In Shalaby v. Arctic Sand Technologies, Inc., 2014 WL 7235830 (Dec. 15, 2014), the Massachusetts Superior Court ruled the defendant lost its right to arbitrate  claims asserted by a former employer by filing a motion  to  dismiss  the  plaintiff’s  complaint  and engaging in discovery.

On April 8, 2014, the plaintiff filed suit against her former em- ployer and a current and former  officer of the employer, seeking declaratory relief pursuant to an existing stock repurchase agree-  ment and alleging violations of Chapter 93A and various torts and contract claims. All of  plaintiff’s claims arose out of her termina- tion, which she alleged was without factual or legal  basis and in violation of her employment agreement. On September 19, 2014, the defendants filed a  motion to dismiss the plaintiff’s com- plaint. The Court partially granted defendants’ motion to  dismiss, dismissing all claims against the individual defendants and five of the nine claims  against the defendant company.

On October 2, 2014, approximately six months after the suit was filed and after having engaged in  discovery, including motions to compel, the plaintiff’s former employer moved to compel binding  arbitration pursuant to the terms of the employment agreement. The terms of the plaintiff’s  employment agreement explicitly stated that disputes arising from her employment shall be resolved  by binding arbitration conducted by JAMS under its then-applicable rules. The defendant asserted  the Court lacked jurisdiction over the plaintiff’s remaining claims, as each of them fell within  the scope of the employment agreement’s mandatory arbitration clause. The Court disagreed, holding  the defendant’s litigation conduct waived its right to arbitrate the dispute. The first question before the Court was whether it or an arbitrator was to decide whether the defendant’s litigation conduct waived its right to arbitrate the dispute.  Under Massachusetts law, there is a presumption that all questions regarding the waiver of arbitra-  tion are to be determined by a court as opposed to an arbitrator. Citing both the Federal  Arbitration Act and Massachusetts law, the Court found an arbitration agreement cannot purport to  delegate the issue of waiver by litigation conduct to an arbitrator. And, even if it could, the  Court found the defendant failed to show there was “clear and unmistakable evidence of such an  intent” in either the employment agreement or the then-applicable JAMS rules adopted by the  employment agreement.

The second question before the Court was whether defendant did in fact waive its contractual right  to arbitrate the dispute by its litigation conduct. Under Massachusetts law, a party may waive its  contractual right to arbitrate a dispute by failing to “properly and timely” assert this right.  When “dealing with a forfeiture by inaction (as opposed to an explicit waiver), the components  of  waiver of an arbitration clause are undue delay and a modicum of prejudice to the other side.”  There is no bright-line rule and each case is to be judged on its particular facts.

The Court found the defendant had waived its contractual right to arbitrate the plaintiff’s claims  by “deliberately waiting six months before seeking to compel arbitration, and by actively  litigating the case in Superior Court in the meantime.” The Court explained, choosing to pursue a  motion to dismiss, rather than invoking its right to arbitrate, constituted a “deliberate choice  [by the defend- ant] to seek an immediate and 

total victory in the parties’ dispute,” and showed the defendant preferred to litigate the plaintiff’s claims in court because the defendant hoped to obtain a swift  judgment on the merits. The Court found this deliberate choice constituted waiver of the  defendant’s contractual right to arbitrate the dispute.

The Court also found that compelling the plaintiff to submit to arbitration at this juncture in the  litigation would result in “far more than a modicum of prejudice” to her. The defendant’s  deliberate choice to invoke the court’s jurisdiction caused the plaintiff to not only expend   significant  resources  litigating the matter, but also “caused the opportunity for an expeditious  alternative to litigation to be lost.” The  Shalaby  decision  illustrates  the  risk  a  party  takes  when deciding to move to dismiss a complaint notwithstanding a contractual right to compel arbitration.  Although a motion to dismiss always is tempting for both counsel and client, before taking this  risk, counsel should forewarn a client that if the motion is denied, any chance of arbitrating the  dispute may be forever lost.