Company Delay Waived Right to Arbitrate Employment Claims

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By Lawrence E. Dubé

May 10 — A home products company waived its right to arbitrate a former executive's wrongful discharge claims by spending eight months in court proceedings before moving to compel arbitration, the U.S. Court of Appeals for the Eighth Circuit held.

The decision shows the importance of an employer deciding early in a lawsuit whether an arbitration agreement applies to a dispute and when to invoke the agreement's procedures.

Writing for the court May 10, Judge Diana E. Murphy said North Central Distributing Inc., which does business as Yosemite Home Decor, unreasonably delayed its demand for arbitration and prejudiced the former employee. The employer prolonged litigation by removing the employee's lawsuit from state court to the U.S. District Court for the District of Minnesota and then mounting an unsuccessful effort to have the case transferred to a federal district court in California.

Finding North Central's actions were inconsistent with its right to arbitrate the employment dispute, the Eighth Circuit affirmed the lower court's refusal to compel arbitration.

Dispute Arose in Employment Case

According to the decision, Richard Messina signed a two-year contract of employment as Yosemite's vice president of sales. He was discharged five months later.

Messina filed a July 2014 Minnesota state court lawsuit alleging that his termination was a breach of the employment contract and wrongful termination under state law.

Citing the diversity of citizenship between Messina and the California-based company, Yosemite removed the lawsuit to the District of Minnesota in August 2014.

Yosemite moved in November of that year to transfer the case to the U.S. District Court for the Eastern District of California.

Murphy said that in February 2015, after the District of Minnesota denied the transfer motion, Yosemite's lawyer first disclosed that Messina had signed an arbitration agreement with his former employer. The company moved to compel arbitration about a month later. The trial court denied the motion, and the company appealed.

Court Agrees Employer Waived Arbitration

Quoting Lewallen v. Green Tree Servicing, LLC, 487 F.3d 1085, 2007 BL 26501 (8th Cir. 2007), Murphy wrote that a party waives its right to arbitration if it “(1) knew of an existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by these inconsistent acts.”

“Yosemite's conduct satisfies each element of the Lewallen waiver test,” the court said.

Murphy said the company knew of its right to demand arbitration because it had the arbitration agreement Messina signed.

The court also found that Yosemite acted inconsistently with its right to opt for arbitration. Like the defendant in Lewallen, Murphy said, Yosemite invoked the litigation machinery of the courts “by removing the case to federal court, filing an answer, participating in a pretrial hearing, filing a scheduling report which recommended a trial date and discovery deadlines, and filing a motion to transfer venue.”

Judges C. Arlen Beam and Raymond W. Gruender joined in the opinion.

Kevin V. Koligian of Littler Mendelson PC in Fresno, Calif., argued the appeal for North Central Distributing Inc. Karla Gilbride of Public Justice PC in Washington argued for Messina.

To contact the reporter on this story: Lawrence E. Dubé in Washington at ldube@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com