A party with an arbitration agreement can waive its right to arbitrate by acting inconsistently with that right, usually by “invoking the litigation machinery” before demanding arbitration. However, the federal circuits are split over whether a party asserting a waiver of arbitration must also show it was prejudiced by the other party’s use of that litigation machinery. The Eighth Circuit generally sides with the circuits that require a showing of prejudice, but carved out an exception for the construction industry in a new case, Erdman Co. v. Phoenix Land & Acquisition, ___ F.3d ___, 2011 WL 3568929 (8th Cir. Aug. 16, 2011).

Reasoning that construction contracts tend to be standardized and “efficient resolution is of great importance” to parties in construction disputes, the court found “it makes little sense to litigate endlessly over the details of prejudice.” Instead, it held, the “federal policy favoring arbitration does not require a showing of prejudice in this situation, unlike many others.”

Arguments may now proceed about whether this lower bar for proving waiver should apply:

• only to the specific facts of this case–where the same party who drafted the contract with the arbitration agreement was the one who chose to file its complaint in court, then made a subsequent motion and participated in a Rule 26(f) conference without ever mentioning a right to arbitration; or
• to all construction cases; or
• to all industries where contracts are standardized and efficient resolution is important, which could be almost every industry.

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by Liz Kramer

Liz Kramer is a shareholder at Leonard, Street and Deinard, one of the largest law firms in Minnesota, where she litigates complex business and construction disputes. Liz graduated from Yale Law School and is deeply knowledgeable on arbitration law. Website: www.arbitrationnation.com