Opinion ID: 1880976
Heading Depth: 3
Heading Rank: 3

Heading: Whether Modern Piping Waived Its Contractual Right to Arbitration

Text: Having confirmed that the right to arbitration under Iowa Code section 679A.2 may be waived, we now consider whether the district court erred in denying Modern Piping's motion to compel arbitration. We review the district court's denial of the motion for an abuse of discretion. Id. The district court's written order denying the motion is only a one-line statement, which gives no reason for the decision. Nevertheless, we may affirm the district court on any proper basis which appears in the record. See Citizens First Nat'l Bank v. Hoyt, 297 N.W.2d 329, 332 (Iowa 1980). We first recognize, as we have in numerous prior cases, that our law favors arbitration. Postville Community Sch. Dist. v. Billmeyer, 548 N.W.2d 558, 560 (Iowa 1996). We also acknowledge the underlying purpose of arbitration as a `means of settling civil disputes without the expense and delay of litigation.' Litchsinn v. American Interins. Exch., 287 N.W.2d 156, 160 (Iowa 1980) (quoting Hawkins/Korshoj v. State Bd. of Regents, 255 N.W.2d 124, 127 (Iowa 1977)). It is with these principles in mind that we turn to a resolution of the waiver issue. In Clinton National Bank, we cited with approval and utilized a test for waiver of arbitration set forth in a South Dakota case. In Tjeerdsma v. Global Steel Buildings, Inc., 466 N.W.2d 643, 645 (S.D.1991), the South Dakota Supreme Court stated as follows: An arbitration agreement may be waived. There is an overriding policy favoring arbitration, and the waiver of that right is not to be lightly inferred. The mere delay in seeking a stay of litigation with some resultant prejudice to a party cannot be deemed a waiver. The essential test for waiver of arbitration requires conduct or activity inconsistent with the right to arbitration and prejudice to the party claiming waiver. The issue of whether one has waived his right to arbitrate turns on the significance of the action taken in a judicial forum. The issue is one for the court to decide. Delay and the extent of the moving party's trial-oriented activity are material factors in assessing a claim of prejudice. Prejudice may result from lost evidence, duplication of efforts, or the use of discovery methods unavailable in arbitration. (Citations omitted.) The court in Tjeerdsma was interpreting the Federal Arbitration Act, which, like Iowa Code section 679A.2, uses mandatory language. Compare Iowa Code § 679A.2, with 9 U.S.C. § 3 (1988) (providing that the court shall on application of one of the parties stay the trial of the action until such arbitration has been had). In Tjeerdsma, the party requesting arbitration failed to assert the right to arbitration in its answer, took a deposition, filed interrogatories and requests for admission and otherwise participated in the litigation process. Tjeerdsma, 466 N.W.2d at 645. The court concluded that this conduct was inconsistent with the right to arbitration and was prejudicial to the opposing party. Therefore, the court affirmed the district court's holding that the defendants waived their right to arbitration under the parties' agreement. Id. Other jurisdictions have utilized similar inquiries in considering waiver of arbitration. In Meyer v. Classified Insurance Corp., 179 Wis.2d 386, 507 N.W.2d 149, 154-55 (Ct.App. 1993), the Wisconsin Court of Appeals concluded that the defendant's conduct was sufficient to constitute waiver. The court noted that the determination of waiver must include an overall evaluation of the applicant's involvement and conduct up to the time of request. Id. at 397, 507 N.W.2d at 154. The facts in Meyer are similar to the case at bar. In Meyer, the defendant-insurance company filed a motion to compel arbitration only one week prior to the trial date and had participated in the litigation during the pendency of the lawsuit. In affirming the trial court's denial of the motion, the court noted that the trial court properly considered the merits of referring the matter to arbitration versus proceeding with the trial and the prejudice to the [plaintiffs] resulting from further delay. Id. In Joba Construction Co. v. Monroe County Drain Commissioner, 150 Mich.App. 173, 388 N.W.2d 251 (1986), the court concluded that the party seeking arbitration had waived the right to arbitration by its conduct. The court noted that the party did not raise arbitration as a defense and was involved in discovery beyond answering interrogatories submitted by opposing counsel. The court noted that [p]ursuing discovery is regarded as being inconsistent with demanding arbitration, since discovery is not generally available in arbitration. Joba Constr. Co., 388 N.W.2d at 254. Based on the decisions of other jurisdictions discussed above and our own decisions in Clinton National Bank and Des Moines Asphalt, we conclude that Modern Piping waived its right to arbitration. Its conduct during the eighteen-month period from the filing of the petition to the date of the motion to compel arbitration was clearly inconsistent with asserting such a right. Not only did Modern Piping file a claim in district court, which is in itself inconsistent with asserting a right to arbitration, but it utilized discovery methods that are unavailable in arbitration (interrogatories and requests for admission), see Iowa Code § 679A.7, and otherwise fully availed itself of the litigation process. Moreover, the eighteen-month delay between the filing of the petition and the motion to compel arbitration, along with the fact that the motion was made only five days before trial was to commence, militate against allowing Modern Piping to proceed with arbitration. Modern Piping's actions were clearly more indicative of a waiver of arbitration than the two-month delay in requesting arbitration in Des Moines Asphalt and the filing of a mechanic's lien in Clinton National Bank. Therefore, those cases, while helpful in their analysis, are not factually controlling. Modern Piping's conduct up to the point of the motion to compel arbitration was wholly inconsistent with asserting a right to arbitration. In addition, Modern Piping's conduct prejudiced Blackhawk by forcing it to participate in discovery and requiring it to spend money and expend other resources in preparation for trial which might not have been necessary in arbitration. With a nod to judicial economy and the underlying purpose of arbitration, the Wisconsin Court of Appeals aptly summarized the reasons for not granting a motion to compel arbitration in Meyer: When parties are fully prepared for trial and the trial is scheduled to begin in a matter of days, arbitration may lose its value as an alternative to litigation. Conduct which allows an action to proceed to a point where the purpose of arbitrationto obtain a speedy, inexpensive and final resolution of disputesis frustrated is conduct that estops a party from claiming a right to a stay of the proceedings and referral for contractual arbitration. Meyer, 179 Wis.2d at 399, 507 N.W.2d at 155. Modern Piping's conduct in this case frustrated the purpose of arbitration, was inconsistent with a desire to pursue arbitration and prejudiced Blackhawk. For those reasons we affirm the district court's denial of Modern Piping's motion to stay the proceedings and compel arbitration. Based on our resolution of the waiver issue, we need not consider Blackhawk's alternative argument of election of remedies.