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In affirming a lower court order denying a motion to compel arbitration, the Third Circuit Court of Appeals held that whether a party has waived its right to arbitrate by actively participating in litigation is a question for the court, rather than the arbitrator, unless there is clear and unmistakable evidence of the parties' intent to have an arbitrator decide the question.
In Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207 (3rd Cir. 2007), Treasure Bay operated a casino on property leased from Grapetree. When Ehleiter, one of the casino dealers, slipped and fell on the premises, he sued Grapetree as the owner of the property.
The lawsuit proceeded with both parties engaging in extensive discovery, including numerous depositions, the exchange of multiple interrogatories, and the submission of expert reports. Three and a half years into the lawsuit, both parties certified their readiness for trial. The trial court set a trial date and rescheduled the trial after Grapetree requested a continuance.
After the trial date was set, Grapetree filed a motion for summary judgment and a motion to implead a third-party defendant. While a decision on those motions was pending, Grapetree moved to compel arbitration pursuant to an arbitration agreement between Treasure Bay and Ehleiter. The trial court denied the motion on the ground that GSI had waived any right to arbitrate by actively litigating the case.
On appeal, Grapetree cited Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) and Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) in arguing that the waiver question was for an arbitrator to decide. In making this argument, Grapetree highlighted the following statement from Howsam: "So, too, the presumption is that the arbitrator should decide 'allegation[s] of waiver, delay, or a like defense to arbitrability.'"
In addressing "the division of labor between courts and arbitrators," the Court started with the observation that courts within the Third Circuit "ha[ve] long decided questions of waiver based on litigation conduct instead of referring the issue to an arbitrator." This pattern continued in the wake of Howsam and Bazzle, though without any analysis of whether an arbitrator should decide the question.
However, as the Court observed, the First Circuit squarely addressed the issue in Marie v. Allied Home Mortgage Corp., 402 F.3d 1 (1st Cir. 2005). There, the court held that Howsam and Bazzle were not intended "to upset the 'traditional rule" that courts, not arbitrators, should decide the question of whether a party has waived its right to arbitrate by actively litigating the case in court."
The Marie decision rested largely on the principle that "the trial judge, having been directly involved in the entire course of the legal proceedings, is better positioned to determine whether the belated request for arbitration is a thinly veiled attempt to forum shop."
In this case, the Court was persuaded by the First Circuit's "thorough analysis" and thus adopted the rule that whether a party has waived its right to arbitrate by actively participating in litigation is a question for the court, rather than the arbitrator, unless there is clear and unmistakable evidence of the parties' intent to have an arbitrator decide the question. Having established the trial court's authority to decide the waiver question, the Court affirmed the order denying Grapetree's motion to compel.
The Court's reasoning in this case does not apply if the alleged waiver of the right to arbitrate occurs outside of a judicial proceeding because in that scenario, the court does not have any special insight into the facts underlying the waiver allegation. A court within the First Circuit recently distinguished Marie on this basis. See Boateng v. General Dynamics Corp., 473 F.Supp.2d 241 (D. Mass. 2007). There, the court held that the arbitrator should decide whether an employer waived its right to arbitrate by not following the sequence of events set forth in its dispute resolution policy.
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