Construction Law - September 2005

Waiving Arbitration: Avoid Unintended Consequences

Don't take a hasty approach if you intend to comple arbitration.

Timothy R. Hughes, Esq., is the principal of the Northern Virginia law firm of Hughes & Associates, P.L.L.C.,www.hughesnassociates.com. He specializes in construction litigation, corporate and business related representation, and complex civil litigation. He may be reached attim@hughesnassociates.com, or by phone at (703) 671-8200.

A recent casein the Maryland Court of Special Appeals highlights that your actions can often have unintended consequences regarding waivers of rights to compel arbitration. While the contractor succeeded in compelling arbitration, the case demonstrates the need for careful consideration before filing a suit or responsive pleadings.

The Maryland CaseIn the case of Brendsel v. Winchester Construction, a contractor claimed that it had not been paid and filed a suit to enforce a mechanic's lien. [Brendsel v. Winchester Const. Co., Inc., _ A2d _, 2005 WL 1327596 (Md. App. 2005)] The owners filed a counterclaim alleging that the contractor breached its contract and violated the Maryland Consumer Protection Act (MCPA). The contractor filed a petition to compel arbitration which the trial court granted. The owners appealed to the Maryland Court of Special Appeals.

While the contractor filed a petition to enforce its mechanic's lien in court, the petition's prayer for relief sought, "such other and further relief ... including, but not limited to, a stay of proceedings after an interlocutory lien is established pending the outcome of an arbitration proceeding between the parties hereto."

Turning to Maryland case law, the court found that a party could waive its right to enforce an arbitration clause. Waiver is an intentional relinquishment of a known right. Acts demonstrating waiver would need to be inconsistent with an intention to insist on enforcing the contract provisions.

The Court found that the petition to enforce the mechanic's lien was in essence only a property based enforcement remedy as opposed a waiver of arbitration in the underlying breach of contract action. Because the underlying case and the lien claim were separate, the contractor did not automatically waive its ability to require the arbitration for the breach of contract case by filing the lien suit.

Factors that Can Waive ArbitrationWhile the contractor succeeded in compelling arbitration in the Brendsel case, knee jerk defense reactions can often waive the right to arbitration. The first instinct for many parties and lawyers is to respond aggressively when served with a legal complaint. Such aggressive responses can include filing a counterclaim, serving immediate interrogatories, requests for production and requests for admissions, and filing substantive motions on why the case should be dismissed.

Placing the opponent on the immediate defensive can be advantageous. In this instance, however, these types of aggressive responses can be construed by a court to represent a waiver of a right to compel arbitration. Each of these types of steps have been viewed by various courts nationally as being pivotal to the question of whether a party has voluntarily subjected itself to the legal process and thus waived arbitration.

Conclusion I often tell clients that I can never predict whether a specific case would be better in court or arbitration until it erupts. Once you have decided to pursue a case, or are served with a case as a defendant, you need to examine the arbitration issue. If you have an arbitration clause, you need to consider which forum is best for your position. If you want to compel arbitration, you need to ensure that neither you nor your counsel undermines that effort by a hasty ill considered approach.