Opinion ID: 1705177
Heading Depth: 2
Heading Rank: 2

Heading: Substantial Invocation of the Litigation Process

Text: The sellers rely on Ex parte Merrill Lynch, Pierce, Fenner & Smith, Inc., supra , for the proposition that a delay of over one year from the filing of the complaint is insufficient evidence of waiver of arbitration. As we noted in Companion Life Insurance Co., waiver must . . . be based on the particular facts of each case. 670 So.2d at 899. We explained in Ex parte Merrill Lynch why the one-year period in that case was deemed reasonable: Plaintiff, however, waited nearly ten months before she filed notice with the court that she was opting out of the class in the pending federal multidistrict litigation in New York. Defendants had no reason to seek arbitration before plaintiffs opt-out, as they could have reasonably believed that plaintiff would obtain her relief in the federal suit, and, consequently, that the action in Jefferson County would then be dismissed. 494 So.2d at 3. The circumstances herea lapse of approximately 10 months between commencing the action and filing a motion to compel arbitration, during which both sides conducted extensive discovery and the case was set for trial without objection from the sellers [2] are simply not remotely comparable to the circumstances in Ex parte Merrill Lynch. The sellers note that in Ex parte Merrill Lynch, the Court held that `[m]erely answering on the merits, asserting a counterclaim (or cross-claim) or participating in discovery, without more, will not constitute a waiver.' 494 So.2d at 3 (quoting Clar Prods., Ltd. v. Isram Motion Pictures Prod. Servs., Inc., 529 F.Supp. 381, 383 (S.D.N.Y.1982), quoting in turn Demsey & Assocs., Inc. v. S.S. Sea Star, 461 F.2d 1009, 1018 (2d Cir.1972)). But, as we stated in Voyager Life Ins. Co. v. Hughes, 841 So.2d 1216, 1219-20 (Ala. 2001), waiver may be found as early as filing an answer on the merits. In Terminix International Co. v. Jackson, 669 So.2d 893, 896 (Ala.1995), we noted that we had previously stated in Ex parte Costa & Head (Atrium), Ltd., 486 So.2d 1272, 1277 (Ala.1986) (citing Demsey & Assocs., Inc., supra, and Gavlik Constr. Co. v. H.F. Campbell Co., 526 F.2d 777 (3d Cir.1975)), that `[t]he joining of issue on the merits, assertion of a counterclaim or cross-claim, or engaging in discovery, alone, is not sufficient to create a waiver.' Yet, in Terminix, the plaintiff's complaint set forth claims of breach of contract and fraud, and the motion to compel arbitration was directed only to the breach-of-contract claim. Here, the motion to compel arbitration is directed to both the breach-of-contract claim and the claim of fraud in the inducement of the entire contract and was filed after all the pretrial activity described in Terminix, plus, a factor not found in Terminix, after the case had been set for trial without objection from the party moving to compel arbitration. Again, waiver must . . . be based on the particular facts of each case. Companion Life Ins. Co., 670 So.2d at 899. The sellers contend that their extensive involvement in the litigation process is justifiable based upon our precedent relegating to the court, and not the arbitrator, a claim of fraud in the procurement of the arbitration clause, separate from the issue of fraud in the inducement of the entire agreement. See, e.g., Investment Mgmt. & Research, Inc. v. Hamilton, 727 So.2d 71 (Ala.1999). The sellers further contend that the motion to compel arbitration was filed just two days after the depositions of the Haymans in which, they say, they discovered for the first time that the claim of fraud in the procurement of the arbitration clause had no basis in fact. Hamilton differs from this proceeding in that in that case no claim was presented as to fraud in the inducement of the entire contract. Further, it does not deal with a waiver of the right to arbitration by substantial invocation of the litigation process. Although the issue of fraud in the procurement of the arbitration agreement is a question for the court to resolve, the sellers offer no explanation for their failure to obtain an early resolution of this issue by immediately moving to compel arbitration and attaching affidavits of their representatives establishing an agreement to arbitrate. At that juncture it would have been incumbent upon the Haymans to bring forth evidence of fraud in the procurement of the arbitration agreement. If the Haymans failed to do so, the motion would have been due to be granted. If the Haymans submitted affidavits in opposition to the sellers' motion to compel arbitration, the sellers could have sought discovery limited to that necessary to resolve the dispute as to arbitrability falling within the province of the trial court. See Ex parte Bill Heard Chevrolet, Inc., 927 So.2d 792, 798 (Ala.2005), for a thorough analysis of the proper course of conduct for a party exposed to discovery on all issues in an action when that party has the contractual right to resolution of disputes by arbitration. Yet the sellers offer no justification for their acquiescence in, and indeed participation in, preparation for trial of all issues and for their agreement to defer the deposition of the key witnesses on the issue of fraud in the procurement of the arbitration agreement until shortly before trial.