Court Rules that Party Waived Right To Arbitrate by Seeking Discovery in Court Proceeding

When employers seek to compel employees to arbitrate their claims under an Arbitration Agreement, they are often met with arguments that they have “waived” their right to arbitrate by waiting too long to seek it or by engaging in acts inconsistent with the arbitral process.  In the recent case of Zamora v. Lehman, filed June 29, 2010, the California Court of Appeal held that just such a waiver occurred, by virtue of a party having sought extensive discovery in court proceedings before it tried to enforce an arbitration agreement.

This case was brought by a trustee in bankruptcy for breach of fiduciary duty against three principals of an infomercial production firm. After litigating the case for over a year and requesting the production of voluminous documents they would not otherwise have been able to obtain in arbitration, two of the principals moved to compel arbitration after “discovering” their arbitration agreements with the company. Finding that these parties had acted inconsistently with their arbitration agreements and wasted the court’s time by not moving to arbitrate sooner, the court denied the motion.

Significantly, the arbitration agreement in that case was governed by the labor arbitration rules of the AAA, under which no discovery at all was permitted. Most agreements adopt the AAA employment arbitration rules which allow discovery, and if that had been the case it might have changed the result. In addition, the court still compelled arbitration of the claim against the third principal, who waited almost as long as the others to seek arbitration but did not engage in the extensive discovery that the others did.

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