Member Article

In our last issue of the newsletter, we told you of a decision of the United States Circuit Court for the Sixth Circuit, in which the Sixth Circuit considered the issue of whether a party waived its arbitration right through its pre-litigation conduct. In Borror Property Management, LLC v. Oro Karric North, LLC, the Sixth Circuit upheld a party’s contractual right to arbitration and concluded that a party’s pre-litigation conduct (writing pre-lawsuit, informal letters suggesting that the parties litigate in court) did not constitute a waiver of the right to arbitrate.

The Alabama Supreme Court recently issued a decision cutting the other way (albeit on very different facts). Contractors, subcontractors, owners, and engineers who litigate (or arbitrate) in Alabama should take note.

In The Health Care Authority for Baptist Health et al. v. Dickson, the Alabama Supreme Court determined that a party to an arbitration provision substantially invoked the litigation process to the prejudice of its counterparty, thus waiving its right to compel arbitration. Dickson, an individual who sustained injuries as a result of an automobile accident, was taken to Prattville Baptist Hospital (“PBH”), was treated in the emergency department, and was discharged. Dickson was partially covered by health insurance issued by Blue Cross Blue Shield of Alabama (“BCBS”). PBH was a party to a provider agreement with BCBS under which the medical care rendered to Dickson was reimbursable.

Dickson filed a complaint in the trial court challenging a reimbursement that PBH had received in exchange for Dickson’s medical treatment. He also sought to certify a class of people who were insured by BCBS and who had received care at any hospital operated by Baptist Health (collectively, the hospital defendants are the “HCA Entities”). The trial court entered an order transferring the case to the trial court in a different county. The second court then ruled on various pending discovery motions and denied the HCA Entities’ motion to dismiss. The HCA Entities then took a number of actions, including filing an answer (which did not raise arbitration as a defense) and filing a motion seeking to stay discovery, for a protective order, and to quash subpoenas. The parties then participated in class-related discovery

After all of these actions, the HCA Entities then filed a motion to compel arbitration on the grounds that Dickson’s health-insurance policy with BCBS required all claims related to the policy to be arbitrated and that the provider agreement also provided for arbitration, contingent upon the arbitration requirement of the BCBS policy. The trial court denied that motion and the HCA Entities appealed. The HCA Entities asserted that (i) Dickson’s claims were subject to the arbitration provisions of the BCBS policy and the provider agreement, (ii) the arbitrability of the claims must be determined by an arbitrator, and (iii) Dickson is equitably estopped from disavowing that arbitration of his claims is appropriate. They also contend that they did not waive the right to compel arbitration by failing to raise arbitration as an affirmative defense or by participating in litigation and engaging in class-related discovery. Dickson argued that arbitration is an affirmative defense and that the HCA Entities waived that defense by failing to assert it in their answer. He also argued that the HCA Entities waived their right to compel arbitration by substantially invoking the litigation process.

Waiver is a defense to arbitration. The test for determining whether a party has waived its right to arbitration has two prongs: (i) whether the party's actions as a whole have substantially invoked the litigation process and, (ii) whether the party opposing arbitration would be prejudiced if forced to submit its claims to arbitration subsequent to the other party's actions invoking the litigation process. This decision is made based on the particular facts of each case.

The Court considered the facts that were relevant to this issue, including (i) the fact that Dickson commenced the lawsuit more than two years before the HCA Entities filed their motion to compel arbitration, and (ii) the various actions in the litigation taken by the HCA Entities prior to moving to compel arbitration (they filed a motion to dismiss, supported the attempt by another party to be dismissed from the action, filed motions to stay discovery, opposed Dickson’s nonparty subpoenas, submitted briefs to and participated in hearings in the first court, had the case transferred, participated in motion practice and hearings in the second court, answered Dickson’s complaint on the merits, and conducted and participated in class-related discovery).

The Court reasoned that these actions were inconsistent with any desire that the HCA Entities may have had to resolve the case by arbitration. Accordingly, the HCA Entities substantially invoked the litigation process before seeking to compel arbitration. Further, the Court found it noteworthy that the HCA Entities delayed filing their motion to compel arbitration until after they received an adverse ruling on their motion to dismiss.

Having determined that the HCA entities substantially invoked the litigation process, the Court then considered the issue of prejudice. Dickson asserted that he had suffered unnecessary expense and wasted time that could have been avoided if the dispute had been sent to arbitration, because his BCBS policy required BCBS to bear the costs of arbitration and the policy provides for a short timeframe for arbitration. He argued that his attorneys had spent countless hours and resources responding to numerous letters, objections, motions, and other documents filed by the HCA Entities in the trial court.

The Alabama Supreme Court recognized that there is prejudice where the party seeking arbitration allows the opposing party to endure the types of litigation expenses that arbitration was designed to alleviate. Dickson incurred substantial time and expense in opposing the HCA Entities’ various filings, resulting in expenses he would have been spared had the HCA Entities sought to invoke their right to arbitration earlier. The Court, therefore, held that the HCA Entities substantially invoked the litigation process, to the prejudice of Dickson, and that they waived any right to compel arbitration.

The lesson here is a simple, but important one: if you believe you have the contractual right to arbitrate your dispute – and if you want to arbitrate your dispute – it is prudent to request that the dispute be sent to arbitration sooner rather than later. The longer you participate in litigation or in court (and the more expense your counterparty incurs), the more likely it is that you will be deemed to have waived your arbitration right. If you are uncertain whether you have the right to arbitrate, or are unfamiliar with the mechanics for doing so, you should contact a lawyer who can advise as to your available rights and remedies before they slip away.