In affirming the denial of a motion to stay litigation and compel arbitration, the Nebraska Supreme Court held that courts should decide issues of waiver based on litigation activity, and a party waived its right to arbitrate by actively litigating for three years.

In Good Samaritan Coffee Co. v. LaRue Distributing, Inc., No. S-07-300, 2008 WL 2004303 (Neb. May 9, 2008), Good Samaritan sued LaRue for breach of a contract that contained an arbitration clause. LaRue filed multiple answers and a counterclaim, engaged in years of discovery, and received an unfavorable ruling on its own motion for partial summary judgment. After that ruling and three years after Good Samaritan originally sued, LaRue moved to stay litigation and compel arbitration.

The district court denied LaRue’s motion, holding that a court, not an arbitrator, had the authority to determine whether a party waived its right to arbitration. The district court held that LaRue had waived its right to arbitration based on its litigation activity, and LaRue appealed.

On appeal, the Court affirmed the district court’s ruling and held that the question of waiver based on litigation conduct is for a court to decide rather than an arbitrator, and that LaRue had waived its arbitration right through its litigation activity. The Court distinguished Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), holding that the Howsam court was only referring to waiver defenses arising from noncompliance with contractual conditions precedent to arbitration when it held that the presumption is that the arbitrator should decide allegations of waiver.

The Court held that the issue of waiver based on litigation activity was presumptively for courts to decide for several reasons. First, the issue has historically been decided by courts. Second, the plain language of the Federal Arbitration Act at 9 U.S.C. § 3, appears to command courts to decide waiver issues. Finally, when considering the "comparative expertise" of courts and arbitrators, the Court held that courts are better suited to address questions of waiver based on litigation activity because the trial judge has been involved in the legal proceedings to that point and is better positioned to determine whether a party’s conduct amounts to waiver.

Next, the Court held that LaRue had waived its right to arbitration because (1) it knew of its right to arbitrate; (2) it acted inconsistently with that right by actively participating in litigation for three years; and (3) Good Samaritan was prejudiced because it was required to defend its claims on the merits when LaRue filed its motion for partial summary judgment.

As the Court succinctly stated: "LaRue’s conduct . . . caus[ed] Good Samaritan to expend substantial time and resources . . . [a]nd to allow LaRue to now invoke its right to arbitrate would undercut the very rationale – speed and efficiency – that supports the strong presumption in favor of arbitration in the first place."