Legal News

The Supreme Court's Shakespearean Approach to Arbitration

By Brian Harris

By Joshua D. Wolson
Special to the Legal

One might think the U.S. Supreme Court turns to Shakespeare for inspiration about cert petitions about arbitration. That, at least, is one way to read the court's recent decision to wade back into the issue for the fourth time in three years with Stock & Associates v. Citibank, N.A.

In April 2010, the court held in Stolt-Nielsen S.A., et al. v. AnimalFeeds International Corp. that courts cannot impose classwide arbitration if the parties have not agreed to such a remedy. In June, the court held in Rent-a-Center West Inc. v. Jackson that arbitrators can decide that enforceability of a contract, including the arbitration provision, unless the parties agree otherwise. In November, the court heard arguments in AT&T Mobility LLC v. Concepcion, a case about whether and when a state can deem a classaction waiver in an arbitration provision unconscionable. That case will likely be decided before July.

Now, perhaps with "Henry V" in mind, at least four justices have said, "Once more unto the breach."

Last week, the court agreed to decide when participation in litigation impliedly waives the right to invoke an arbitration agreement. Its decision promises to resolve a split among circuits about whether -- and to what extent -- one must show prejudice to demonstrate waiver of an arbitration provision. Some courts have held that to show waiver, a party must show that it was prejudiced by the delay in invoking the arbitration provision. Other courts have held that waiver can result from participation in litigation or other conduct at odds with arbitration, even in the absence of prejudice. Those courts generally examine a list of non-dispositive factors to determine whether or not to find a waiver. 

In its petition for certiorari, Stock argues that a rule that does not require prejudice would create certainty to parties to litigation. That argument, however, seems to miss the mark. Cases that do not require a showing of prejudice almost inevitably lack predictability because they consider a series of non-dispositive factors to decide whether or not to find a waiver, and the combination of factors presented will be different in every case. On the other hand, cases that require a showing of prejudice provide something close to a bright-line rule upon which the parties can rely -- if you cannot show prejudice, you still might be subject to arbitration.

The Supreme Court's resolution of this issue will resolve a circuit split and provide useful guidance for anyone seeking to invoke or resist an arbitration provision. At the same time, as issues about arbitration seem to have captured the court's attention, it will be interesting to see whether, and how many more times, the court wades back into the breach of arbitration-related disputes in upcoming terms. 

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.

Full post as published by The Legal Intelligencer Blog on March 07, 2011 (boomark / email).