Defending Party Not Required to Demand Arbitration Prior to Lawsuit

A defending party should not be required to demand arbitration prior to being sued by the claimant according to the Florida District Court of Appeal.

In The Hillier Group, Inc. v. Torcon, Inc., No. 2D05-4615, 2006 WL 1479600 (Fla. Dist. Ct. App. May 31, 2006), Torcon was sued by a property owner for alleged defects in the design and construction of an office building. In a subsequent action, Torcon sued Hillier and other subcontractors for indemnity and breach of contract. Hillier moved for dismissal on the ground that its contract with Torcon required arbitration. In denying that motion, the trial court noted that Hillier had waived its right to arbitration by failing to make a timely demand for arbitration.

Arguing that the trial court’s finding of waiver should be affirmed, Torcon cited Lyons v. Krathen, 368 So.2d 906 (Fla. Dist. Ct. App. 1979), where the court held that a general contractor waived its arbitration right by failing to demand arbitration within the thirty-day time limit set forth in the contract. The Court distinguished Lyons by noting that the contract between Torcon and Hillier did not provide any specific time limit for demanding arbitration. Instead, their contract provided only that a demand for arbitration must be made within a “reasonable time” and within the applicable statute of limitations.

In reversing the trial court, the Court reasoned that it would be unwise to adopt a rule requiring defending parties to demand arbitration prior to being sued because “[s]uch a rule would enable one of the contracting parties to circumvent an arbitration provision by filing a lawsuit before the other party filed a demand, thereby encouraging the immediate resort to litigation as soon as a dispute became a glimmer on the horizon.”

Finally, the Court rejected the argument that Hillier waived its right to arbitration by failing to demand arbitration in defending against Torcon’s separate action for declaratory relief. In rejecting this argument, the Court noted that each lawsuit involved separate and distinct claims and that Hillier served its answer and affirmative defenses to the action for declaratory relief on the same day that it served the motion to dismiss that included a demand for arbitration of Torcon’s claims for indemnity and breach of contract.