Thursday, July 22, 2010

Waiving Arbitration

New Image Numerous Supreme Court decisions make clear that mandatory arbitration will continue to be the norm in many employment settings.  That makes even more important the question of waiver of the right to arbitrate, especially implied waiver by conduct.  A few recent circuit decisions have addressed the question, and one aspect, at least,seems easy: McNamara v. Yellow Transportation, Inc., 570 F.3d 950 (8th Cir. 2009), held that an employer’s failure to move for arbitration during the EEOC investigation that preceded plaintiff’s lawsuit did not constitute waiver of its right to arbitrate.

But when suit is brought, the situation changes. Presumably, the plaintiff waives its right to arbitration, more or less expressly, by filing a complaint.  But when does waiver occur for the defendant if, instead of moving immediately for a stay and to compel arbitration, it proceeds to litigate in court?  In National Union Fire Insurance Co. v. NCR Corp., 2010 U.S. App. LEXIS 9358, at *2-3 (11th Cir. 2010, May 7, 2010), the Second Circuit held that right to arbitrate had been waived. It looked to three factors: (1) the length of time between the start of the litigation and the request for arbitration, (2) the extent of litigation that had already taken place, and (3) prejudice to the other party. In the case itself, the factors yielded an easy answer: a three-year delay; extensive discovery and motion practice, including motions for summary judgment; and prejudice to the plaintiff due to expense, delay, and unfair advantage gained from discovery methods that would not have been available in arbitration proceedings.  "Repeated, intentional invocation of the judicial process” by the petitioner served as a waiver to petitioner’s right to arbitrate.

By contrast, in Hill v. Ricoh Americas Corp., the Tenth Circuit held that an employer had not waived its right to arbitrate, when the litigation continued for merely five months and the discovery was minimal. 603 F.3d 766 (10th Cir. 2010). Hill looked to a set of factors that are more specific than those listed by National Union Fire Insurance but which reflect the same concerns. A scattering of other precedents show variations on the theme. See Khan v. Global Serv., Ltd., 521 F.3d 421, 425 (D.C. Cir. 2008) (no proof of prejudice necessary for waiver).

As in National Union Fire Insurance, motions on the merits by the party seeking arbitration seem to cut heavily in favor of waiver. Hooper v. Advance Am., 589 F.3d 917, 921 (8th Cir. 2009) (12(b)(6) motion  justified finding of waiver even though  the motion to compel arbitration was filed only four and a half months later); Khan, supra (a motion for summary judgment waived the filing party’s right to arbitrate, even though a motion to compel arbitration was filed in the alternative).

And in Nino v. Jewelry Exchange Inc., 2010 U.S. App. LEXIS 12173, at * 41, *45-46 (3d Cir. June 15, 2010), the court found waiver in part because of the strain put on the judicial system, even though no dispositive motion was made and the employer asserted arbitration as an affirmative defense in its answer. During the fifteen months it took the employer to move for arbitration, the employee was forced to file three motions to compel discovery, and the employer participated in ten pretrial conferences without mentioning arbitration. 

By the way, in the light of recent Supreme Court decisions, one might wonder who decides whether there’s been a waiver. In all the cases cited, the court decided, without referring the question to the arbitrator despite the fact that, by hypothesis, there had been an agreement to arbitrate. Perhaps “waiver” is the wrong word. If the question is viewed from a contract perspective, maybe it should be framed as whether an agreement to arbitrate has been superseded by a later (if tacit) agreement to litigate.

Thanks to Temi Kolarova for her help with this.


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