An Illinois appellate court determined that because of the involvement of liens on property, a construction company did not act inconsistently with its right to arbitrate, even though it filed an answer to the opposing party’s claim.

In TSP-Hope, Inc. v. Home Innovators of Illinois, LLC, No. 4-07-1028, 2008 WL 2569340 (Ill. App. Ct. June 26, 2008), TSP and Home Innovators entered into a contract for the construction of homes in Springfield, Illinois. Work on the homes stopped prior to completion. TSP filed a breach of contract action against Home Innovators and served it with a demand to enforce liens on the property. Home Innovators filed an answer, which included an affirmative defense and a counterclaim.

TSP filed a motion to dismiss Home Innovators’ affirmative defense and counterclaim. Thereafter, Home Innovators filed a motion dismiss TSP’s complaint and compel arbitration. In opposing the motion, TSP argued that Home Innovators’ participation in litigation amounted to a waiver of its right to arbitrate. The trial court determined that since no meaningful discovery had occurred, Home Innovators had not waived its right to arbitration. Accordingly, the trial court granted the motion.

On appeal, TSP argued that Home Innovators waived its contractual right to arbitrate by submitting arbitral issues to the trial court for decision. The Court noted that a party may waive its right to arbitration by acting inconsistently with its right to arbitrate.

The Court acknowledged that discovery had not been conducted and that Home Innovators had filed answers and counterclaims to TSP’s claims. However, the Court noted that Home Innovators’ answers were only responsive to TSP’s allegations. Under the Illinois Mechanics Lien Act, if a lienholder fails to commence an action to foreclose the lien within 30 days after receipt of the owner’s written demand, then the lienholder forfeits the lien.

If TSP’s original demand satisfied the requirements of the Act, then the tolling of the 30-day limitation period had begun and Home Innovators was required to act. Under these circumstances, Home Innovators did not act inconsistently with their right to arbitrate the dispute. The Court affirmed the trial court’s ruling and ordered the parties to arbitrate their dispute.