WAIVER OF THE RIGHT TO ARBITRATE IN FLORIDA

JANUARY 2013

The question often arises in cases governed by the Federal Arbitration Act whether a litigant has waive the right to insist on arbitrating a claim by participating in litigation in court prior to moving to compel arbitration.  In Florida, the answer may depend on which court the party finds itself, state or federal, because the rule is different.

The Eleventh Circuit has consistently

 appl[ied] a two-part test to determine th[e] [waiver] issue.  “First, we decide if, under the totality of the circumstances, the party has acted inconsistently with the arbitration right.”  A party acts inconsistently with the arbitration right when the parties “substantially invokes the litigation machinery prior to demanding arbitration.”  “{S]econd, we look to see whether, by [acting inconsistently with the arbitration right], that party has in some way prejudiced the other party.” (citations omitted).  Garcia v. Wachovia Corp., __ F.3d __ (11th Cir. 2012).

In other words, the Eleventh Circuit requires that the party arguing waiver not only establish actions inconsistent with the right to arbitrate but also demonstrate that it has suffered prejudice as a result.

Since 2005, the law in Florida’s state courts have not followed that rule.  In Raymond James Financial Services, Inc. v. Saldukas, 896 So. 2d 707 (Fla. 2005), the Florida Supreme Court resolved conflicting views over whether prejudice was a necessary component of waiver in favor of the conclusion that it was not.  In doing so, it expressly rejected Eleventh Circuit authority to the contrary.  Accordingly, the rule in state court is that it is unnecessary to show prejudice to establish waiver if the party seeking arbitration has acting inconsistently with the right to arbitrate.[1]

Although the rules are different, the results are often the same.  In deciding the issue of prejudice, the Eleventh Circuit has considered the duration and scope, as well as expense to the other party, of a party’s participation in court litigation.  Morewitz v. The West of England Ship Owners Mutual Protection and Indemnity Association, 62 F.3d 1356, 1366 (1995) “Prejudice has been found in situations where the party seeking arbitration allows the opposing party to undergo the types of litigation expenses that arbitration was designed to alleviate.”); S & H Contractors v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990) (To determine whether the other party has been prejudiced, “we may consider the length of delay in demanding arbitration and the expense incurred by that party from participating in the litigation process.”).  Florida courts, while not investigating potential prejudice and therefore not concentrating on expense, typically require some substantial participation, often in the form of discovery, before finding a waiver.  See Ibis Lakes Homeowners Association, Inc. v. Ibis Isle Homeowners Association, Inc., Case No. 4D12-1273, (Fla. 4th DCA 2012) and cases cited therein.



[1] The same rule applies to cases covered by the Florida Arbitration Act.  See Raymond James, supra.