A New York federal district court has rejected an attempt by a group of multi-level marketing representatives to avoid arbitration on waiver grounds. Specifically, the Court found that the other party did not waive its right to arbitrate by seeking and obtaining injunctive relief in court.

In Maronian v. American Communications Network, Inc., No. 07-CV-6314 (CJS), 2008 WL 2917183, (W.D.N.Y. July 24, 2008), Maronian and others (the representatives) were independent contractors representing American through a multi-level marketing plan. American generally had its representatives sign a pre-printed contract. All of the representatives except one also signed an arbitration agreement as part of the contract with American, although two representatives signed as a representative of corporations where each was the sole shareholder.

The parties' relationship soured, and the representatives gave American notice that they were terminating their contracts. American then filed suit in Michigan against the representatives, alleging breach of contract and misappropriation of trade secrets. After receiving injunctive relief, American voluntarily discontinued the court action without prejudice.

American then initiated arbitration against the representatives in Michigan. The representatives participated in the proceedings, but continually objected to the arbitrator's jurisdiction. Eventually, the representatives initiated court action in New York, seeking a declaratory judgment that they were not bound to arbitrate their claims. American removed the matter to federal court, where the representatives and American both sought summary judgment. American sought to return the matter to arbitration.

The Court held that American's litigation activities did not constitute waiver of the right to arbitrate. According to the Court, American had pursued litigation in Michigan – in accordance with the agreement – only to obtain an injunction. The Court also noted that American made an immediate demand for arbitration after the initial court proceedings and that the representatives had failed to show any prejudice because of this limited activity.

The two representatives that entered into the arbitration agreement on behalf of their wholly-owned corporations also argued that they were not bound to arbitrate because American brought claims against them individually. The Court disagreed, finding the individuals were bound to arbitrate under an estoppel theory.

According to the Court, the individuals had accepted the benefits of the parties' contract – namely, earning a living through commissions, solicitations, and recruiting – and could not now resist the burden of arbitrating disputes contained in that same contract. The Court characterized the "lack of benefit" alleged by the representatives as "really nothing more than complaints about working conditions."