Arbitration & Mediation

Fifth Circuit Finds Waiver of Arbitration (Under Federal Law) in Asbestos Case

By Christopher B. Hopkins, Esq.

Given that the federal standard to find waiver of arbitration is much looser than the Florida standard, this case from the Fifth Circuit is worth noting since, indeed, the plaintiff waived arbitration.

In Geraldine Nicholas as Administratrix of Estate of James Nicholas v. KBR, Inc.; M W Kellogg Co.; Kellogg Brown & Root; Halliburton, the plaintiff was the wife of an employee who developed mesothelioma from asbestos exposure. In 1998, the husband-employee had signed a severance agreement; after his death, the wife claimed that the defendants failed to pay life insurance benefits. There are likely issues keen to ERISA and asbestos lawyers in this matter but none are addressed squarely in this arbitration-related opinion (other than footnote 4).

Here's the procedural history: plaintiff filed suit, opposed removal, amended her complaint, participated in joint discovery / case management plan, responded to discovery, sat for her deposition, noticed non-parties for deposition, and generally participated in discovery for ten months without mentioning arbitration.

During this discovery, she testified at her deposition that she had discussed with "someone" at the defendants about her husband had signed an arbitration agreement. That appears to be a critical piece of evidence supporting waiver.

According to the decision, the defendants developed and argued that the plaintiff knew of the arbitration clause and proceeded with litigation despite such knowledge. The plaintiff claimed that she did not have a copy of the severance agreement however the court noted "that Nicholas nowhere sought to contravene KBR's claim that she waived arbitration." The court held the evidence of her deposition did not support a claim of ignorance. There was also more than a hint that the plaintiff's belated effort to seek summary judgment was prompted by the apparent concern that summary judgment might be granted.

The 5th Circuit did provide this nice overview of waiver of arbitration under federal law: (1) did the party substantially invoke the judicial process and (2) was the other side prejudiced. This has also been phrased as whether one side invokes the judicial process to the detriment of the other party. The judicial process is invoked where a claimant pursues litigation and then reverses course, trying to arbitrate (especially under the spectre of summary judgment). In short, filing suit shows a disinclination to arbitrate. Exceptions to the rule are lawsuits to address a "threshold declaration" (whether a valid agreement to arbitrate exists) or "injunctive relief pending arbitration."

As a practical matter, it appears from state and federal cases that waiver is especially likely when the litigation papers wholly ignore the arbitration clause. If a party believes it needs to file some sort of suit but also pursue arbitration, the papers filed in court likely should indicate the desire to preserve arbitration (and state the reason why it is not waiver).

Full post as published by Florida Arbitration Law on July 09, 2009 (boomark / email).