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The Sixth Circuit Court of Appeals has reversed a district court’s ruling that a party waived its right to arbitrate through litigation conduct and delay, noting that no relevant event had yet triggered the moving party’s obligation to seek arbitration.
In Gordon v. Dadante, No. 07-3560, 2008 WL 4372951 (6th Cir. Sept. 23, 2008), Gordon sued Dadante for alleged mismanagement of brokerage accounts. Although Gordon’s complaint did not assert a claim against H&R Block, it was named as a defendant as a “stakeholder” in an account that was a subject of the litigation. When Dadante opened the H&R Block account in dispute, he agreed to arbitrate all claims related to the account.
H&R did not seek arbitration at the institution of Gordon’s suit, nor did it seek arbitration when it moved to quash a transfer of funds out of the account. However, approximately 15 months after the suit was filed, H&R Block did move to compel arbitration when it sought to recover from Dadante certain debts incurred on the account.
The district court denied the motion to compel, ruling that H&R Block had waived its right to arbitrate claims by engaging in litigation activity, including failing to seek arbitration when the court refused to liquidate the assets in its account, filing a motion to quash a transfer of funds out of the account, and moving to apply sale proceeds from the account to an outstanding debt allegedly owed by Dadante.
On appeal, the Court reversed, holding that none of these activities could constitute a waiver of the contractual right to arbitration. Most importantly, the Court noted that no substantive claims had ever been filed against H&R Block as a defendant; H&R Block had only been named because it was a stakeholder in an account material to the proceeding between Gordon and Dadante. The Court refused to find that H&R Block had any affirmative obligation to seek arbitration until a claim was asserted against it.
Furthermore, the Court decided that H&R Block’s limited litigation activity was not conducted as a tactical ploy to avoid litigation after being unresponsive to the complaint, nor did H&R Block seek to avoid arbitration until the adverse party sought summary judgment.
Under the circumstances, the Court found that H&R Block’s “procedural maneuvers…were not completely inconsistent with its reliance on the right to arbitration, and it had no obligation to invoke its right to arbitration earlier.” Accordingly, the Court held that H&R Block had not waived its right to arbitration and reversed the district court’s ruling.
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