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A party cannot arbitrate its claims when it brings a claim in court and the arbitration agreement provides that a court action is available as a remedy in lieu of arbitration, and a party does not waive its right to arbitrate unless the other party is prejudiced, a federal court in Washington state held.
In Shainin II, LLC v. Allen, No. C06-420P, 2006 WL 2473495 (W.D. Wash. Aug. 28, 2006), Shainin brought breach of contract claims and motions for preliminary injunctions against ex-employees Allen and Hartshorne. Shainin’s claims alleged that Allen and Hartshore violated no-compete clauses in various employment and consulting contracts.
Allen first argued that Shainin was not entitled to arbitrate its claims under a 2003 contract because Shainin was seeking the same relief in arbitration as it sought in its court action. The agreement between Allen and Shainin contained an arbitration clause; however, the agreement also stated that Shainin could bring a court action in lieu of arbitration.
Citing Black’s Law Dictionary (8th ed. 1999), the Court stated that “[t]he term ‘in lieu of’ is not ambiguous; it means ‘[i]nstead of or in place of.’” Therefore, the Court held that Shainin could not arbitrate its claims against Allen because it had already filed a complaint in court seeking damages and injunctive relief, and the parties’ contract provided that this action would be in lieu of, not in addition to, arbitration.
However, the Court held that Shainan’s claim in this dispute did not waive its right to arbitrate other claims against Allen and Hartshore arising under other contracts with the ex-employees.
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