Fifth Circuit Finds Arbitration Waiver

The United States Court of Appeals for the Fifth Circuit held that a defendant had waived its right to compel arbitration because its substantial invocation of the judicial process had prejudiced the plaintiff.

In MC Asset Recovery, LLC v. Castex Energy, Inc., No. 09-10451 (5th Cir. Aug. 2, 2010) MC Asset Recovery, LLC (MCAR) sued Castex Energy, Inc. (Castex) alleging breach of a purchase and sale agreement. The district court denied Castex’s motion to compel arbitration on the ground that Castex had waived arbitration through its substantial invocation of the judicial process. Castex now appeals.

The Fifth Circuit noted that “[t]here is a strong presumption against finding a waiver of arbitration, and the party claiming that the right to arbitrate has been waived bears a heavy burden.”

The court agreed with MCAR’s claims that Castex had waived that its right to compel arbitration through its substantial invocation of the judicial process. Castex answered MCAR’s suit asserting several affirmative defenses, including the right to compel arbitration. Castex requested a trial by jury and filed motions to dismiss after the filling of each of MCAR’s three amended complaints. Castex also sought a protective order seeking to stay discovery pending resolution of one of its motions. Ultimately, Castex proceeded to file a motion to compel arbitration when the district court had partially denied its third motion to dismiss.

The court also found that MCAR had been prejudiced by Castex’s actions. MCAR had spent over $265,000 in attorney’s fees and costs in defending against Castex’s motions to dismiss. The court stated that “Castex’s delay in seeking to compel arbitration forced MCAR to incur significant legal expenses, placed it in a weaker legal position, and delayed the resolution of this case for over eighteen months.”

Accordingly, the court affirmed the district court’s judgment denying the motion to compel arbitration.

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