Employer implicitly waived right to compel arbitration

A district court correctly held that an employer implicitly waived its arbitration right due to the extensive discovery it underwent over a seven-month period without ever mentioning arbitration, the 6th U.S. Circuit Court of Appeals has ruled.

After producing tens of thousands of pages of documents and taking and defending depositions, the employer moved to compel arbitration when discovery was almost complete. The district court rejected the motion, saying the employer implicitly waived its arbitration right.

U.S. Circuit Judge Joan L. Larsen agreed.

“Under our precedent, [the employer] implicitly waived its right to compel arbitration because its conduct was completely inconsistent with reliance on its arbitration right,” she wrote.

U.S. Circuit Judges Richard Allen Griffin and John K. Bush joined Larsen’s opinion in Schwebke v. United Wholesale Mortgage LLC (MiLW 01-107856, 8 pages).

Molly Savage, an attorney with Deborah Gordon Law in Bloomfield Hills, represented the plaintiff. Grand Rapids attorney Matthew T. Nelson of Warner Norcross + Judd attorney represented the defendant. Neither could be reached for comment.

Extensive discovery

Jason Schwebke, who is deaf, worked as a software developer at United Wholesale Mortgage, or UWM. The role required him to participate in several team meetings each week, so he requested on-site sign language interpreters.

Schwebke claimed UWM declined to provide interpreters and asked him to use lower-cost alternatives. Those did not work well for him and UWM fired Schwebke in May 2020.

Schwebke filed suit in January 2021, claiming retaliation and a failure to accommodate under the Americans with Disabilities Act, or ADA, and retaliation and discrimination under the Michigan Persons with Disabilities Civil Rights Act, or PWDCRA.

The parties’ employment agreement had an arbitration clause requiring them to submit covered claims to binding arbitration. Both parties agreed Schwebke’s claims are covered, but UWM didn’t raise the arbitration clause in its February 2021 answer to the complaint. Instead, UWM first raised it in August 2021. Per the opinion, UWM’s counsel told the court UWM had not raised the arbitration clause earlier because counsel did not know it was in the employment agreement.

During that time, the parties had engaged in extensive discovery. The deadline ordered by the court was Aug. 26, 2021, but the parties agreed to extend it to allow for more depositions. Less than a week later, on Aug. 30, UWM filed a motion to dismiss or, alternatively, to stay proceedings and compel arbitration.

But after filing the motion, UWM produced more witnesses for deposition, served additional third-party subpoenas and produced documents in response to Schwebke’s discovery requests.

On Nov. 16, Schwebke moved for summary judgment.

The district court held a hearing on UWM’s motion in December 2021. The Supreme Court decided Morgan v. Sundance, Inc . after the hearing, and the parties filed supplemental briefs in response.

The district court then denied UWM’s motion. Since UWM’s conduct was completely inconsistent with reliance on its arbitration right, it had implicitly waived its right to compel arbitration.

UWM appealed.

Waiver

Larsen first noted that the Sixth Circuit hasn’t yet considered Morgan ’s effect on its arbitration waiver rule. She said, at a minimum, the case abolished the prejudice requirement.

“In this case, we need not decide whether Morgan did more than that because the parties agree that, once stripped of its prejudice requirement, our pre- Morgan caselaw remains intact,” she wrote. “Given this posture, we assume without deciding that our precedent asking whether a party’s actions are ‘completely inconsistent’ with reliance on arbitration survives Morgan .”

Larsen then looked to a similar case the helps resolve the outcome to the instant matter, Johnson Associates Corp. v. HL Operating Corp.

There are several similarities between the cases, including that the Johnson Associates defendant waited eight months before moving to compel arbitration, failed to raise arbitration as an affirmative defense, participated in a case management conference, served interrogatories and requested documents, and agreed to extend the discovery deadline.

The Johnson Associates court said that conduct “considered together” was “completely inconsistent” with reliance on arbitration.

“UWM engaged in conduct similar to that of the defendant in Johnson Associates ,” Larsen wrote. “UWM: (1) waited seven months before moving to compel arbitration; (2) did not raise arbitration as an affirmative defense; (3) raised other affirmative defenses; (4) participated in a discovery conference; (5) filed a joint discovery plan; (6) served interrogatories and requested documents; (7) noticed two depositions; and (8) agreed to an extension of the discovery deadline.”

UWM also engaged in conduct beyond what happed in Johnson Associates the judge added.

“Here, far more extensive discovery was nearly complete ,” she pointed out. “UWM deposed two witnesses, produced three witnesses for deposition and participated in those depositions, and produced tens of thousands of pages of documents in response to several discovery requests. UWM also issued fourteen third-party subpoenas, filed a witness list, and entered a joint discovery plan that addressed alternative dispute resolution without mentioning arbitration.”

Larsen rejected UWM’s contention that the Johnson Associates defendant, unlike UWM, participated in settlement discussions facilitated by a magistrate judge.

“That conduct was not one of the factors emphasized in Johnson Associates , and we have been reluctant to infer waiver based on settlement-related activities,” she wrote. “Nor does participation in magistrate-judge-facilitated settlement discussions involve the district court acting as a district court, which would be more relevant to the waiver analysis. The absence of settlement discussions facilitated by a magistrate judge does little to distinguish this case from Johnson Associates .”

Larsen also was unpersuaded by UWM’s argument that its conduct does not constitute waiver because failing to raise arbitration earlier was a mistake.

“UWM concedes that it had ‘imputed knowledge’ of the employment agreement, which it produced in its first set of discovery documents,” Larsen concluded. “While UWM’s conduct does not suggest an attempt to secure a ‘tactical advantage,’ which would further support a finding of waiver, neither can counsel’s failure to read the employment agreement be attributed to an ‘otherwise excusable purpose.’ UWM’s mistake does not prevent us from finding waiver.”

Larsen affirmed the district court’s decision.

Copyright © 2024 BridgeTower Media. All Rights Reserved.