In affirming a court order denying a motion to compel arbitration, the Montana Supreme Court held that a party waived its contractual right to arbitration by answering the complaint and filing several motions without ever raising arbitration as a defense.

In Signal Perfection LTD. v. Blackhawk, Inc., No. DA 07-0293, 2008 WL 852173 (Mont. Apr. 1, 2008), Blackhawk and Signal entered into a service contract containing an arbitration agreement. Signal later sued for breach of contract. In answering the complaint, Blackhawk raised several affirmative defenses, but never raised arbitration as an affirmative defense.

Blackhawk engaged in further pretrial litigation, but still never mentioned the arbitration agreement. Two weeks before trial and after nearly a full year of litigation, Blackhawk obtained new counsel and filed a motion to compel arbitration. The district court denied the motion, concluding that Blackhawk's participation in the litigation amounted to a waiver of its right to arbitration.

On appeal, the Court held that Blackhawk's actions constituted a waiver of its right to arbitration based on the three elements outlined in Downey v. Christenson, 825 P.2d 557 (Mont. 1992): (1) Blackhawk concededly knew of its right to compel arbitration; (2) Blackhawk acted inconsistently with its right to arbitrate the dispute; and (3) Signal suffered prejudice.

The Court found that Blackhawk acted inconsistently with its right to arbitrate because its participation in the litigation "encompassed more than determining the existence of a right to arbitrate." Signal suffered prejudice because the delay forced Signal to spend time and money on trial preparation. Thus, Blackhawk waived its right to arbitration.