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Litigation: Mississippi Court Asserts Standard When Court Actions Constitute Waiver (Web)

In In re: Tyco Int'l (US) Inc., No. 2002-M-00048-SCT,

2005 WL 1981764 (Aug. 18, 2005)(Consolidated with Williams v. Tyco Int’l (US) Inc., No. 2003-CA-02590-SCT)(Available at case has not yet been released for publication in the Mississippi permanent law reports and is subject to revision or withdrawal.), the Mississippi Supreme Court clarified the standard for an effective waiver of the right to arbitration.

The Court held that (1) a party actively participating in a suit, or taking actions inconsistent with the right to arbitration, waives its right to arbitration; and (2) a party's excessive delay in filing a motion to compel arbitration is contrary to the spirit and intent of the public policy favoring arbitration.

Appellant Aaron Williams was a used automobile dealer in Waynesboro, Miss. Between 1997 and 1999, Williams frequently attended the Mississippi Auto Auction–the "MAA"--to purchase used automobiles for resale to the public. To qualify to purchase automobiles at the MAA, Williams was required to register. As part of his MAA registration, Williams executed a Dealer Registration Agreement, in which he agreed and acknowledged that any controversy or claim arising out of the agreement would be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Id. at *4.

In July 1999, Williams entered MAA's premises to participate in its weekly used car auction. MAA personnel informed Williams that his business relationship with MAA had been terminated. Williams alleged in his complaint that MAA terminated his business relationship because he regularly employed African-Americans. Id. at *4.

On June 28, 2000, Williams filed a complaint against several entities, including the MAA and its parent, Tyco International (US) Inc. Id. at *1. Over the course of the next several months, the Tyco defendants made a number of motions to the court, including discovery motions, a motion to recuse the trial judge, and a motion for certification and petition of the issues for interlocutory appeal.

On March 14, 2001, nine months after Williams filed his complaint, the Tyco defendants filed their joint answer. In their answer, the Tyco defendants asserted the affirmative defense that Williams was bound to arbitrate the matters alleged in his complaint and accordingly, that the complaint should be dismissed. Id. at *1. Five days later, the Tyco defendants responded to Williams's discovery requests.

Between March 19, 2001, and Sept. 1, 2003, the Tyco defendants approved Williams' proposed and amended orders setting the case for a jury trial and establishing a schedule for the proceedings, joined in their co-defendants' designation of expert witnesses, and appeared at their co-defendants' deposition of Williams. Id. at *2.

On Sept. 2, 2003, more than three years after Williams filed his complaint, the Tyco defendants moved for a stay of the proceedings and to compel Williams to arbitrate his claims. On Sept. 16, 2003, the Tyco defendants filed a supplemental motion for stay of the proceedings and to compel arbitration. Id. at *2. On Sept. 24, 2003, following a hearing, the trial judge granted the Tyco defendants' motion. Williams moved for reconsideration and the trial judge denied his motion. Id. at *3.

The dispositive issues before the Supreme Court were: (1) whether the trial court had erred in finding that the Tyco defendants had not expressly waived any right to compel arbitration by having twice specifically agreed and consented to a jury trial; (2) whether the trial court had erred in finding that the Tyco defendants had not impliedly waived any right to compel arbitration through their active participation in the litigation; and (3) whether the Tyco defendants had impliedly waived any right to compel arbitration through their excessive delay in making any demand for arbitration.

The Tyco defendants argued that because they had raised the affirmative defense of arbitration in their answer and because their participation in "actual litigation" was extremely limited, they had not waived their right to arbitration.

The Mississippi Supreme Court considered its precedent, which holds that a party waives the right to arbitrate when it actively participates in a suit or takes other action inconsistent with the right to arbitration. Id. at *6. "Waiver will be found when the party seeking arbitrationsubstantially invokes the judicial process to the detriment or prejudice of the other party. . . . Parties desiring to seek arbitration shall promptly file and present to the court a motion to stay proceedings and a motion to compel arbitration." Id. at *7 (emphasis in original).

The Court cited favorably to a 2004 case, Pass Termite & Pest Control Inc. v. Walker, 904 So.2d 1030, 1034-35 (Miss. 2004), where the Court noted that Mississippi had adopted the federal policy favoring arbitration. In Pass, the Court held "when a party, with full knowledge of the existence of an arbitration clause in the contract which is the subject matter of the litigation, makes a conscious decision to proceed with responding to the lawsuit, demanding a jury trial, and invoking discovery only to thereafter invoke the arbitration clause, that party does so at its own peril, and prejudice to the non-moving party will be presumed. . . ." 904 So.2d at 1035 (emphasis in original).

The Court held that the Tyco defendants had waived their right to arbitration by actively participating in the suit and by taking actions inconsistent with the right to arbitration, including moving to recuse the trial judge, moving to dismiss Williams' action, moving to transfer venue, agreeing to and executing an order setting the date for a jury trial, and attending depositions. "The Tyco defendants' multiple acts of seeking judicial relief from the trial court, including a dispositive motion, is clearly inconsistent with seeking arbitration." Id. at *8-9.

The court noted that the Tyco defendants had spent two years attempting to recuse the trial judge, ostensibly to maintain their right to a fair trial. Id. at *9. The court also emphasized the timing of the Tyco defendants' motion to compel arbitration, which was filed more than three years after Williams filed his complaint, and more than two and a half years after the Tyco defendants filed their answer. Id.

--Kristien M. Kahn, Associate, Dewey Ballantine LLP