|
An Illinois federal court has held that a company did not waive the right to arbitrate when it waited nearly four months to demand arbitration of a copyright dispute over photographs of Mount Everest. The reason? The non-lawyer who sent the license containing the arbitration clause to in-house counsel failed to copy the terms and conditions that were on the back of the document, so counsel was not aware of the arbitration clause.
In DeVore Family Partnership LLP v. McDougal Littell, No. CIVA 06 C 3484, 2006 WL 3393844 (N.D. Ill. Nov. 22, 2006), the DeVore family sued McDougal Littell for unlawfully reprinting 1.2 million copies of Nicholas DeVore’s pictures of Mount Everest. After the suit was filed, in-house counsel for Houghton Mifflin, McDougal Littell’s parent company, requested a copy of the entire file in order to prepare a defense.
McDougal Littell sent the file, but the manager responsible for copying did not copy the back of the copyright license – the part containing a binding arbitration clause. As such, the lawyers did not see the arbitration clause until they received the original file nearly four months later. Within two weeks, they filed a motion to stay the case pending arbitration.
The DeVore family did not question the lawyers’ good faith in claiming that they were previously unaware of the arbitration agreement. But they argued that it was immaterial whether the lawyers were aware of the arbitration agreement because McDougal Littell’s longstanding possession of the license gave it constructive knowledge of the arbitration agreement.
The Court disagreed. It found that the test for determining waiver is whether the party asserting a right to arbitration acted inconsistently with that right. Given the totality of the circumstances in this case, the Court found that the license in question had been “buried in McDougal Littell’s business records in Evanston for ten years,” and that the lawyers had made diligent efforts to secure the paperwork. Also, it was DeVore’s agent who initially insisted on the arbitration clause. For those reasons, the Court found that McDougal Littell had not acted inconsistently with the right to arbitrate. The Court thus stayed the case pending the outcome of arbitration.
In a totality of the circumstances test, such as whether a party acted inconsistently with the right to arbitrate, the intent of the parties can weigh heavily on a court’s decision to compel arbitration. Here, the good faith of the McDougal Littell attorneys to secure “all paperwork” and their prompt action after learning of the arbitration clause saved the right to arbitrate the dispute.
Subscribe to a free weekly update on ADR case law and
legislation
|