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A party does not waive its right to arbitrate when it conducts discovery of the opposing party's documents for litigation with a third party, a federal court in Ohio held.
In Motors Insurance Corp. v. PASCO, Inc., No. 5:06 CV 2911, 2007 WL 184718 (N.D. Ohio Jan. 19, 2007), Motors Insurance Corp. (MIC) and PASCO entered into an agreement containing an arbitration clause. PASCO had been involved in litigation with a third party, and in the course of this litigation obtained discovery documents from MIC.
When PASCO served an arbitration claim on MIC, alleging breach of contract claims, MIC argued that PASCO waived its right to arbitration by conducting the discovery. MIC asked the court to issue a preliminary injunction to prevent PASCO from proceeding with arbitration.
However, the Court refused to grant the preliminary injunction because MIC failed to show that it would likely succeed on its waiver claim. To show waiver of the right to arbitrate, a party must establish that the other party "actively participate[d] in litigation or acts inconsistent with its rights to proceed with arbitration." Systran Fin. Servs. v. Giant Cement Holding, 252 F.Supp.2d 500 (N.D. Ohio 2003).
The Court noted that PASCO's participation in litigation with a third party, including the discovery involving MIC documents, did not support the theory that PASCO waived its right to arbitration claims against MIC because the discovery pertained to the dispute with the third party.
Additionally, the Court pointed out that both parties had agreed that an arbitration agreement existed between them, and that they agreed to share the discovery that PASCO obtained for litigation. Therefore, PASCO did not waive its right to arbitrate claims against MIC.
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