Sooner Is Better than LaterFor our friends who litigate (or arbitrate!) in Alabama, take note of this recent Alabama Supreme Court decision. Although not a construction case, this recent decision dramatically illustrates what not to do if you want to arbitrate your dispute, as is the preferred dispute resolution mechanism in many design and construction contracts. In The Health Care Authority for Baptist Health et al. v. Dickson, the court found that a party to a contractual arbitration provision waived its right to arbitrate after substantially invoking the litigation process to its counterparty’s prejudice. This dispute involved an individual who was injured in an automobile accident and treated in the emergency room. The individual was partially covered by health insurance. The hospital was party to a provider agreement with the insurer under which the medical care rendered was reimbursable.

The individual filed suit challenging a reimbursement that the hospital received in exchange for his medical treatment. The parties to the case – the individual and the hospital system – participated in a litigation process involving numerous filings, motions, and a discovery process. Two years after the case had been pending, the hospital system moved to compel arbitration on the grounds that the health insurance policy required that claims related to the policy be arbitrated and that the provider agreement also provided for arbitration. The trial court denied this effort to compel arbitration, and the Alabama Supreme Court agreed.

Waiver is a defense to arbitration. The test for determining whether a party has waived its right to arbitration has two prongs: (i) whether the party’s actions as a whole have substantially invoked the litigation process and, (ii) whether the party opposing arbitration would be prejudiced if forced to submit its claims to arbitration subsequent to the other party’s actions invoking the litigation process.  In this case, the court found compelling the following: (i) the hospital system moved to compel arbitration two years after the case had been filed, and (ii) the various actions in the litigation taken by the hospital system prior to moving to compel arbitration (filing a motion to dismiss, supporting the attempt by another party to be dismissed from the action, filing motions to stay discovery, opposing nonparty subpoenas, submitting briefs to and participating in hearings, requesting that the case be transferred, participating in motion practice and hearings in the trial court, answering the individual’s complaint on the merits, and conducting and participating in discovery).

The court concluded that these actions were inconsistent with a desire to have the case resolved by arbitration. The hospital system, therefore, substantially invoked the litigation process before seeking to compel arbitration. The court also concluded that the individual was prejudiced by these actions, as courts recognize that there is prejudice where the party seeking arbitration allows the opposing party to undergo the types of litigation expenses that arbitration was designed to alleviate. The result: the hospital system waived its right to arbitrate and was forced to proceed in litigation.

The lesson here is a simple but important one: if you believe you have the contractual right to arbitrate your dispute – and if you want to arbitrate your dispute – it is prudent to request that the dispute be sent to arbitration sooner rather than later. The longer you participate in litigation or court (and the more expense your counterparty incurs), the more likely it is that you will be deemed to have waived your arbitration right.  If you are uncertain about whether you have the right to arbitrate or are unfamiliar with the mechanics for doing so, call a lawyer who can advise you as to your available rights and remedies before they slip away.