Additional Price of a Judicial Reaction: Waiver of One's Contractual Right to Arbitration


In Volpe v. Interpublic Group of Companies, Inc., No. 652308/2012, Judge Eileen Bransten denied plaintiff Ray Volpe’s (“Volpe”) motion to compel arbitration and granted defendant The Interpublic Group of Companies, Inc.’s (“IPG”) cross-motion to stay arbitration.  Citing New York common law, the Court held that Volpe waived his contractual right to arbitration by manifesting an “affirmative acceptance of the judicial process” when he opposed IPG’s separately filed motion to dismiss.

Volpe, who served as the CEO of two wholly-owned IPG subsidiaries, entered into his initial employment agreement with IPG on March 1, 2000 (the “Employment Agreement”). The parties supplemented the Employment Agreement several times throughout Volpe’s tenure. The final supplement, dated June 30, 2008, included a choice of laws provision stating: “The Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to any rule or principle concerning conflicts or choice of law that might otherwise refer construction or enforcement to the substantive law of another jurisdiction” (emphasis added).

Volpe commenced the action on July 2, 2012, asserting that IPG failed to pay Volpe “realized gains” on an investment he facilitated for IPG. IPG filed a motion to dismiss Volpe’s complaint (the “Motion to Dismiss”), which Volpe opposed (a discussion of the Motion to Dismiss can be read here). At the same time, Volpe filed a motion to compel arbitration based on an arbitration clause in his Employment Agreement. IPG opposed, asserting that Volpe waived his contractual right to arbitration by filing the complaint and invoking the jurisdiction of the courts.

The Court first determined that New York law—not the Federal Arbitration Act (“FAA”)—would apply. Although New York law typically requires courts to follow the FAA’s mandate that arbitrators decide threshold issues of arbitrability, such as waiver, parties can contractually agree that New York law govern the interpretation and determination of prerequisites to arbitration. The key language—present here—is that a contract specifically state that New York law govern “the enforcement” of the agreement.

The Court then ruled that Volpe waived his right to arbitration by manifesting an “affirmative acceptance of the judicial process.” While a party’s service of routine pleadings is not enough to warrant waiver, the Court, citing New York common law, held that actively participating in litigation by opposing a defendant’s motion to dismiss would suffice. The Court noted, “[t]o permit a party to hear judicial reactions at oral argument as to the merits of a case before deciding whether to arbitrate or proceed in court would be to countenance blatant forum shopping.” Because Volpe filed the complaint, submitted opposition papers to the Motion to Dismiss, and appeared at oral argument to argue the merits of his case, he manifested an affirmative acceptance of the judicial process, and thereby waived his right to enforce the arbitration clause of the Employment Agreement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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