Significant litigation activity does not constitute conduct that may waive the right to arbitrate when the moving party expressly reserves the right to pursue resolution of claims in arbitration and asserts the arbitration agreement as an affirmative defense in its initial answer, according to the Alabama Supreme Court.

In ClimaStor IV, L.L.C. v. Marshall Consruction, L.L.C., No. 1051833, 2008 WL 4097589 (Ala. Sept. 5, 2008), ClimaStor contracted with Marshall for construction of a warehouse facility. The contract contained an arbitration agreement. After ClimaStor refused to deliver the final payment, Marshall filed a lien against the property and eventually filed suit in state court against ClimaStor to recover the balance.

ClimaStor sought to remove the matter to federal court, but reserved within the notice the right to seek arbitration of the claim. The matter remained in the state court. Soon after, ClimaStor filed an initial answer reserving its right to arbitrate, and asserted counterclaims and various affirmative defenses, including the existence of an arbitration agreement. About eight months later, ClimaStor moved to compel arbitration of the claims. The circuit court denied the motion, holding that ClimaStor had waived the right to arbitrate through its litigation conduct.

On appeal, ClimaStor argued that it had validly reserved the right to arbitrate the claim in all responsive pleadings, and, therefore, did not waive its right through litigation conduct. The Court agreed, finding ClimaStor’s conduct indistinguishable from the moving party’s conduct in U.S. Pipe & Foundry Co. v. Curren, 779 So.2d 1171 (Ala. 2000). As was the case in Curren, ClimaStor specifically referenced the right to arbitrate in its initial answer and asserted the arbitration agreement as a defense to Marshall’s claim. Furthermore, the Court observed that ClimaStor repeatedly referred to the intent to arbitrate in correspondence with Marshall and referred to arbitration in its notice of removal.

According to the Court, these facts distinguished ClimaStor’s conduct from the conduct in cases where there was significant litigation activity and the right to arbitrate was not mentioned in the party’s initial answer or other correspondence. See, e.g., Ocwen Loan Servicing, L.L.C. v. Washington, 939 So.2d 6, 15-17 (Ala. 2006) (holding the failure to include an arbitration defense in the initial answer and expressing an intent to fully pursue litigation was conduct that could waive the right to arbitrate).

Accordingly, the Court reversed the circuit court's order and remanded with instructions to compel the claims to arbitration.