Opinion ID: 2834306
Heading Depth: 2
Heading Rank: 1

Heading: Did the Culls Waive Arbitration?

Text: It remains only to apply these rules to this case. Unquestionably, the Culls substantially invoked the litigation process, as their conduct here far exceeds anything we have reviewed before. Before arbitration was ordered, the Culls did not deny taking ten depositions, and the court’s file (of which the trial judge took judicial notice) included: $ their initial objection to arbitration covering 79 pages; $ the Defendants’ responses to requests for disclosure; $ the Culls’ five motions to compel, attached to which were 76 requests for production of documents regarding complaints, inspections, repairs, and settlements relating to eight other homes in the same subdivision; $ Perry Homes’ two motions for protective orders regarding six designees noticed for deposition by the Culls on nine issues (including purchase and preparation of the lot, design and construction of the foundation, sale of this home and others in the subdivision, and attempts to deal with the Culls’ and other foundation complaints), with an attachment requesting 67 categories of documents (including all photos, videos, correspondence, insurance policies, plans, soil tests, permits, subcontractors, contracts for sale, and repairs relating to the house or the suit, all complaints about any house in the subdivision, and Perry Homes’ articles of incorporation, by-laws, minutes, and financials); and $ the Culls’ notices of depositions for three of the Defendants’ experts with 24 categories of documents requested from each (including all documents relating to this case, all their articles, publications, or speeches given in their fields of expertise, all courses or seminars they had attended, all persons they had studied under, and all reference books or treatises in their libraries). There is simply no question on this record that the Culls conducted extensive discovery about every aspect of the merits. [89] But under the totality-of-the-circumstances test, discovery is not the only measure of waiver. Here, when the warranty defendants initially moved to compel arbitration, the Culls filed a 79-page response opposing it, asserting that the AAA “is incompetent, is biased, and fails to provide fair and appropriate arbitration panels.” They complained of the AAA’s fees, and asserted that as a result the “purported arbitration clause is unconscionable and unenforceable, and this Court’s enforcement of such would be nothing short of ridiculous and absurd.” This, plus their prayer asking the trial court to deny the motion to compel arbitration “in its entirety,” belies the court of appeals’ conclusion that “the Culls merely opposed the use of the AAA” rather than arbitration itself. [90] In some federal courts, the Culls’ objection alone could suffice to waive arbitration. [91] The Culls also moved for arbitration very late in the trial process. It is true that Perry Homes moved to continue the trial setting when the Culls sought arbitration, requesting about ten weeks to finish deposing experts. Because the trial court ordered arbitration, no one knows whether the case would have gone to trial (including the unnamed court clerk cited by the dissent). But in view of the written discovery and depositions already completed, the record is nevertheless clear that most of the discovery in the case had already been completed before the Culls requested arbitration. The rule that one cannot wait until “the eve of trial” to request arbitration is not limited to the evening before trial; it is a rule of proportion that is implicated here. [92] Then 14 months after filing suit and shortly before the December 2001 trial setting, the Culls changed their minds and requested arbitration. They justified their change of heart on the basis that they wanted to avoid the delays of an appeal. But their change unquestionably delayed adjudication of the merits; instead of a trial beginning in a few days or weeks, the plenary arbitration hearing did not begin until late September of 2002 — almost ten months after the Culls abandoned their trial setting. Moreover, to the extent arbitration reduces delay, it does so by severely limiting both pretrial discovery and post-trial review. Having enjoyed the benefits of extensive discovery for 14 months, the Culls could not decide only then that they were in a hurry. It is also unquestionably true that this conduct prejudiced the Defendants. “Prejudice” has many meanings, but in the context of waiver under the FAA it relates to inherent unfairness — that is, a party’s attempt to have it both ways by switching between litigation and arbitration to its own advantage: [F]or purposes of a waiver of an arbitration agreement[,] prejudice refers to the inherent unfairness in terms of delay, expense, or damage to a party’s legal position that occurs when the party’s opponent forces it to litigate an issue and later seeks to arbitrate that same issue. [93] Thus, “a party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party.” [94] Here, the record before the trial court showed that the Culls objected to arbitration initially, and then insisted on it after the Defendants acquiesced in litigation. They got extensive discovery under one set of rules and then sought to arbitrate the case under another. They delayed disposition by switching to arbitration when trial was imminent and arbitration was not. They got the court to order discovery for them and then limited their opponents’ rights to appellate review. Such manipulation of litigation for one party’s advantage and another’s detriment is precisely the kind of inherent unfairness that constitutes prejudice under federal and state law.