6 Alternatives CPR Institutc for Dispute Resolution Val. 14, NO. 1 J d I l l l X ) 19% It May Be Getting Easier to Waive Arbitration By William J. N’issen Courts usually favor predispute arbitration agreements, but two recent decisions increase the risk that a party maywaive the right to arbitrate. These decisions have expanded the type of conduct that can result in a waiver, and have lessened the proof that may establish one. In the past, any party could waive the right to arbitrate by participating in a court action. But in order to show that this activity amounted to a waiver, the other party had to show prejudice (for instance, through the expense and delav of defending ” a the court action). Both the 2nd and 7th U.S. Courts of Appeals recently made it easier to establish a waiver. The 2nd Circuit held that a court action brought by a party’ssubsidiary may result in a waiver of the parent’s right to arbitrate. And the 7th Circuit seemed to do away with the prejudice requirement: i t ruled that when a waiver of arbitration is based on a party’suse of court procedures, a showing of prejudice to the other party is not necessary. The 2nd Circuit case involved Doctor’shsociates, a national franchisor of Subway sandwich shops. Doctor’s Associates, Inc. u. Distajo, 1995 WL, 540584 (Sept. 12, 1995). Its franchise agreement provided for arbitration of all disputes under the contract. Doctor’sAssociates also required franchisees to sublease their Subway shops through several real-estate leasing companies. These companies were wholly-owned subsidiaries of Doctor’s Associates. Each sublease provided that a franchisee’s breach of the franchise agreement was also a breach of the sublease. When disputes arose between Doctor’s Associates and various franchisees, Doctor’sAssociates ordered its subsidiaries, the leasing companies, to start eviction proceedings in the state courts where the franchisees were located. The franchisees responded with counterclaims and separate suits, charging Doctor’s Associates with’ fraud and breach of contract. In a separate federal case against the franchisees, Doctor’s Associates made a motion to compel arbitration, which the district court granted. On appeal, the 2nd Circuit reversed. Each of the franchisees was a defendant in a statecourt eviction proceeding brought by Six months earlier, the 7th Circuit seemed to cast aside the need to show prejudice in making a case for waiver. The 7th Circuit ruled thatwhen a party has elected to resolve a dispute in court, that party has presumptively waived the right to arbitrate, and no showing of prejudice is necessary, Cabinetree of Wisconsin, Inc. u. Kraftmaid Cabinetry, Inc., 50 F.3d 388 (March 3, 1995).The defendant in that case had participated in a court action for several months and engaged in discovery before seeking to arbitrate. These cases demonstrate that parties who wish to preserve their rights to arbitrate must be careful not to waive those rights through related litigation. Even litigation by an affiliate of the party that signed an arbitration agreement may result in a waiver-especially if the subject of the dispute could go to arbitration. Defendants in a lawsuit must move swiftly to preserve their rights under predispute arbitration agreements. This is particularly important in the 7th Circuit, where mere participation in the suit, without any showing of prejudice, can result in a waiver. @ TWO recent decisions increase the risk that a party may waive the right to arbitrate. WilliamJ. Nissen is a partnu at Sidky & Austin in Chicago. one of the leasing companies, the court noted. These companies were alter egos of Doctor’s Associates and, by causing them to bring the statecourt actions, the franchisor had waived its right to arbitrate. Possible p r e.j u di c e to the franc h is e e s a 1so weighed into the court’s decision. “Mediation Works: Make It Work for YOU”introduces divorcing couples to mediation as an option for settling post-marital problems. The video shows initial sessions with three couples who are disputing specific issues: property ownership, custody and visitation arrangements, and alimony. Mediators punctuate the scenarios with comments about the goals, advantages, and limitations of the process. The video presents mediation as an effective method for parties to resolve disputes themselves, and portrays the mediator’s role in that context. The Florida Dispute Resolution Center produced the 30-minute, closedcaptioned video, which costs $10. To order the video and written materials, such as relevant Florida statutes, contact The Florida Dispute Resolution Center: Supreme Court of Florida, Tallahassee, FL 32399-1905. Tel.: 90492 1-2910.