Rejecting what it called a “novel rationale” by the district court for denying arbitration, the Tenth Circuit Court of Appeals has held that a defendant may file a motion to compel arbitration in lieu of an answer and that the defendant’s failure to first answer the plaintiff’s complaint before filing the motion is not a proper ground for denying it. The Tenth Circuit’s ruling is significant because some judges improperly require a defendant to answer the plaintiff’s complaint prior to filing a motion to compel arbitration.
The ruling, issued September 19, 2011, came in Lamkin v. Morinda Properties Weight Parcel, LLC. Ballard Spahr’s Salt Lake City office represented Morinda.
In Lamkin, the plaintiffs had contracted to purchase two condominium units to be built by Morinda at The Canyons Resort in Park City, Utah, and paid earnest money deposits to reserve the properties. The purchase contracts included a dispute resolution clause requiring a two-step process of formal mediation and, if necessary, binding arbitration for any disputes relating to the purchase contracts. When a dispute arose, the parties engaged in formal mediation. But, when mediation failed, the plaintiffs filed a diversity suit in the U.S. District Court for the District of Utah, rather than initiating arbitration proceedings. Morinda promptly filed a motion to compel arbitration pursuant to the Federal Arbitration Act in lieu of a responsive pleading.
The district court denied the motion to compel arbitration. The court reasoned that the arbitration provision had not been triggered because a dispute did not yet exist between the parties. According to the court, Morinda would have had to file a responsive pleading denying the allegations contained in the plaintiffs’ complaint to create a dispute sufficient to trigger arbitration.
The Tenth Circuit reversed, noting that “neither the district court nor plaintiffs [had] cited any authority holding that an arbitrable dispute does not exist unless and until the defendant files a responsive pleading in litigation.” The court added that “requiring a party to file an answer denying material allegations in the complaint asserting potential affirmative defenses—in short, formally and substantively engaging in the merits of the litigation—in order to enforce its right not to litigate is a non-sequitur.” Finally, the court concluded that “it is pure sophistry to maintain that there was no dispute to arbitrate, within the meaning of the [dispute resolution] provision, when mediation failed.”