Opinion ID: 1532391
Heading Depth: 2
Heading Rank: 2

Heading: Did Sovereign Bank's Actions Constitute a Waiver of the Arbitration Agreement?

Text: Petitioners contend that Sovereign Bank's March 10, 2003, filing of a Petition to Compel Arbitration and Motion to Dismiss or to Stay Proceedings, in response to petitioners' complaint, constituted a waiver of Sovereign Bank's right to arbitration. Specifically, petitioners read two paragraphs contained within Sovereign Bank's five-paragraph motion as seeking a substantive determination on the merits. The Petition to Compel Arbitration and Motion to Dismiss or to Stay Proceedings states, in relevant part: 3. Any claim the plaintiffs may have had under the SMLL accrued more than three years ago and is barred by the statute of limitations. 4. Plaintiffs' claims are also barred by their failure to provide defendant with notice and an opportunity to redress the alleged overcharges prior to initiating any legal proceedings, as required by the loan agreement. Petitioners assert that, in light of the parties' mutual consent to binding arbitration as expressed in the Direct Loan Note & Truth in Lending Disclosures, a party may not pursue dual legal and arbitration remedies. In support of its position, petitioners point to RTKL Assoc., Inc. v. Four Villages Ltd. Partnership, 95 Md.App. 135, 620 A.2d 351 (1993), in which the Court of Special Appeals affirmed the circuit court's finding of a waiver of a right to arbitration where the party seeking to compel arbitration had waited five years after filing its claim demanding arbitration and in that five-year period had actively participated in litigation including depositions, other discovery, and filing of a motion for summary judgment. See id. at 144-45, 620 A.2d at 355-56. Sovereign Bank responds that its Petition to Compel Arbitration and Motion to Dismiss or to Stay Proceedings was its first and only circuit court pleading, a pleading aimed at getting the matter to arbitration. It observes that petitioners' contention looks solely at isolated excerpts of its petition while neglecting the language of the memorandum in support of the petition that seeks to dismiss petitioners' complaint on grounds of untimeliness or lack of notice only if the primary argument  that petitioners unequivocally have consented to arbitrate their dispute  were to fail. The record does not indicate that there occurred any argument on Sovereign Bank's petition and the circuit court signed an order in favor of Sovereign Bank on April 2, 2003, to compel arbitration as indicated in the loan agreement and to stay or dismiss the proceedings, but declined to dismiss the case. It appears that no adjudication on the merits of the case took place. Sovereign Bank goes on to assert that its mere filing of a singular, responsive, pleading only minimally invoked the judicial process and cannot amount to election of an alternative forum for adjudication of the instant dispute. Sovereign Bank argues that, unlike the facts in RTKL Assoc. that led to a waiver finding, it has occasioned no delay in its request for arbitration, there was no argument on the merits of the case and no discovery has occurred between the parties. In Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 468 A.2d 91 (1983), this Court undertook a survey of other jurisdictions' positions in respect to whether a party's failure to initiate the arbitration amounted to a waiver of the right to arbitrate, and found that most courts have decided that in the absence of express language in a contract placing the initial obligation of seeking arbitration on either of the contracting parties, it is the responsibility of the party asserting a claim to initiate arbitration. Id. at 109, 468 A.2d at 98. We explained that [t]he rationale underlying these cases is that a party asserting a claim who sues instead of seeking arbitration is in essence refusing to arbitrate and is itself in default of the arbitration agreement. Id. at 110, 468 A.2d at 98-99. We note that while a party against whom a claim is asserted, and who is not therefore seeking relief, does not have an obligation to initiate arbitration, Id. at 113, 468 A.2d at 100, Sovereign Bank was not prohibited from initiating the arbitration, because [a] party asserting a claim who sues instead of seeking arbitration is in essence refusing to arbitrate and is itself in default of the arbitration agreement. Id. at 113-14, 468 A.2d at 100. In the case sub judice, it was petitioners who filed a complaint to launch the litigation process, yet as the party asserting a claim, it was, therefore, petitioners' duty to initiate the arbitration process, a process to which they had, by the very terms of the loan document, explicitly agreed. A review of their complaint reveals no mention of the arbitration clause contained in the Disclosure Agreement. Either petitioners overlooked the arbitration provision's manifest and highlighted existence or they somehow found its manifest and highlighted existence inapplicable to any claim, dispute or controversy such as theirs. No matter the motivation, it is petitioners who seem intent to avoid arbitration. That Sovereign Bank responded to the complaint in the same forum with a filing that contained a demand for arbitration was not a full-course plunge into the courts, but rather an effort to petition the court to compel the parties to adhere to the terms of their agreement to arbitrate any claim, dispute, or controversy. See The Redemptorists v. Coulthard Servs., Inc., 145 Md.App. 116, 143, 801 A.2d 1104, 1120 (2002) (finding, inter alia, that the filing of a motion to dismiss on a jurisdictional ground was not a manifest showing of a party's intent to waive its right to arbitrate the claims against it). Moreover, once petitioners had filed a complaint, Sovereign Bank, presuming its desire to arbitrate the dispute as provided by the Disclosure Agreement, had no recourse but to petition the circuit court, in order to compel petitioners to engage in arbitration. In the absence of an order from the court, Sovereign Bank could not very well successfully invite an unwilling adversary to an arbitration which it had already failed to initiate and at which it, most likely, would refuse to appear. In Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc., 294 Md. 443, 450 A.2d 1304 (1982), this Court reversed the circuit court's determination in a construction dispute that a contractor's third-party claim on arbitrable issues, which contained no demand for arbitration, filed against the building's owner, to which the owner filed a demurrer and an answer, constituted the contractor's waiver of arbitration for all issues, i.e., those issues that were litigated as well as unrelated issues arising under the contract. Id. at 450, 450 A.2d at 1307. In Frank, we provided three bases for our determination: The first rationale is that the public policy in favor of arbitration would be frustrated if agreements to arbitrate were not enforced. . . . The second rationale is that the enactment of the Uniform Arbitration Act evidences a legislative intent that arbitration not be enjoined to prevent multiplicity of actions. . . . The third rationale is that it is unfair to deprive a party to an arbitration agreement of its right to arbitrate when the burden of the potential for duplicative proceedings and inconsistent results was created by the voluntary actions of the party that would bear that burden. Id. at 457-58, 450 A.2d at 1311. In the instant case, the circuit court's April 2, 2003, order included no final judgment on any issue that might be subject to arbitration. Thus, Sovereign Bank attained no determination on any of the issues in dispute. Sovereign Bank's actions do not constitute a repudiation of the Disclosure Agreement's arbitration provision but, in light of the fact that petitioners seemed intent to avoid arbitration, rather amount to a continued affirmative step in further pursuit of an adjudication by arbitration of the parties' dispute. Accordingly, the results of Sovereign Bank's petition was neither a waiver of the right to arbitration nor of any of the issues that might be subject to arbitration.