Arbitration & Mediation

Alabama Supreme Court Rules on Waiver of Arbitration -- Follows Federal Procedure, Not Florida's

By Christopher B. Hopkins, Esq.

We've mentioned before that, in Florida state courts, there exists a different standard to prove waiver of arbitration than if you are in federal court. Essentially, Florida courts require a vague proof of waiver only whereas in federal court one must prove waiver and substantial prejudice. A brief discussion of the distinction is here, but, as we've mentioned before, if one is seeking arbitration and can argue that the Federal Arbitration Act applies, it makes the waiver argument harder for the avoiding party.

The Alabama Supreme Court has weighed in on the issue and it is worth drawing the distinction. The case is Paragon Limited, Inc. v. Emily Boles and the Court held that there was a two-step waiver test (acting inconsistent with right to arbitrate + substantial prejudice) and that the act of filing a counterclaim/lien on real property was not waiver.

Although we are not Alabama lawyers, it is our understanding that Alabama is hostile to arbitration clauses and practitioners there must resort to invoking the Federal Arbitration Act. Thus, ironically, we find that invoking federal law in the anti-arbitration state of Alabama leads to the higher standard of proof for "waiver" in order to avoid arbitration.

Thus, the confusion is this: in Florida, where the public policy is in favor of arbitration, the standard for waiver is different depending on whether you are invoking federal or state law. But, if you cross the line to Alabama, any arbitration that does not invoke federal law is void but, if you did invoke federal law, it is harder for the other side to escape arbitration. Makes sense, right? We hope your lawyer understand the distinction.

Of note, in the facts of this construction case, the defendant's act which led to the question of waiver was that they put a lien on the plaintiff's property. This was held not to be waiver because the defendant was quick to (simultaneously) ask for arbitration; the plaintiff did not have to do anything; little time passed; and, as the concurrence points out, a lien was going to happen in arbitration or litigation. Interestingly, all of this was considered under the second prong of the test, whether there was "substantial prejudice." Note how this same issue popped up in a Third DAC case, Waterhouse Construction Group, Inc. et al. v. 5891 SW 64th Street, LLC Inc., which used the one step test, but arbitration was still enforced because of the simultaneous motion to compel arbitration. But see how a Tennessee court dealt with the same issue.

p.s. - a quick nod of thanks to Alabama Appellate Watch which provides the Alabama decisions for free -- even though the Alabama court system site makes you pay for access to the same (free) material. Hmmm.

Full post as published by Florida Arbitration Law on January 18, 2008 (boomark / email).