In a recent Superior Court decision, a judge held that there is a presumption that courts, not arbitral tribunals, have exclusive jurisdiction over the issue of whether a party has waived a contractual right to arbitration by engaging in substantial litigation before a motion to compel arbitration was filed.
In an order dated August 15, 2017 in Element Productions, Inc. v. Editbar, LLC, 2017 WL 4479207, a Superior Court Judge was presented with an issue of arbitrability. The dispute involved a contract with an arbitration clause. The parties all agreed that the clause was valid, enforceable, and would apply to the dispute at hand. However, the plaintiffs argued that the defendants waived the right to arbitration by engaging in extensive litigation conduct and, thus, could no longer seek arbitration. The judge agreed.
The judge found that the parties had engaged in over a year of civil litigation, having filed counterclaims, litigated several discovery disputes, sought affirmative relief by filing motions to impound, and sought to re-assert a disputed claim. The judge also found that, by staying the court proceeding and compelling arbitration, the plaintiffs would be prejudiced as the defendant would be allowed to assert the disputed claim in the first instance, that several discovery disputes had already been adjudicated, and that the case would suffer further delays.
The judge agreed with the plaintiffs and denied the defendants’ motion to compel arbitration. The court held that deciding whether a party waived a right to arbitration due to litigation conduct was a matter for the courts, not for the arbitrator, as the court “has a direct interest in controlling its judicial procedures and preventing abusive forum shopping.” The court cited the prejudicial effects to the plaintiffs and the undue delay in defendants’ conduct supported the decision that arbitration was waived by judicial conduct.
It is important for litigants to keep in mind that if a party is going to seek to arbitrate a claim, active participation and use of the court system will waive the right to arbitrate, even when that right is contractually provided.