In a recent decision, the Third Circuit found two related parties had waived their right to arbitrate claims. One was no suprise — it had vigorously litigated the dispute for eleven months. But the second may have been simply guilty by association, as it had only litigated for two months. Supermedia v. Affordable Electric, Inc,, 2014 WL 1690749 (3d Cir. April 30, 2014).
In Supermedia, the plaintiff sued AEI for breach of contract. The contract at issue had been signed by Mr. Morley, AEI’s alleged president. AEI moved to dismiss the complaint, and when that failed, it answered the compaint and engaged in months of discovery, incuding discovery motions to the court. During those eleven months, AEI never mentioned its alleged right to arbitrate the dispute. Instead, it primarily disputed Mr. Morley’s right to bind it to a contract. Therefore, about nine months after filing its first suit, the plaintiff also sued Mr. Morley directly. The two cases were then consolidated.
Mr. Morley and AEI made a joint motion to compel arbitration. The district court denied the motion, finding both defendants had waived any right to arbitrate. On appeal, the Third Circuit affirmed.
In analyzing AEI’s waiver, the Third Circuit focused on the eleven months during which AEI never mentioned its alleged right to arbitrate and vigorously pursued the litigation. Furthermore, AEI had taken the position that the arbitration agreement was unenforceable in previous litigation between the parties. With respect to Mr. Morley, the court acknowledged it was “a closer call.” Although Mr. Morley moved to compel arbitration just two months after the lawsuit began, he did three things that the court found sufficient to constitute waiver. First, he asserted claims against third parties. Second, in answering claims, he asserted that there was no binding agreement among the parties. And third, he participated in the pre-trial conference and acquiesced in the consolidation of the cases.
By Liz Kramer