Fifth Circuit Holds That Plaintiffs Too Can Waive Their Right To Arbitrate by Litigation

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Few decisions have considered when a plaintiff waives his right to arbitrate through litigation conduct, but the Fifth Circuit has now done so for the second time. In Sabatelli v. Baylor Scott & White Health, Case No. 19-50047 (5th Cir. Oct. 21, 2020), a radiologist was forced to resign and filed a lawsuit raising age and disability discrimination claims in federal court. While the action alleged classwide claims for terminated Scott & White Clinic (SWC) employees over age 40, plaintiff Frank Sabatelli never took steps to certify the class.

SWC disputed Sabatelli’s claims while also pointing out that the claims were covered by the arbitration agreement in his employment contract. Still, neither party moved to compel arbitration at the pleading or discovery stage. Instead, SWC filed a motion for summary judgment. Sixteen months later, with the summary judgment motion in place, Sabatelli finally sought to arbitrate new claims for breach of the employment agreement based on lack of proper notice before his termination – not his pending discrimination claims. SWC sought dismissal of the contract claim from the arbitrator based on Sabatelli’s pursuit of his discrimination claims in federal court for more than a year.

In the meantime, the district court granted summary judgment on the pending discrimination claims. And the arbitrator denied SWC’s motion to dismiss and stayed arbitration until the federal action was concluded.

SWC next filed a motion asserting that arbitration was not available on the contract-related claims since Sabatelli had been involved in litigation for over a year. The district court granted SWC’s motion on the grounds that Sabatelli could not split his claims between court and arbitration.

The Fifth Circuit Analysis

As a threshold matter, the Fifth Circuit panel reviewed the district court’s granting of summary judgment on Sabatelli’s Age Discrimination in Employment Act (ADEA) and Americans with Disabilities Act (ADA) claims. It found they failed and then turned “to the trickier part of the case”: Could Sabatelli pursue his discrimination claims in court and then arbitrate his breach of contract claim? The short answer was “no,” but the journey to that conclusion was more complicated.

While some claims may be subject to arbitration and others not, that wasn’t true in this case. Sabatelli had agreed to arbitrate “any . . . claims arising out of or relating to the Agreement, or breach thereof” – which, the appellate court found, “easily covers both his discrimination and contract claims.” Apparently, Sabatelli did not dispute that.

Next, the panel turned to its waiver analysis. Starting with the proposition that the right to arbitrate can be waived, the court noted that waiver “was not something we take lightly.” Indeed, “there is a presumption against implied waiver” but it “is not insurmountable.” A party can waive the right to arbitrate by “substantially invok[ing] the judicial process” to the “detriment or prejudice” of its opponent. See Miller Brewing Co. v. Ft. Worth Distrib. Co., 781 F. 2d 494, 496-97 (5th Cir. 1986).

The panel also noted that “waiver of arbitration based on litigation conducted is an issue for the court rather than the arbitrator to decide,” citing Vine v. PLS Fin. Srvs., Inc., 689 F. App’x 800, 802-03 (5th Cir. 2017).

Asserting waiver against a plaintiff was unusual because it is normally leveled against the defendant who does not expeditiously seek to arbitrate. See our Dec. 4, 2018 blog article on Forby v. One Techs., 909 F. 3d 780 (5th Cir. 2018). Indeed, the panel only found one Fifth Circuit case in which waiver was asserted against a plaintiff. See Nicholas v. KBR, Inc., 565 F. 3d 904, 907 (5th Cir. 2009). (Plaintiff pursued her claims in court for more than 10 months before filing a motion to compel arbitration). When a plaintiff brings the lawsuit, the first waiver requirement is generally met. So Sabatelli “substantially invoked the judicial process by filing this lawsuit (and then litigating it for 16 months before trying to arbitrate.)” That conclusion required little analysis.

The unusual “twist” was that Sabatelli did not pursue his contract claims when the lawsuit was filed. And waiver generally only applies to the “specific” claim the party advances. The operative issue then, is what amounts to a “claim” here? The answer is “any allegation stemming from the ‘same nucleus of operative facts,’ whatever the theory of recovery.” See ASARCO, L.L.C. v. Mont. Res. Inc., 858 F. 3d 949, 956 (5th Cir. 2017). The panel found that Sabatelli’s claims all arose from the same occurrence – his wrongful termination, involving the same parties. The theory he attempted to arbitrate arose from the same facts that he sought to address in federal court. Thus, the first waiver requirement was met.

The second requirement, “prejudice,” also was easily met. “Sabatelli delayed resolution of the case by litigating only his discrimination theories while keeping his breach-of-contract theory on the back burner.” And, the delay of 16 months was not only significant but more costly to SWC. Hence, the panel held that “Sabatelli should not get a ‘second bite at the apple through arbitration’ after he chose to litigate his termination in federal court.” (Emphasis added.)

The standards for waiver of the right to arbitration by pursuing legal action vary by jurisdiction but should be the same for all parties – whether plaintiff or defendant – in a particular federal circuit. And while no class was certified in Sabatelli, the waiver and procedural missteps noted are instructive to all litigants.

Bottom Line

A plaintiff who chooses litigation for 16 months before trying to arbitrate substantially related claims clearly has waived his right to arbitrate.

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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