Participation in Litigation as a Waiver of the Contractual Right to Arbitrate: Toward a Unified Theory
The FAA states that federal courts are to order parties to arbitration only “upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue.”8 Consistent with that dictate, it is a fundamental tenet of American arbitration law that “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”9 To determine whether a particular contractual dispute is one that the parties have agreed to arbitrate, the federal judiciary has developed common law rules of arbitrability. Although the law of arbitrability is largely based on the terms of the FAA and has now had almost ninety years to develop, it remains confused and confusing in some aspects. In part, the confusion is attributable to the ad hoc nature of the common law method by which the law of arbitrability developed.10 It is also partially attributable to the necessarily circular nature of the arbitrability inquiry, which requires a court to decide the issue of whether it should decide an issue.11 One aspect of the law of arbitrability on which the federal courts so far have been unable to agree concerns whether a party that participates in the litigation of a dispute has waived its right to arbitrate that dispute.12 It sometimes occurs that parties to a contract with a valid arbitration provision decide to litigate instead of arbitrate. That situation presents no obvious procedural problem so long as both parties agree to waive the right to arbitrate and then litigate their dispute through to conclusion. A problem does arise, however, if at some stage during the litigation process one of the parties changes its mind about its preferred forum and moves to compel arbitration instead. Under what circumstances has a party that wishes to switch from litigation to arbitration waived its contractual right to compel arbitration? For example, may a litigant decide as the jury is being charged at the end of a trial that it would like to invoke the arbitration clause in the contract after all? At the opposite end of the spectrum of possibilities, should the rule be that once a party voluntarily participates in litigation to any extent it has waived its right to compel arbitration of the same dispute? If the best answer is somewhere between those two poles, where is the point of no return, beyond which a party participating in litigation will be held to have waived its right to arbitrate? This Article proposes answers to the above questions. To do so, the first Part of the Article reviews the current state of the law of arbitrability, which provides the framework within which the issue of waiver by participation in litigation must be analyzed. The second Part of this Article examines the different ways that the United States circuit courts have attempted to deal with the issue of when participation in litigation will be found to constitute a waiver of the right to arbitrate. The most fundamental split in the circuits on that issue concerns whether some prejudice to the party resisting arbitration is a necessary element of such a waiver.13 In addition, even among those circuits that require a showing of prejudice, there is disagreement as to what type of showing is required. The third Part of this Article proposes a uniform resolution of the issue of when a party’s participation in litigation should be found to constitute a waiver of the contractual right to arbitrate. It is argued that a rule that does not require a showing of prejudice to the party resisting arbitration better effectuates the policies of the FAA. Rather, the goal of fair and efficient dispute resolution in conformity with the parties’ agreement is better served by a rule that the contractual right to compel arbitration of a dispute is waived if it is not asserted by the time the defendant answers the complaint.
Thomas J. Lilly Jr.,
Participation in Litigation as a Waiver of the Contractual Right to Arbitrate: Toward a Unified Theory,
92 Neb. L. Rev.
Available at: https://digitalcommons.unl.edu/nlr/vol92/iss1/4