The Court of Appeals of Iowa (“Iowa Appellate Court”) held in its decision filed on July 5, 2018 that the district court did not err in determining (1) it was to decide the issue of whether the defendants waived their right to arbitration based on their litigation conduct and (2) under the facts of this case, the district court did not err in determining the defendants waived their right to compel the matter to arbitration.
The nursing home resident was admitted to the defendant nursing home in March 2013. As a part of the admissions process, the resident’s son, who had his mother’s power of atorney at that time, signed an “Agreement to resolve disputes by binding arbitration” on his mother’s behalf with the defendant nursing home. The nursing home arbitration agreement stated, among other things, that the parties to the agreement would first attempt to settle any disputes between themselves, then, if they were unable to do so, the matter “shall be resolved exclusively by binding arbitration and not by lawsuit or resort to the judicial process, except to the extent that applicable law provides for judicial review of arbitration proceedings.”
The Iowa nursing home negligence lawsuit was filed in the Iowa District Court in February 2015. The defendants filed their answer in April 2015, generally denying the claims asserted against them and also asserted affirmative defenses, including “that some or all of the plaintiffs have committed a prior breach of contract with the defendants.” However, the arbitration agreement was not mentioned nor was arbitration demanded. Defendants never amended their answer.
The parties engaged in extensive pretrial discovery. Then, on September 13, 2016, about two months before the trial date, the defendants served on the plaintiffs a written arbitration demand demanding plaintiffs “submit to arbitration,” with the scope of arbitration to include “the allegations giving rise to [plaintiffs’] lawsuit” pending in the district court. On September 16, 2016, the defendants filed a notice of arbitration demand in the district court.
The district court concluded that the defendants waived their right to arbitrate under the facts of the case. The defendants appealed.
Iowa Appellate Court Decision
Waiver: Who Decides?
The Iowa Appellate Court stated that a party to an arbitration agreement can waive its right to arbitrate disputes in different ways. Claims of waiver based on some types of conduct must be decided by courts, while claims of waiver based on other types of conduct must be decided by arbitrators. Courts generally decide whether a party has waived its right to arbitrate by “actively participat[ing] in a lawsuit or tak[ing] other action inconsistent with the right to arbitration” while arbitrators generally decide claims of waiver based on arguments that arbitration would be inequitable to one party because relevant evidence has been lost due to the delay of the other (i.e., waiver in the sense of laches or estoppel).
Waiver By Participation In Litigation
The Iowa Appellate Court stated that the party seeking arbitration may be found to have waived his right to it if he (1) knew of an existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by these inconsistent acts.
The Iowa Appellate Court held: “Every one of these boxes is checked under the facts of this case. As the district court pointed out, defendants ‘clearly had custody and control of the agreement in question at all times material to this action.’ In fact, they drafted the agreement that [the power of attorney holder] signed when [the resident] was admitted to [the defendant nursing home]. Nevertheless, they continued to litigate the suit in district court. They filed an answer to the suit, asserting various affirmative defenses, but they did not mention the arbitration agreement. We agree with the district court’s conclusion that ‘[p]laintiffs were prejudiced because they incurred substantial expense and engaged in significant effort as a result of [defendants’] early litigation activities.’ Even after defendants had the arbitration agreement in hand some time prior to disclosing it on October 3, 2015, they continued to litigate.”
The Iowa Appellate Court concluded: “The district court did not err in determining it was to decide the issue of whether defendants waived their right to arbitration based on their litigation conduct. Additionally, under the facts of this case, the district court did not err in determining defendants waived their right to compel the matter to arbitration. Accordingly, we affirm the ruling of the district court denying defendants’ motion to compel arbitration.”
McCullough v. Emeritus Corporation d/b/a Emeritus at Silver Pines, No. 17-0274.
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