The Eighth Circuit Court of Appeals recently held that a parent company of a lender could not compel homeowners to arbitrate a case that it had already litigated for almost a year in a Missouri federal court.

In Sitzer v. National Association of Realtors, several homeowners filed a putative class action against various real estate entities, including HomeServices of America Inc., the parent company of the lender, alleging that the real estate entities engaged in anticompetitive practices.

Despite actively litigating the case in federal court for 305 days, HomeServices moved to compel arbitration under a listing agreement between the homeowners and the real estate entities, which required “[a]ny controversy or claim between the parties to this Contract, its interpretation, enforcement or breach[,] … [to] be settled by binding arbitration.” The Missouri district court denied the motion because HomeServices was not itself a party to the listing agreement. HomeServices appealed to the Eighth Circuit.

On appeal, the circuit judge first addressed the threshold question of whether the court or the arbitrators get to decide default-based waiver questions (i.e., whether a party has waived its right to arbitration based on active participation in a lawsuit or other action inconsistent with the right to arbitration). Relying on 40 years’ worth of precedent in the Eighth Circuit as well as in other jurisdictions, the circuit judge found it was up to the court, not an arbitrator, to decide default-based waiver questions.

The circuit judge then addressed the issue of waiver and held that HomeServices waived its right to arbitrate by aggressively litigating the case in federal court for close to a year, having joined other defendants’ motions to dismiss and to transfer the case to another judicial district, negotiated a proposed scheduling order, participated in a scheduling hearing, filed an answer to the complaint, and replied to written discovery. “A party cannot keep a contractual right to arbitration in its back pocket and pull it out only when it is ready for a ‘do over,’” said the circuit judge. Having actively litigated the case in court for 305 days, the company was required to “live with the consequences.”

Sitzer v. Nat’l Ass’n of Realtors, No. 20-1779 (8th Cir. Sept. 10, 2021).