Party Waives Right to Arbitrate by Litigating Same Issues

On February 5, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Matter of Guttman v. Diamond, 2014 NY Slip Op. 50138(U), denying a motion to compel arbitration.

In Guttman, one of the respondents, Brown, moved to compel arbitration challenging a settlement agreement. The court denied the motion because, among other reasons, Brown had waived the right to demand arbitration, explaining

The Federal Arbitration Act (the FAA) governs the determination of whether the instant dispute is subject to arbitration because the Settlement affects multi-state litigation concerning storage faculties located in multiple states. Though federal policy strongly favors arbitration, and waiver is not to be lightly inferred, a party may waive its right to compel arbitration where prejudice to the other party is demonstrated. While courts consider certain factors in determining whether the right to arbitration has been waived, there is no bright-line rule as the determination of waiver depends on the particular facts of each case. That being said, it is well settled that the key to a waiver analysis is prejudice. Waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated.

It is well established that prior litigation of the same legal and factual issues as those the party now wants to arbitrate results in the waiver of the right to arbitrate. Though there is no wavier where a party has previously litigated an unrelated yet arbitrable dispute, wavier occurs when a party has previously litigated the same claims it now seeks to arbitrate.

(Internal quotations and citations omitted) (emphasis added). The court, in a strongly worded opinion, went on to find both waiver and prejudice, as well as laches.

This decision shows the unwillingness of courts to let parties to arbitration agreements use them to try to get a second bite at the apple.