IF YOU WANT TO ARBITRATE, DON’T WAIVE YOUR RIGHTS TO DO SO

I have said this before, but it is worth saying it again.  Arbitration is a creature of contract.  This means if you want your dispute to be decided by an arbitrator through a binding arbitration process, you need have a written arbitration agreement.  Such agreement is oftentimes included in the dispute resolution provision of your construction contract.  It is always advisable to have counsel draft your arbitration provision since this can be an important provision if a dispute ensues down the road. Arbitration provisions are common in construction contracts.

However, the right to arbitrate can be waived.  If you participate in a litigation and act inconsistent with your contractual right to arbitrate, this can serve as a waiver of your right to later demand arbitration.  Whether you waived your right to arbitrate has nothing to do with whether the other party was prejudiced by you acting inconsistently with your right to arbitrate.  This issue was recently decided by the Supreme Court in Morgan v. Sundance, Inc., 2022 WL 1611788 (2022), where the Supreme Court held prejudice to the other party is a non-issue under the Federal Arbitration Act (which broadly applies to contracts involving interstate commerce) when it comes to determining whether a party waived his/her/its right to arbitrate.

Although this may appear insignificant, it is not.  It reinforces the notion that if you want to arbitrate your dispute pursuant to your contract, you should NOT take any action inconsistent with this right.  The best practice is actually to demand arbitration from the get-go.  If you need to file a lawsuit, reference in the lawsuit that the dispute is subject to arbitration, you have demanded arbitration, and that you will be contemporaneously filing a motion to stay the action pending arbitration.   If you are responding to the lawsuit, the best practice is to file the motion to stay the action and compel arbitration pursuant to the contract right off the bat.  There is no reason to wait. These are best practices because you are not undertaking any action inconsistent with the right to arbitrate and, importantly, not giving the other side the waiver argument.  Remember, whether the other party is prejudiced by any proven waiver is moot–it does not impact whether or not you waived your right to arbitrate.

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.

 

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