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Alabama: Motion to Dismiss on SOL Grounds Not Waiver of Arbitration (Web)

In Zedot Construction, Inc. v. Red Sullivan’s Conditioned Air Services, Inc. 2006 Ala. LEXIS 139 (Ala. 2006), the Alabama Supreme Court held that a party did not waive its right to arbitrate by participating in the litigation process when the party asserted the defense of statute of limitations in a motion to dismiss.

Zedot Construction Incorporated, acting as a general contractor on a construction project in Jefferson County, AL, entered into a contract with Red Sullivan’s Conditioned Air Services, Inc (CAS), which contained an arbitration clause.

Zedot terminated CAS alleging that their work on the project was deficient.  After CAS filed a complaint alleging breach of contract, among other things, Zedot responded by filing a motion to dismiss, making no mention of the arbitration clause.

The motion to dismiss relied on § 6-5-221, Ala. Code 1975 in arguing that CAS’s claims were barred by a two-year statute of limitations, and “was accompanied by an affidavit intended only to verify that a prerequisite to the application of the statute of limitations was satisfied.”

The trial court treated the motion as a motion for summary judgment and denied it, ordering Zedot to answer CAS’s complaint within 30 days.  Zedot answered CAS’s complaint, asserting the affirmative defense of arbitration.

Next, the trial court denied a motion made by Zedot to compel arbitration.  In denying the motion, the trial court agreed with CAS that in participating in the litigation process without raising the arbitration clause until its answer, Zedot had waived its right to arbitrate.

On appeal by Zedot of the trial court’s denial of its motion to compel arbitration, the appellate court stated the standard for showing waiver of the right to arbitrate by litigation-related conduct: “’the party opposing arbitration must demonstrate that the movant has substantially invoked the litigation process and thereby the opposing party would be substantially prejudiced if the case were submitted to arbitration.’”

In his analysis of the standard, Associate Justice, Champ Lyons, Jr. began with the premise that the “’mere filing of a pleading does not constitute a waiver of the right to compel arbitration.’”  Here, the only pleading Zedot filed before it asserted the affirmative defense of arbitration in its answer, was the motion to dismiss CAS’s complaint.

In filing its motion to dismiss, Zedot did not require CAS to perform discovery work in opposition to the motion.  Therefore, the filing of the motion to dismiss did not substantially invoke the litigation process.

As for the court’s analysis of the prejudice prong of the standard articulated above, the court determined that CAS would not be substantially prejudiced if it were required to submit to arbitration. 

The court relied on the fact that during the six months that passed between the filing of CAS’s complaint and the filing of Zedot’s motion to compel arbitration, no discovery took place other than CAS’s interrogatories, no hearings were held and no trial date was scheduled. 

Justice Lyons noted the heavy burden on CAS in light of the strong federal policy favoring arbitration, in reversing the trial court’s order denying Zedot’s motion to compel arbitration.

John Ousley, CPR Intern