THE SUPREME COURT has made it clear that in cases involving the Federal Arbitration Act (1) there is a liberal public policy favoring arbitration (2) and that courts should "rigorously enforce agreements to arbitrate...." (3) Consistent with these directives, where a contract contains an arbitration clause there is a strong presumption that arbitration should be compelled "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue." (4)
At the same time, it is clear that the right to demand arbitration--like virtually any right--can be waived, (5) either expressly or by implication. (6). Because of the strong preference for arbitration in federal courts, "any doubts concerning whether there has been a waiver are resolved in favor of arbitration." (7) The issue of waiver must be considered "with a healthy regard for the policy of promoting arbitration." (8) Consequently, waiver is not to be lightly inferred, (9) and the proponent of waiver bears a "heavy burden." (10)
One way that a party can impliedly waive its right to arbitrate is by engaging in litigation with respect to issues that are otherwise arbitrable. (11) However, as the cases make clear, there are no "bright line" tests when it comes to the issue of waiver, (12) and each case must be judged on the totality of its particular facts. (13) This article will review the factors most commonly considered by courts when determining the issue of arbitral waiver and will examine several recent cases applying those facts. It will conclude with a discussion of common case themes that should assist in guiding the reader on the issue of whether a waiver has occurred.
I. Participating in Litigation--How Much Is Too Much? (14)
Not every act of participating in litigation will result in a finding that a party's right to demand arbitration has been waived. For example, waiver will generally not result simply because a party elects to remove a case from state to federal court. (15) Filing an answer (16) or even a counterclaim, (17) at least in the absence of any demonstrable showing of prejudice, is also usually insufficient to give rise to a valid defense of waiver.
At some point, however, a party's participation in the litigation process becomes significant enough that it may safely be said that he has acted inconsistently with his arbitral rights, thus giving rise to a claim of waiver. But where is the line, and what does one have to do in order to cross it? The answer to that question will vary and the analytical framework employed, while theoretically consistent, is not uniform. (18) At ground, the cases make clear that three simple questions predominate the inquiry:
* How long was the delay in demanding arbitration?
* What litigation activity occurred during the period of delay?; and
* What prejudice was suffered by the party opposing arbitration?
II. How Courts Apply The Factors To Address The Issue Of Waiver
In analyzing the issue of arbitral waiver, courts will employ a flexible approach that considers the totality of the circumstances. (19) A seven-month delay in asserting the right to arbitrate, standing alone, will likely not result in a finding of waiver. (20) But if during that seven months responsive pleadings are filed, discovery takes place, and a trial is scheduled, the result may be quite different. (21) Consequently while an examination of each of the waiver factors can be helpful, no factor standing alone is likely to give rise to a finding of waiver.
A. The Amount of Delay
The degree of delay in demanding arbitration is one of the first issues that will be considered when considering the issue of waiver. Generally speaking, delays of a month or two, without more, are insufficient to give rise to a claim of waiver. (22) On the other hand, delays approaching or exceeding one year, at least when other factors are present, augur in favor of a waiver. …