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Last month in his ADR article in The Legal, Charles Forer discussed how disclosure of mediation documents to a testifying expert resulted in a court decision to remove the expert and require that the disclosing party secure an expert to whom the confidential information had not been disclosed. His discussion led me to consider other circumstances in which parties may lose their right to alternative dispute resolution processes. An example of a waiver of the right to arbitration, for example, was recently considered by the 3rd U.S. Circuit Court of Appeals in the case of Ehleiter v. Grapetree Shores Inc. In that case, the plaintiff, an employee of a casino, sued the property owner when he allegedly suffered personal injuries resulting from a slip and fall in an employee stairway at the casino. For almost four years the parties engaged in discovery, which included 19 depositions as well as the submission of numerous interrogatories and expert reports. While discovery was in progress, the parties participated in an unsuccessful mediation session. Under a court order they stipulated that they would be ready for trial by Dec. 1, 2004. Subsequently, the defendant sought a continuance of the trial date. Thereafter, in addition to a motion filed by the plaintiff, the defendant filed a motion for summary judgment and to implead a third-party defendant, all three of which were fully briefed by the parties. Finally, on the day set for the joint pre-trial statement and proposed jury instructions, the defendant moved to stay the case pending arbitration, pointing to an arbitration clause covering all claims against affiliated companies of plaintiff’s employer which included the defendant. The 3rd Circuit, in affirming lower courts, determined that by actively litigating the case in court, the defendant had waived any right it had to arbitrate the underlying dispute. In reaching this decision, the court noted that prejudice was the touchstone for determining whether the right to arbitrate had been waived by litigation conduct and recounted six non-exclusive factors relevant to the determination of prejudice. These were: The timeliness or lack thereof of a motion to arbitrate; the degree to which the party seeking to compel arbitration has contested the merits of the opponent’s claims; whether that party has informed its adversary of its intention to seek arbitration, even if such a motion to stay court proceedings has not yet been filed; the extent of its nonmerits motion practice; the party’s assent to the trial court’s pre-trial orders; and the extent to which both parties have engaged in discovery. Based upon the circumstances in this case, the court had little difficulty finding waiver. It pointed out that there was an extended period of four years before the defendant invoked the right to arbitration. In addition, defendant had filed both merits and nonmerits motions during that period; it had involved itself in mediation; and, it had complied with the trial court’s procedural orders. Moreover, the court rejected the argument that waiver should not be found because there was no showing that plaintiff’s legal position had been prejudiced, as distinguished from prejudice resulting from solely from delay. The court made clear that waiver is not dependent on the presence of both types of prejudice. The court concluded that it might readily infer that the plaintiff had already invested considerable time and expense in litigating the case in court and would be required to duplicate its efforts to some degree were the case to proceed to arbitration. It concluded, therefore, that “prejudice of this sort is not mitigated by the absence of substantive prejudice to the legal position of the party claiming waiver.” The facts in Ehleiter would appear to have been so apparent insofar as they reflected defendant’s acquiescence in the court’s authority over an extended period of time that there was little question that waiver should be found. As the court’s opinion reflected, however, many other situations may arise which would warrant a finding that the failure to comply with a contractual condition would make arbitration unavailable to the party seeking it. Thus, in Ehleiter, the court noted that in 2002, the U.S. Supreme Court had ” summarized its analysis of the division of labor between judge and arbitrator by quoting Section 6 of the Revised Uniform Arbitration Act of 2000 (RUAA) and a comment thereto: ‘[an] arbitrator shall determine whether a condition precedent to arbitrability has been fulfilled’ and ‘in the absence of and agreement to the contrary , issues of substantive arbitrability . . . are for a court to decide and issues of procedural arbitrability, i.e., whether prerequisite such as time limits, notice, laches, estoppel and other conditions precedent to an obligation to arbitration have been met, are for the arbitrators to decide” In a subsequent article, I hope to have the opportunity to discuss the circumstances under which the court or the arbitrator should assume responsibility for deciding whether and to what extent a matter may be arbitrated. The point to be emphasized now, however, is that even if a party has the right under a written agreement to resolve a dispute through arbitration, that right may be lost if there is a failure to comply with prerequisites, some of which are mentioned in the RUAA comment above, or a failure to object in a timely manner to the initiation and/or continuation of the dispute in a judicial forum. In fact, the right to insist on arbitration may even be lost if a party fails to act promptly in accordance with other responsibilities under its contract. Perhaps the best-known example of such arose in California in a medical malpractice case decided in 1997. There, initially the patient and, subsequently, his survivors were seeking to recover from a health maintenance organization in which decedent’s employer was enrolled. Part of the insurance agreement provided for binding arbitration of disputes related to the HMO’s services. The HMO had represented that it had a self-administered arbitration program that would designate its party arbitrator within 30 days and a third, neutral arbitrator within 30 days thereafter, and that a hearing would be held within several month’s time. However, despite multiple requests for expeditious processing of the claim, in light of the patient’s terminal condition, due to delays by the HMO the final arbitrator was not selected until five months after the patient had filed his claim, shortly before the patient’s death. The death eliminated the wife’s consortium claim that might have been made had the arbitration hearing itself commenced before death. The family then initiated the medical malpractice action in court where all of the claims might be asserted. The family claimed promissory fraud in the inducement of the arbitration agreement, because there was no intention to either appoint the arbitrators in a timely fashion or to progress expeditiously towards an arbitration hearing. Particularly significant in the court’s finding of a lack of good faith was that the HMO had assumed the contractual duty to administer the plan as a fiduciary. The evidence showed that only 1 percent of neutral arbitrators were appointed within 30 days, 3 percent were appointed within 60 days, and that, almost unimaginably, on average, the neutral arbitrator was appointed 674 days, almost two years after the demand for arbitration. The court further found that there was evidence that the HMO had “established a self-administered arbitration system in which delay for its own benefit and convenience was an inherent part, despite express and implied contractual representations to the contrary”. It then remanded the case to the trial court to determine whether the right to arbitration had been waived by the HMO (with the dissent arguing that the family should have sought such relief from the arbitrators rather than the courts as the arbitration was already pending). What the above discussion should reflect is that a party desiring to enforce its contractual right to resolve a dispute through arbitration may lose this opportunity due to action or inaction on its part. For example, assume that the arbitration agreement provides that should a dispute arise, the arbitrator would be able to exercise all of the equitable powers of a court. If a party seeking an order restraining its opposition from taking certain action is sought from the court rather than through an arbitrator, will the opposition be entitled to later contend that by directing one aspect of the dispute to the courts, the party so acting has, in effect, abandoned its right to have the matter itself ultimately resolved by the arbitrator? The answer to the above question is not certain. What is clear, however, is that whenever there is an arbitration agreement, a party seeking to rely on it should be scrupulously careful to adhere to all of its conditions precedent and avoid and promptly object to any action seeking relief from the courts. Otherwise, a party may find itself unwillingly and unexpectedly back in the courts for the duration. Abraham J. Gafni is a mediator/arbitrator with ADR Options, and a professor at Villanova University School of Law.

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