BMD Appellate Win Clarifies Waiver of Contractual Right to Arbitrate
Client AlertBrennan, Manna & Diamond, LLC attorneys David M. Scott, Lucas K. Palmer, and Krista D. Warren prevailed before the United States Court of Appeals for the Sixth Circuit regarding if/when a party waives a contractual right to arbitrate. Borror Property Management, LLC v. Oro Karric North, LLC, No. 20-3146 (the “Decision”).
BMD clients Oro Karric North, LLC and its affiliates (collectively, “Oro”) entered into a property management agreement with Borror Property Management, LLC (“Borror”), in which Borror agreed to manage several apartment properties owned by Oro. The property management agreement stated that, “[i]f either party shall notify the other that any matter is to be determined by arbitration,” the parties would proceed to arbitration unless the matter could be resolved.
Oro came to believe that Borror breached the management agreement, so Oro sent various correspondence and demand letters to Borror prior to filing suit/arbitration (what Judge Readler, author of the Decision, describes as the “legal equivalent of a shot across the bow”). Oro went so far as to threaten litigation. Borror declined to compromise and instead filed suit against Oro in the United States District Court for the Southern District of Ohio. Oro promptly moved to compel arbitration, but the District Court denied, holding that Oro’s pre-suit threat to litigate constituted a waiver of Oro’s contractual right to require arbitration. Oro appealed.
On appeal, Borror argued that the District Court was correct in deeming Oro’s pre-litigation letters to constitute a waiver of its contractual right to arbitrate. But the Sixth Circuit Court of Appeals notes that strong public policy considerations favor arbitration, and “the exchange of letters between parties as a prelude to more formal dispute resolution is a time-honored tradition.” Further noting that Oro almost immediately moved to compel arbitration after the suit was filed, the Sixth Circuit holds that Borror was not prejudiced and sending a pre-suit “posturing” letter does not constitute a waiver.
Takeaway: This significant precedent has already been cited as authoritative in numerous decisions regarding if/when parties waive the right to arbitrate. Knowing how far one may push in negotiations can make the difference between resolution or impasse and help a party control its own destiny in a conflict scenario.
For any litigation or arbitration questions, please contact Litigation Member David Scott at dmscott@bmdllc.com.