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A federal district court in New York ordered arbitration of an employment dispute, rejecting the employer’s argument that the employee waived his right to arbitration by requesting attorney fees in a separate court proceeding initiated by the employer.
In Stevenson v. Tyco International Inc., No. 04-CV-4037 (KMK), 2006 WL 2827635 (S.D.N.Y. Sept. 29, 2006), Stevenson sued Tyco, his former employer, to recover unpaid retirement benefits.
Tyco filed counterclaims seeking a declaration that a retention agreement between Stevenson and Tyco was void or voidable and alleging both breach of contract and breach of fiduciary duty. The retention agreement contained an arbitration clause.
Stevenson filed a motion to compel arbitration of Tyco’s counterclaims. In opposing the motion, Tyco argued that its counterclaims were not arbitrable and that Stevenson waived his right to arbitration.
The Court first addressed the arbitrability of Tyco’s counterclaims. Tyco maintained that the agreement was void or voidable either for lack of authority or because of Stevenson’s alleged wrongdoing. The Court found that those allegations did not require a trial on the validity of the retention agreement because none were specific to the agreement’s arbitration clause.
The Court also found that Tyco’s claim for breach of fiduciary duty was subject to arbitration because the claim was “factually identical” to the breach of contract claim and, as such, “touched matters” related to the arbitration clause.
Tyco’s argument that Stevenson waived his right to arbitration was based on a Florida state court proceeding brought by Tyco after Stevenson sued to recover retirement benefits. In that proceeding, Tyco sought injunctive relief pursuant to the retention agreement. Stevenson moved to compel arbitration, and after Tyco withdrew its claim for injunctive relief, Stevenson asked the court to award attorney fees pursuant to the agreement.
In rejecting Tyco’s argument that Stevenson waived his right to arbitration by asking the Florida court to award attorney fees, the Court noted that Stevenson took the appropriate steps by filing a motion in the Florida court for an order compelling arbitration. As an alternative basis for its ruling, the Court applied the rule that “[w]aiver of one arbitrable claim through litigation does not result in waiver of other potentially arbitrable claims.”
This case carried a risk of piecemeal litigation because Tyco’s counterclaims were subject to arbitration but Stevenson’s claim for unpaid retirement benefits was not. The Court acknowledged the potential inefficiency but abided by the Supreme Court’s holding in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) that the Federal Arbitration Act “requires district courts to compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.”
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