THE CONTRACTUAL RIGHT TO ARBITRATE CAN BE WAIVED

imagesArbitration is a form of dispute resolution that emanates from your contract.  Hence, if your contract requires arbitration, then arbitration, as opposed to litigation, is the method of dispute resolution.  But, the contractual right to arbitrate can be waived if a party actively participates in litigation or takes a position in litigation that is wholly inconsistent with their contractual right to arbitrate Remember, if you negotiated arbitration as the form of dispute resolution in your contract, and you want to arbitrate a dispute, then take action consistent with this right. Otherwise, you risk waiving this contractual right to arbitrate—a right that you negotiated on the front-end in your contract.

 

However, just because you file a lawsuit or counterclaim does not mean that you automatically waive your right to arbitration.  The key is that if you want to arbitrate to file a motion to compel arbitration simultaneously with the lawsuit / counterclaim moving the court to compel the dispute to arbitration pursuant to an arbitration provision in your contract.  For instance, in Andre Franklin, Inc. v. Wax, 2014 WL 5002130 (Fla. 2d DCA 2014), a contractor recorded a lien on a residential project prompting the owner to file a lawsuit against the contractor to, among other things, discharge the construction lien.  The contractor filed a counterclaim moving to foreclose the lien and for breach of contract and simultaneously moved to compel arbitration; the contractor also moved to dismiss or abate the lawsuit.  At a hearing, the trial court granted the motion to dismiss and allowed the owner to amend the complaint.  When the owner amended the complaint, the contractor renewed its motion to compel arbitration and simultaneously  answered the amended complaint. The owner argued that the contractor waived the right to arbitrate by filing the counterclaim and arguing the motion to dismiss and abate; the trial court agreed.

 

On appeal, the Second District held that the contractor never waived its right to arbitration. The Second District explained:

 

A party may waive its contractual right to arbitrate by actively participating in a lawsuit or taking action inconsistent with that right.

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[But,] we conclude that Franklin [contractor] did not waive its contractual right to arbitrate by filing a counterclaim simultaneously with its motion to compel arbitration, motion to dismiss, and motion to abate.  Franklin did not implement discovery.  Franklin’s filing of the counterclaims and motion to dismiss at the same time as a motion to compel arbitration is filed, without more, does not waive the contractual right to arbitrate.

Andre Franklin, Inc., supra, at *1, 2.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.