Court Declines To Infer Arbitration Waiver
KAWASAKI HEAVY INDUSTRIES v. BOMBARDIER RECREATIONAL PRODUCTS (October 21, 2011)
In 2006 and 2007, Kawasaki and Bombardier were embroiled in a patent dispute that led to several federal lawsuits. Kawasaki brought suit in Texas and Bombardier brought suits in both Florida and Texas. The parties reached a settlement in late 2007, pursuant to which they agreed to dismiss the lawsuits, agreed not to bring a future suit for patent infringement, and agreed to resolve any controversy arising out of the settlement through various alternative dispute mechanisms, including binding arbitration. The agreement also required Bombardier to cause its security agreements with its bank to be subordinated to the settlement agreement. Kawasaki executed the agreement in March of 2008, after receiving assurances from Bombardier that its bank had agreed to the subordination. In fact, Bombardier's bank refused to subordinate its security interests. Kawasaki returned to federal court in Texas and asked the court to vacate the earlier dismissal and require Bombardier to comply with the settlement agreement. The court refused. Kawasaki appealed but also engaged, with Bombardier, in court-ordered mediation. Kawasaki later dismissed the appeal and filed a new action in the Southern District of Illinois requesting specific performance of the settlement agreement's obligations. Kawasaki also brought claims against Bombardier's attorneys and its bank. Bombardier moved to dismiss or, in the alternative, to stay the claims pending arbitration. Chief Judge Herndon (S.D. Ill.) denied the motion. Bombardier appeals.
In their opinion, Seventh Circuit Judges Flaum, Manion, and Sykes reversed as to the Bombardier claims and vacated as to the other claims. The Court noted that the arbitration agreement was broad enough to cover the dispute between the parties. The only reason to deny Bombardier's request to arbitrate, then, would be that it waived that right. The district court so concluded, citing Bombardier's participation in the Texas district court litigation, the appeal, and the court-ordered mediation. The Court recognized that a party can waive a contractual arbitration right, and that the waiver can be explicit or inferred. In order to infer such a waiver, however, a court must determine the party acted inconsistent with its right to arbitrate, given all the circumstances. Relevant considerations include a party's diligence, delay, participation in court proceedings, and prejudice. Although the Court conceded that Bombardier participated in the court proceedings and mediation, it concluded that its participation was not inconsistent with exercising its right to arbitrate. All of its actions were in response to Kawasaki's actions and it never agreed to allow the Texas court to resolve the dispute -- it never even addressed the merits. Had it not participated in the proceedings or mediation, it risked a default judgment. Likewise, although there has been some delay, the delay is not inconsistent with Bombardier's right to arbitrate. It has consistently asserted its right to arbitrate the dispute, and it is Kawasaki's dispute that is an issue. Bombardier was not required to take any affirmative steps. It is enough for it to continue to assert its willingness to arbitrate and forgo any participation in substantive litigation. The district court erred in denying the motion to dismiss or stay. With respect to the other parties, the Court vacated the district court's order. First, Bombardier has no standing to protect the rights of the other defendants. Second, the issue whether the arbitration clause applies to the non-signatories is not ripe for review. Kawasaki does not want to arbitrate those claims and the non-signatories have not indicated their desire, one way or the other.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select