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The Court of Appeals for the Eighth Circuit clarified just when a party loses its arbitration rights in a wrongful termination suit, deciding that rights of an employer were lost when it acted inconsistently with the rights of the opposing party.
Messina signed a two-year employment contract and a separate arbitration agreement with Yosemite Home Decor as the company's VP of sales. Six months into the job, Yosemite fired Messina. After bringing a wrongful termination suit in Minnesota state court (the state of Messina's residence), the case was removed to federal district court in Minnesota. In its answer, the defendant alleged 24 affirmative defenses and recommended ADR in the form of mediation. But Yosemite never mentioned arbitration.
Several months later, Yosemite contacted opposing counsel and asked to stipulate for an arbitration. This was unsuccessful. A month later, Yosemite moved the court to compel arbitration. The lower district court denied the request, finding that Yosemite had waived away its arbitration rights because it knew it had an existing right to arbitrate, but that it had prejudiced Messina by acting inconsistently with that right by waiting eight months to move arbitration.
Yosemite had, throughout the entire process, the arbitration agreement in its hands -- so it therefore had either constructive or actual notice of its arbitration rights. And yet, it had engaged in back and forth court pleadings and motions for eight months before once mentioning arbitration -- something that struck both courts as a tactic intended to either delay proceedings or to starve Messina of time, money, patience, or all of the above. That is to say, Yosemite "substantially invoke[d] the litigation machinery" of the court system before it moving to arbitrate.
This tactics cost Messina "considerable time and thousands of dollars" since it required Messina to find and hire new counsel, engage in pretrial hearings, and respond to what turned out to be almost useless pleadings.
In light of these facts, the Eighth Circuit found that the lower district court did not act erroneously in determining that Yosemite had waived its right to arbitration.
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