ARBITRATION: USE IT OR LOSE IT
Today’s cautionary tale concerns your right to arbitrate. Resolving your construction disputes through arbitration is a right—assuming that you included it in your written contract—which you can lose if you are careless. The Federal Arbitration Act (FAA) provides that a written provision in a contract to “settle” disputes through arbitration shall be valid, irrevocable and enforceable, save upon such grounds as exist in law or equity for the revocation of any contract. That language is parroted by the Ohio Arbitration Act. The catch is the second half of the sentence. If you are careless, you create “such grounds as exist in law or equity for the revocation of any contract.”
In the case Hunter v. Rhino Shield, published November 5, 2015, the Franklin County, Ohio Court of Appeals held that a party to a lawsuit must claim its right to arbitrate without acting inconsistently with that right. Here, the defendant asserted its right to arbitrate for the first time in its Answer to an Amended Complaint. Normally, this could have worked, but this happened after: 1) acknowledging the Court’s jurisdiction over it in its initial Answer—without referencing arbitration; 2) waiting seven months before filing its motion to enforce the arbitration clause; 3) exchanging discovery and scheduling depositions with the plaintiffs; 4) filing a motion for partial summary judgement asking the court to interpret and enforce a provision of the contract—a provision in the contract specifically reserved to the arbitrator; 5) requesting a jury view of the home; 6) disclosing its witness list; 7) opposing plaintiffs’ motions to compel and to amend their complaint; and 8) filing a motion for a protective order. The Court held that, “together all these factors militate against a stay of the case pending arbitration.” The Court found that the defendant’s Motion for Partial Summary Judgment had particular significance in its decision to determine that the defendant’s actions were, “inconsistent with the right to arbitrate because [filing that kind of motion] places the dispute squarely before the court for resolution on the merits and demonstrates an election to proceed with litigation as opposed to arbitration.”
Following a long line of both Ohio and Federal case law, the Court did acknowledge that, “a court will not lightly infer waiver of a right to arbitrate,” placing the burden of proving the waiver of the right to arbitrate on the party asserting that waiver, requiring them to prove that the waiving party, “knew of the right to arbitrate and, based on the totality of the circumstances, acted inconsistently with that right.”
The lesson—hire a knowledgeable construction attorney to review and negotiate your contracts and other legal documents, and to help you understand their legal intricacies, including your right to arbitrate, if any. Then thoroughly discuss your options before you file a lawsuit or in any way participate in a lawsuit filed against you.