Sometimes parties ignore arbitration provisions…

We’ve talked here previously about the pros and cons of arbitration and alternatives to arbitration such as jury trial waivers. That determination is really tied to the type of disputes an employer might have, the frequency of disputes, and other circumstances that are subjective.

Believe it or not there are some instances where parties to a lawsuit might ignore an arbitration provision. Maybe the issue is cost or the amount in controversy – again the reasons may vary but there are instances where parties file and defend lawsuits with arbitration provisions in place that would control the dispute.

Sometimes parties change their minds about the provisions they ignored…

The problem comes when one of those parties decides midway through the litigation that they want to compel arbitration. Then the court is left with a question of how much litigation is too much meaning the parties have waived their right to arbitration.

Texas Court still like arbitration provisions…

Recently in a San Antonio Court of Appeals case, the Court compelled arbitration in a case that was pending for 2 and a half years.  The high points from the opinion:

  1. Texas courts really like arbitration;
  2. To show waiver of an arbitration provision a party has to show the other side (a) invoked the judicial process and (b) it would be prejudiced by arbitration;
  3. Here the lawsuit had been ongoing 2 and half years, the parties engaged in discovery, transferred the case to San Antonio, and they were set for trial;
  4. The Court held that the was no showing or prejudice and ordered arbitration; and
  5. Texas courts really like arbitration.

Ouch.  The case was transferred, the parties conducted discovery, trial was a few months away and the Court still said arbitration wasn’t waived.  If you find yourself in this predicament how do you avoid this type of an opinion?  That’s tough.  First, make sure you’ve offered evidence of prejudice. Second, is there some way you can get the party to agree to waive the agreement on the record? Third, compel arbitration yourself.  There aren’t really any good answers.  Bottom line is a company can be subjected to arbitration even years after the lawsuit was filed.  Keep that reality in the back of your mind.