Litigants can waive their right to arbitrate through litigation conduct, a recent U.S. District Court decision reminded us. Much to the dissatisfaction of an au pair agency defending against a putative class action by foreign childcare workers alleging violations of the federal Fair Labor Standards Act and various state law claims, that is precisely what happened in Morales Posada et al. v. Cultural Care Inc. The U.S. District Court for the District of Massachusetts denied on several grounds the agency’s motion to compel arbitration to send the case to a Swiss arbitration panel, including that the agency had waived any potential right to arbitrate through litigation conduct.
Courts in the First Circuit apply a non-exclusive multi-factor test to determine whether a right to arbitrate has been waived, including factors such as:
- Whether the parties participated in a lawsuit or took other action inconsistent with arbitration
- Whether the litigation machinery has been substantially invoked and the parties are well into preparation of a
lawsuit by the time an intention to arbitrate is communicated - Whether there has been a long delay and trial is near at hand
- Whether the party seeking to compel arbitration has invoked the jurisdiction of the court by filing a counterclaim
- Whether discovery not available in arbitration has occurred.
In Morales Posada, the Court found that the au pair agency had substantially invoked the litigation machinery by, among other things, fully litigating a motion to dismiss in which it put forth arguments on the merits of Plaintiffs’ claims, and an interlocutory appeal to the First Circuit in which it did the same, failing to once mention arbitration—instead asserting that the Courts had jurisdiction to decide the issues presented. “Both sides—and two courts—have expended time and resources addressing arguments brought by Cultural Care Inc. on numerous aspects of this case,” the Court observed, adding that the agency “had ample opportunity to raise an arbitration defense yet has waited until after it attempted a ‘full-throated attempt to win this case on the merits in federal court’ at both the district and appellate levels….” Though not included in the District Court opinion, it is notable that this procedural posture was enough of a red flag for the Court to inquire during oral argument whether the Defendant had engaged in “judge shopping.” Litigants are advised to take a measured approach if they wish to avoid waving arbitral rights.