A federal district court denied defendants’ motion to compel arbitration of a contractual dispute pursuant to the contract’s mandatory arbitration clause where the same defendants had defaulted in an arbitration proceeding commenced by plaintiffs two years ago involving the same dispute.
Defendants’ motion to compel arbitration was based on the fact that the contract at issue provided that any disputes thereunder “shall be solely and finally settled by arbitration” and that parties “renounce all recourse to litigation.” Finding that the case is subject to arbitration based on the plain language of the contract, the court noted that there is a “strong policy” in favor of arbitration under the Federal Arbitration Act (FAA) unless a party has forfeited its right to arbitrate through a default or a waiver. Because the FAA does not define a “waiver” or “default,” the determination of whether such waiver or default has occurred has to be made on the facts of each case.
In this case, the district court denied defendants’ motion to compel arbitration, concluding that defendants defaulted on their contractually mandated right to arbitrate. Specifically, the court noted that, prior to commencing the present lawsuit, plaintiffs had filed a case with the American Arbitration Association (AAA) and served discovery requests on defendants as part of the arbitration proceedings. However, defendants never responded to such discovery requests and plaintiffs were told that the AAA could not compel defendants to participate in the arbitration proceedings. (Youngs v. Haugh, 2009 WL 701013 (N.D. Tex. March 18, 2009))