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Going to court or arbitration?

Arbitration agreements, like most contracts, require specific behavior to make them enforceable. If you contract to take deliveries on the first of the month, but don't receive them until two or three weeks pass, and you fail to object, you may be considered to have waived that delivery provision. If this course of conduct goes on for a year or two, you may have a very difficult time enforcing that deadline.

Likewise, if you have an arbitration agreement, but you wind up in court, and you engage in conduct that suggests you are willing to litigate the issue in a traditional court litigation process, you may be found to have waived your arbitration agreement.

The usual test for waiver of an arbitration agreement involves three parts. First, you must know you have an arbitration agreement. You typically should know this, and your legal counsel should go over all of your contracts and agreements and explain which ones contain arbitration clauses and which are subject to traditional litigation.

Second, you "acted inconsistently" with your right to arbitrate. This would include actively participating in traditional litigation. Third, you "prejudice" the other party. This usually means you led the other side to believe that the case would be proceeding to trial in a courtroom, by failing to assert your arbitration rights as early in the process as possible.

The Eighth Circuit Court of Appeals recently found a company waived arbitration when they responded to an employment lawsuit, filed motions to remove the case first from Minnesota state court to Minnesota federal court and then to a California federal court.

It was only after they were denied the removal to California that they then asserted the arbitration claim. The court was concerned that it appeared they only filed the arbitration claim after they lost the removal, and courts tend to discourage "gamesmanship" in litigation.

If you have an arbitration clause that you wish to use, you should ensure that it is asserted early in the process to avoid this type of unfortunate ruling.

Source: arbitrationnation.com, "Eight [Months] Is Enough — To Waive Your Arbitration Rights," Liz Kramer, May 11, 2016

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