Tuesday, June 30, 2009

Initiation of Significant Discovery Waived Right to Arbitration

Sitting en banc in Green Tree Servicing, LLC. v. McLeod (2D08-2978), the Second District affirmed the circuit court's order concluding that the initiation of significant discovery waived the right to arbitration.

"In determining whether a dispute is subject to arbitration, courts consider at least three issues: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived."...

"Waiver" has been defined "as the voluntary and intentional relinquishment of a known right or conduct which implies the voluntary and intentional relinquishment of a known right." Raymond James Fin. Servs., Inc. v. Saldukas (Saldukas II), 896 So. 2d 707, 711 (Fla. 2005). The general definition of waiver is applicable to the right to arbitrate...

It follows that a party may waive his or her right to arbitration by filing a lawsuit without seeking arbitration, id.; by filing an answer to a pleading seeking affirmative relief without raising the right to arbitration...and by moving for summary judgment.

Both the Third District and the Fifth District have unequivocally held that propounding discovery directed to the merits of pending litigation before moving to compel arbitration results in a waiver of the right to arbitration...The First District and the Fourth District have not ruled on the question of whether propounding discovery directed to the merits of pending litigation, by itself, results in a waiver of the right to arbitration...But the First District and the Fourth District have held that a party waives its right to arbitration by propounding discovery directed to the merits of pending litigation and also engaging in other actions inconsistent with arbitration.

[Discussing Merrill Lynch Pierce Fenner & Smith, Inc. v. Adams, 791 So. 2d 25, 26 (Fla. 2d DCA 2001), the court stated] The majority offered three reasons in support of its legal conclusion. First, referring to dismissals for failure to prosecute under Florida Rule of Civil Procedure 1.420, the majority said that "it is questionable whether discovery, including depositions, even constitutes record activity." Id. at 26 (majority opinion). Second, the majority explained that "if taking a deposition is litigation, a similar procedure is available to appellees under the arbitration code, and therefore, [appellees'] acts were not inconsistent with arbitration." Id. Third, the majority observed that it had "found no case law which would require a denial of appellees' right to arbitration based on their participation in discovery."

[Returning to the case before the court, the Second District concluded:]

[Contrary to Merrill Lynch, where the party participated in discovery which does not constitute record activity] Green Tree filed a motion to compel in order to enforce its discovery requests, and a motion to compel does constitute record activity.

(1) Discovery as record activity

Here, the majority asked the wrong question. The issue of whether discovery constitutes "record activity" for the purpose of avoiding a dismissal for failure to prosecute under rule 1.420 does not have any bearing on the question of whether a party may waive its right to arbitration by propounding discovery related to the merits of the case. Instead, the appropriate inquiry is whether the party's participation in such discovery is activity that is inconsistent with the right to arbitration. See Saldukas II, 896 So. 2d at 711. This inquiry has nothing to do with record activity. Action that is inconsistent with the right to arbitration may occur outside the case file as well as in it...It follows that the first reason offered by the Merrill Lynch majority in support of its conclusion is unsound.

(2) The availability of discovery in arbitration

In accordance with section 684.15(2), depositions and discovery are available in arbitrations conducted under the FIAA. However, in order to take a deposition or propound discovery requests, one must first obtain an appropriate order from the arbitral tribunal. Section 684.15(2) provides that the arbitral tribunal "may order depositions to be taken or other discovery obtained." (Emphasis added.) Thus a party's ability to engage in discovery in FIAA arbitration is subject to the discretion of the arbitral tribunal...a party's ability to take depositions and to propound discovery requests is generally much more limited in arbitration than it is under the Florida or the federal civil rules...In view of the marked differences concerning the availability of depositions and discovery in arbitration and litigation, the second reason offered by the Merrill Lynch majority equating the availability of depositions in both arbitration proceedings and judicial proceedings is also unsound.

(3) The existing precedent

The Merrill Lynch majority bolstered its legal conclusion by noting that it had "found no case law which would require a denial of appellees' right to arbitration based on their participation in discovery." Merrill Lynch, 791 So. 2d at 26. However, in a series of cases decided before the Merrill Lynch opinion issued, the Third District had held that a party's participation in discovery was sufficient to operate as a waiver of the right to arbitration...To summarize, we conclude that the reasons offered by the Merrill Lynch majority for concluding that participation in discovery related to the merits of pending litigation is not inconsistent with the intent to arbitrate were not well founded. Furthermore, the conclusion reached by the Merrill Lynch majority is contrary to the case law in the Third District and the Fifth District. Accordingly, we now hold that a party's participation in discovery related to the merits of pending litigation is activity that is generally inconsistent with arbitration. Such activity—considered under the totality of the circumstances—will generally be sufficient to support a finding of a waiver of a party's right to arbitration. We recede from Merrill Lynch to the extent that it is inconsistent with the rule that we now adopt.

The Application of the Rule that We Adopt Today to the Facts of This Case

Consistent with the rule that we adopt today, we hold that competent, substantial evidence supports the circuit court's conclusion that Green Tree waived its claimed right to arbitrate Mrs. McLeod's claims by participating in discovery related to the merits of the pending litigation. Green Tree's request to produce asked Mrs. McLeod to produce twenty-eight categories of documents related to the merits of her pending claims. Green Tree's three separate sets of interrogatories propounded a total of forty-five questions—not including subparts—to be answered under oath by Mrs. McLeod. All of these interrogatories pertained to the merits of her claims. As the circuit court noted, the request to produce and the interrogatories were not promptly withdrawn but remained pending for several months. Later, Green Tree filed a motion to compel discovery responses and scheduled a hearing on the motion...As another court has written in a similar context, "[t]he courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration."

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