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Timothy R. Hughes, Esq.
Hughes & Associates, P.L.L.C.
Don’t take a hasty approach if you intend to compel
arbitration.
A recent case in the Maryland Court of Special Appeals highlights that
your actions can often have unintended consequences regarding waivers of
rights to compel arbitration. While the contractor succeeded in compelling
arbitration, the case demonstrates the need for careful consideration
before filing a suit or responsive pleadings.
The Maryland Case
In the case of Brendsel v. Winchester Construction, a contractor claimed
that it had not been paid and filed a suit to enforce a mechanic’s lien.
Brendsel v. Winchester Const. Co., Inc., ___ A2d ___, 2005 WL 1327596 (Md.
App. 2005). The owners filed a counterclaim alleging that the contractor
breached its contract and violated the Maryland Consumer Protection Act (MCPA).
The contractor filed a petition to compel arbitration which the trial
court granted. The owners appealed to the Maryland Court of Special
Appeals.
While the contractor filed a petition to enforce its mechanic’s lien in
court, the petition’s prayer for relief sought, “such other and further
relief … including, but not limited to, a stay of proceedings after an
interlocutory lien is established pending the outcome of an arbitration
proceeding between the parties hereto.”
Turning to Maryland case law, the Court found that a party could waive its
right to enforce an arbitration clause. Waiver is an intentional
relinquishment of a known right. Acts demonstrating waiver would need to
be inconsistent with an intention to insist on enforcing the contract
provisions.
The Court found that the petition to enforce the mechanic’s lien was in
essence only a property based enforcement remedy as opposed a waiver of
arbitration in the underlying breach of contract action. Because the
underlying case and the lien claim were separate, the contractor did not
automatically waive its ability to require the arbitration for the breach
of contract case by filing the lien suit.
Factors that Can Waive Arbitration
While the contractor succeeded in compelling arbitration in the Brendsel
case, knee jerk defense reactions can often waive the right to
arbitration. The first instinct for many parties and lawyers is to respond
aggressively when served with a legal complaint. Such aggressive responses
can include filing a counterclaim, serving immediate interrogatories,
requests for production and requests for admissions, and filing
substantive motions on why the case should be dismissed.
Placing the opponent on the immediate defensive can be advantageous. In
this instance, however, these types of aggressive responses can be
construed by a court to represent a waiver of a right to compel
arbitration. Each of these types of steps have been viewed by various
courts nationally as being pivotal to the question of whether a party has
voluntarily subjected itself to the legal process and thus waived
arbitration.
Conclusion
I often tell clients that I can never predict whether a specific case
would be better in court or arbitration until it erupts. Once you have
decided to pursue a case, or are served with a case as a defendant, you
need to examine the arbitration issue. If you have an arbitration clause,
you need to consider which forum is best for your position. If you want to
compel arbitration, you need to ensure that neither you nor your counsel
undermines that effort by a hasty ill considered approach.
Timothy R. Hughes, Esq., is the principal of the Northern
Virginia law firm of Hughes & Associates, P.L.L.C. He specializes in
construction litigation, corporate and business related representation,
and complex civil litigation. He may be reached at
tim@hughesnassociates.com.
Printed with permission
from Mid-Atlantic Construction
http://midatlantic.construction.com/2005/09/01/MA_09_01_2005_p33-01.asp
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