It is generally common knowledge that if there is a contractual right to arbitrate, the filing of a lawsuit and engaging in discovery can result in the other party to the dispute arguing that you have waived your right to arbitrate. This means the dispute will ultimately be resolved in court by a jury as opposed to an arbitrator. It also means that rather than an expedited resolution of the dispute and extremely limited grounds for appeal, it could cost far more time and money than if the matter had proceeded to arbitration.
If your agreement has an arbitration provision and an action is filed in court by the other party, you must file a motion to compel arbitration before proceeding with any further action and seek to stay the litigation pending the outcome of the arbitration. Even though the Mississippi appellate courts do not favor findings of waiver of the right to compel arbitration, it will recognize waiver when the party seeking to compel arbitration has actively participated in the litigation or the party opposing arbitration can establish it has been prejudiced by the party’s delay in seeking to enforce its right to arbitrate.
The U.S. Supreme Court, however, has now determined that under the Federal Arbitration Act (“FAA”), prejudice (see link below) is not a requirement to establish whether a party has waived its right to arbitration. Instead, the Court limited its analysis of waiver to whether a party has engaged in conduct inconsistent with the right to arbitrate. The additional consideration of whether the party opposing arbitration has been harmed by the waiver is not proper, declared the Court. [link to U.S. Supreme Court Decision] This decision was a unanimous one, and it is important because virtually all construction projects involve interstate commerce, which makes the FAA applicable to such disputes.
Note: Mississippi appellate courts have yet to consider the application of the Supreme Court’s ruling, but it highlights the importance of enforcement of your right to arbitrate and guarding against any conduct inconsistent with that right.