In recent news, the Eighth Circuit Court of Appeals made a notable ruling with regard to the use of arbitration clauses. The court affirmed the denial of a motion to compel arbitration which was filed by a plaintiff. The court’s rationale in this case speaks to broader implications for how companies handle contract disputes involving arbitration clauses in the future. The court articulated that the plaintiff waived their right to compel arbitration by “substantially invoking the litigation machinery rather than promptly seeking arbitration.” (Read the ruling details here.)
What’s unique about this circumstance is that the plaintiff, despite having the option to resolve the dispute through arbitration, elected to file a lawsuit including a request for a preliminary injunction as well as a permanent one. In addition to this, the plaintiff also followed through with Court-ordered mediation and actively participated in discovery proceedings. Notably, arbitration was not sought during the early stages of these proceedings.
The court’s decision emphasizes the potential consequences of not promptly seeking arbitration when such a clause is present in a contract. This ruling suggests that actions such as filing a complaint or actively taking part in court proceedings can be perceived as a waiver of the arbitration right. This has significant implications for how companies and their legal departments handle disputes where arbitration might be an option.
This case serves as a reminder for businesses and legal professionals to consider potential scenarios carefully and promptly to decide whether litigation or arbitration best suits their interests. The Eighth Circuit’s decision reinforces the importance of acting quickly when it comes to invoking arbitration rights. In cases where arbitration may be preferred, early decisions and actions are imperative to not jeopardize the right to utilize this dispute resolution mechanism.
In conclusion, this recent ruling sets a clear precedence that attempting to “have your cake and eat it too” by pursuing court litigation and subsequently trying to enforce an arbitration clause may not be a viable strategy. Instead, a timely decision must be made regarding arbitration, underscoring the need to read and understand contracts and their terms thoroughly.