Pre-Litigation Correspondence Did Not Constitute Waiver Of Party’s Right To Arbitration

In Borror Property Management, LLC v. Oro Karric North, LLC, the Sixth Circuit reversed a lower court decision that a property owner’s correspondence that it intended to litigate a dispute with its property management company unless the property manager indicated a preference to arbitrate in accordance with the parties’ agreement. The property manager beat the owner to the draw, and filed suit. When the owner moved to compel arbitration, the property manager objected, and persuaded the lower court that the owner’s pre-litigation statement expressing a preference or litigation constituted a waiver of its contractual arbitration right.

The Sixth Circuit reversed, explaining as follows:

“It is the rare federal complaint that is not preceded by an exchange of letters between the parties. Sometimes the letters identify common ground, more often they eschew it. Sometimes they are conciliatory, more often they are accusatory. Either way, their purpose is to help frame the parties’ dispute, posturing it either for settlement or litigation. But those correspondence are not equivalent to formal litigation. They are neither pleadings nor representations in court. And free of those burdens, parties often posture their claims with loose rhetorical flair better utilized outside the courtroom.

“Yet today, one party seeks to raise the stakes for this familiar practice. Although the
parties agree that their underlying contract affords each of them the opportunity to invoke
arbitration, Plaintiff believes Defendants waived that right through their pre-trial ‘posturing’ correspondence. The district court agreed and denied Defendants’ motion to compel arbitration. Because Defendants’ pre-trial communications were neither inconsistent with its arbitration right nor prejudicial to Plaintiff, they did not waive that right.

…Oro did not expressly waive its arbitration rights. Nothing in Oro’s letter expressly
disavowed its right to arbitration. Yes, the letter did indicate Oro was planning to litigate. But plans can change. And generally speaking, pre-filing threats are not laden with legal
implications, for the reasons already described. Even where they might be, Oro’s abstruse
posturing statement is not the kind that should be read as forever relinquishing its arbitration rights. That, coupled with federal policy favoring arbitration when ambiguity exists, confirms that a waiver did not occur here.

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