Filing Claim In Court Is Not Enough To Waive Arbitration Right
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The issue in analyzing whether a party waived its right to arbitrate is usually whether the defendant waited too long to assert the arbitration obligation. But, this week the Second Circuit had the opportunity to address whether a plaintiff waives its right to arbitrate by the simple fact of bringing a case in court.
In LG Electronics, Inc. v. Wi-LAN USA, Inc., 2015 WL 5254894 (2d Cir. Sept. 10, 2015), the appellate court affirmed the district court’s decision that defendant Wi-LAN had not waived its right to arbitrate. The court found that Wi-LAN’s four month delay in asserting arbitration was not sufficient to show waiver, when LG could not prove prejudice other than litigation expenses. Furthermore, the court noted that Wi-LAN had not waived its right to arbitration merely by bringing suit in federal court in the first place.
The Supreme Court of Alabama made that same point earlier this year in IBI Group, Michigan, LLC v. Outokumpu Stainless USA, 2015 WL 2161150 (Ala. May 9, 2015). In that case, clients had sued the designer of their facilities in federal court. After the parties had engaged in Rule 26 disclosures and served discovery (and even debated whether there was complete diversity of citizenship to support federal jurisdiction), the clients/plaintiffs demanded arbitration and asked the federal court to stay litigation. In response, the designer brought its counterclaims in state court and the clients moved to compel arbitration of the state court claims.
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