'That was the clear message from the U.S. Court of Appeals for the District of Columbia Circuit’s in Zuckerman Spaeder, LLP v. James A. Aufenberg, Jr., No. 10-7041, July 29, 2011 (slip op.) when it “alert[ed] the bar in this Circuit that failure to invoke arbitration at the first available opportunity will presumptively extinguish a client’s ability later to opt for arbitration.” Typically the time to seek arbitration after being sued is in an answer to a complaint or in a motion to dismiss. However, if a defendant fails to assert his right to arbitration then but only later seeks a stay of the litigation in favor of arbitration, the D.C. Circuit explained that the presumption of forfeiture can be rebutted only if requester’s delay in seeking the stay has not prejudiced the plaintiff.
In the case at hand, the Court found that by failing to seek an early stay and allowing the case to move forward, the defendant had “imposed substantial costs upon [the plaintiff] and the district court.” Specifically, in the several months before the defendant sought a stay, the defendant had already engaged in discovery, filed several amended counterclaims, and participated in a court-ordered mediation. Accordingly, the Court held that plaintiff had been prejudiced and that the defendant had indeed forfeited any right to arbitration.
The lesson to be learned? If you are sued and your agreement contains an arbitration clause, seek an early stay of the litigation. If you don’t timely use your right to arbitrate, you’ll likely lose it.