration pursuant to their contract.

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