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Bar News - October 18, 2013

Alternative Dispute Resolution: Waiving the Right to Arbitrate Through Litigation


The Supreme Court has held that, in cases involving the Federal Arbitration Act, there is a liberal public policy favoring arbitration. At the same time, though, it is clear that a party can impliedly waive its arbitral rights by engaging in litigation with respect to issues that are otherwise arbitrable. As the cases make clear, though, when it comes to the issue of waiver, there are no “bright line” tests, and each case must be judged on the totality of its particular facts. Moreover, because of the strong preference for arbitration in federal courts, waiver is not to be lightly inferred, and the proponent of waiver bears a “heavy burden.” Krinsk v. SunTrust Banks, Inc., 654 F.3d 1194, 1201 fn. 17 (11th Cir. 2011).

Participating in Litigation – How Much Is Too Much?

Not every act of participating in litigation will result in a finding that a party’s right to demand arbitration has been waived. For example, a waiver will generally not result simply because a party elects to remove a case from state to federal court, files an answer, or even a counterclaim, at least in the absence of any demonstrable prejudice.

At some point, however, a party’s participation in the litigation process becomes significant enough that it may safely be said that he has acted inconsistently with his arbitral rights. But where is the line, and what does one have to do in order to cross it? The answer to that question varies from court to court, but case law makes clear that three simple questions predominate the inquiry:

  • How long was the delay in demanding arbitration?
  • What litigation activity occurred during the period of delay?; and
  • What prejudice was suffered by the party opposing arbitration?
The Amount of Delay

The degree of delay in demanding arbitration is usually the first issue to be considered when addressing the issue of waiver. Generally, delays of a month or two, without more, are insufficient to give rise to a claim of waiver. PaineWebber, Inc. v. Faragalli, 61 F.3d 1063, 1069 (3d Cir. 1995) (two months). On the other hand, delays approaching or exceeding one year, at least when other factors are present, often support a waiver finding. Southeastern Stud & Components, Inc. v. American Eagle Design Build Studios, LLC, 588 F.3d 963 (8th Cir. 2009) (13 months).

Importantly, a number of courts have held that delay, standing alone, does not support a waiver claim. Nicholas v. KBR, Inc., 565 F.3d 905, 910 (5th Cir. 2009); Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 122 (2d Cir. 1991) (three-year delay); Baker v. Securitas Sec. Services USA, Inc., 432 F.Supp.2d 120, 126 (D. Me. 2006) (eighteen-month delay; focus should be on effect of delay on party opposing arbitration). Instead, and as discussed below, the issue of waiver usually turns on the prejudice suffered by the party opposing arbitration. And, while delay alone may not equate to prejudice, cases usually don’t simply lay dormant. Consequently, as the amount of delay increases, the greater the likelihood that litigation activity will take place, and that expenses will be incurred, both factors that go to the issue of prejudice. Finally, the timing of the delay is also important, and the likelihood of a waiver finding will be increased when the arbitral demand comes on the eve of trial. See e.g., Barbagallo v. Niagara Credit Solutions, Inc., 2011 WL 6478956, at *3 (D. Md. Dec. 4, 2012).

Participation in the Lawsuit

Participation in a lawsuit is, on its face, inconsistent with any claimed arbitral right, thus suggesting waiver. Courts have found the following may support a finding of waiver:

  • Filing of a merits-based motion to dismiss (Hooper v. Advance America, Cash Advance Centers of Missouri, Inc., 589 F.3d 917, 921-22 (8th Cir. 2009));
  • Defending a merits-based motion to dismiss (Gray Holdco, Inc. v. Cassady, 654 F.3d 444, 456-57 (3d Cir. 2011));
  • Filing a summary judgment motion (Khan v. Parsons Global Services, Ltd., 521 F.3d 421, 428 (D.D.C. 2008));
  • Engaging in discovery, particularly where the discovery is of a type that would not have been permitted in arbitration (id.);
  • Attending case management conferences (Gibson Guitar Corp. v. Elderly Instruments, Inc., 2006 WL 3316971, at *2 (M.D.Tenn. Nov. 14, 2006));
  • Stipulating to scheduling orders (Smith v. IMG Worldwide, Inc., 360 F.Supp.2d 681, 687 (E.D.Pa. 2005));
  • Developing a discovery plan (Gray Holdco, 654 F.3d at 458);
  • Participated in mandatory mediation (id.);
  • Opposing class certification (In re Citigroup, Inc., 376 F.3d 23, 27 (1st Cir. 2004));
  • Seeking a preliminary injunction (Gray Holdco, 654 F.3d at 456); and
  • Attempting to disqualify counsel (Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 925-26 (3rd Cir. 1992).
Of course, waiver issues usually arise when the party who is being sued belatedly invokes the arbitral process. Occasionally, however, a plaintiff, despite filing suit, then seeks to compel arbitration. Courts that have addressed this issue have, as a general matter, concluded that the “filing [of] suit without asserting an arbitration clause constitutes substantial invocation of the judicial process, unless an exception applies,” thus resulting in waiver. See Nicholas, 565 F.3d at 908.


The circuits are split as to whether prejudice is an essential element of any waiver claim. Compare Petroleum Pipe Americas Corp. v. Jindal Saw, Ltd., 575 F.3d 476, 480 (5th Cir. 2009) (requiring prejudice), with Khan, 521 F.3d at 425 (stating prejudice is not required). In those cases where prejudice is required, however, it usually takes one of three forms. First, the incurral of costs that would not have been incurred in an arbitral setting (sometimes referred to as “procedural” prejudice). Nino v. Jewelry Exch., Inc., 609 F.3d 191, 209 (3d Cir. 2010). Second, “substantive” prejudice may be said to occur when merits-based motion practice occurs, and the losing party then seeks to invoke his arbitral rights. Johnson Associates Corp. v. HL Operating Corp., 680 F.3d 713, 719 (6th Cir. 2012). In such cases, the losing party has benefitted by having a chance to first “test the waters” and prejudice to the prevailing party is manifest. Finally, substantive prejudice can again be found when the party who is now seeking to arbitrate was first able to obtain discovery that would not have been available in an arbitration.Quilloin v. Tenet HealthSystem Philadelphia, Inc., 763 F.Supp.2d 707, 721 (E.D.Pa. 2011), rev’d on other grounds, 673 F.3d 221 (3d Cir. 2012).


It is difficult to categorize waiver cases because, as the examples cited above plainly demonstrate, they are highly fact-specific. Nevertheless, some obvious points can be drawn from a review of the relevant precedents:

  • Delays of a few months, in the absence of significant litigation activity will not normally result in waiver. Indeed, in those jurisdictions where a showing of prejudice is required, delay alone, even significant delay, may not give rise to waiver. As the delay lengthens, however, it is also likely that the parties will begin to engage in increasing amounts of litigation activity. That activity, depending on its nature and quantity, may be, in conjunction with the delay, sufficient for a court to determine that a waiver has occurred.
  • Activity that goes to the merits of the case, including motions to dismiss, for summary judgment, or for a preliminary injunction, will often result in a determination of waiver. Not only do they evidence an obvious reliance on the litigation process, but they also typically involve significant expenditures of time and money. In addition, courts will be particularly willing to find waiver when, after losing a merits-based motion, a party then changes course and seeks to invoke arbitral rights.
  • Modest discovery activity, standing alone, will usually not result in waiver, particularly if the discovery is of the type that would have been permitted in any arbitration. If, however, a party benefits from discovery that would not have been obtainable in arbitration, such as third-party depositions, a finding of waiver becomes more likely.
As the cases make clear, despite the strong public policy favoring arbitration, courts are not at all reluctant to find that a waiver of arbitration rights has occurred. Counsel should thoroughly review any relevant agreements or documentation before filing suit to determine whether the parties have an existing agreement to arbitrate. If such an agreement exists, the decision of whether to arbitrate or to litigate should be made in the first instance because, once that decision is made, and the parties begin to utilize the litigation machinery, there plainly is no assurance that a later change of heart will be successful.

Mr. Frechette is a partner in the Hartford office of Edwards Wildman Palmer LLP. He has been a member of the New Hampshire bar since 1983, and practices primarily in the field of commercial litigation.

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