Sixth Circuit Holds Company Did Not Waive Its Right To Arbitration Through Pre-Trial “Posturing” Correspondence

Carlton Fields

Carlton Fields

The Sixth Circuit recently reversed a decision from an Ohio federal court that denied an apartment owner’s motion to compel arbitration on the basis that the apartment owner waived its right to arbitration through its pre-trial “posturing” correspondence.

Oro Karric North LLC and its sister entities (collectively “Oro”) contracted with Borror Property Management LLC for Borror to manage Oro’s residential apartments. Each management contract included the following arbitration provision: “If either party shall notify the other that any matter is to be determined by arbitration,” the parties would proceed to arbitration unless they first resolved the dispute amongst themselves.

A dispute arose which resulted in Borror’s ceasing to manage Oro’s properties. Oro responded by letter asserting that Borror was in breach of the parties’ contracts, and advised that Oro planned “to proceed directly to litigation in either state or federal court,” as the contracts “do not limit litigation exclusively to arbitration.” Oro asked Borror to notify it within six days if Borror preferred arbitration; otherwise, Oro would assume that Borror wanted to proceed with litigation.

Instead, Borror filed a complaint in federal court asserting its own breach of contract claims. Oro moved to compel arbitration. The District Court for the Southern District of Ohio denied Oro’s motion to compel arbitration, holding that Oro had waived its contractual right to arbitration through its pre-litigation conduct. Oro timely appealed.

On appeal, the Sixth Circuit reversed, finding that Oro did not waive its right to arbitration because its pre-complaint, litigation-threatening letter did not amount to conduct “completely inconsistent” with Oro’s arbitration rights. The panel recognized that pre-litigation letters exchanged between parties serve a variety of purposes, and are more often a “rhetorical art than legal science.” The panel cautioned that a finding that one could waive its right to arbitration through pre-filing communications “would leave parties with little room to maneuver as they seek to work out their differences short of litigation” and inevitably “make pre-filing settlement elusive, an unfortunate development not only for parties, which often settle disputes to avoid litigation risk, but also for the courts, which historically have counted on the resolution of disputes to conserve limited judicial resources.”

The panel further noted that, even if Oro’s letter was inconsistent with a right to arbitration, Borror was not materially prejudiced by Oro’s actions, and thus no implied waiver occurred. The panel similarly found the letter was not an express waiver of right to arbitration, where nothing in the letter disavowed Oro’s right to arbitration.

The case was remanded for further proceedings.

Borror Prop. Mgmt., LLC v. Oro Karric N., LLC, No. 20-3146 (6th Cir. Oct. 29, 2020).

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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