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Court Of Appeals Of Mississippi Holds That A Party Seeking To Compel Arbitration Has Not Invoked The Litigation Process When It Enters Default And Responds To Dispositive Motions With A Specific Reservation Of Its Right To Arbitration

The Mississippi Court of Appeals recently held that a general contractor that sought to compel arbitration in a breach of contract dispute between it and another contractor did not waive its right to pursue arbitration by invoking the litigation process, when it entered a notice of default (that it later agreed to withdraw) and defended against its opponent’s dispositive and procedural motions, while insisting it did not waive its right to arbitration. S. Cent. Heating, Inc. v. Clark Constr. Inc. of Miss., NO. 2021-CA-00285-COA, 2022 WL 2313877, at *1 (Miss. Ct. App. Jun. 28, 2022).

The dispute arose out of a series of contracts between Clark Construction Incorporated of Mississippi (“Clark”) and its joint venturer, EBM Group, LLC (“EBM), and South Central Heating, Inc. (“South Central”). South Central agreed to install HVAC and air duct equipment in several nursing homes for Clark. The contract between Clark and South Central included an arbitration provision. When contract-related disputes arose between them, souring the relationship, South Central left the jobs, leading Clark to file a complaint and motion to compel arbitration against South Central.

After requesting and receiving additional time to respond to the complaint and motion, South Central never responded. Clark obtained an entry of default, although Clark never moved for default judgment. South Central then filed an answer (including a counterclaim) to Clark’s complaint and response to the motion to compel arbitration and sought to have the entry of default vacated (to which Clark acquiesced). Clark also filed a response to the counterclaim, but specifically noted that it did so without waiving its right to pursue arbitration.

Later, South Central filed a motion for partial summary judgment on the arbitration issue alone, and additionally filed a motion for permission to add third-party defendants. Clark responded to both motions, and as it did with South Central’s counterclaim, stated expressly that it responded without waiving its right to arbitration. The trial court permitted South Central to add third-party defendants, including EBM. EBM, in turn, filed an answer, counterclaim, and motion to dismiss the complaint and compel arbitration; Clark joined in EBM’s motion to compel arbitration (but not its pleadings), renewing its own motion. South Central followed with a response to EBM’s counterclaim and motion to compel arbitration and served requests for production of documents on both EBM and Clark. Neither EBM nor Clark responded to the document requests, but EBM replied to South Central’s opposition to its motion, filing a brief in support in which Clark joined—again expressly reserving its right to arbitration.

This exchange of motions and responses culminated in a hearing on the motions to compel arbitration and South Central’s motion for partial summary judgment on that issue. The trial court denied South Central’s summary judgment motion and EBM’s motion to dismiss and granted Clark and EBM’s motions to compel arbitration, concluding that they had not waived their right to pursue arbitration by participating in litigation. South Central appealed this ruling to the Mississippi Court of Appeals.

The Court of Appeals affirmed the trial court’s ruling compelling arbitration. The Court held that Clark and EBM had not waived their right to arbitrate under the contracts because they had not “substantially invoked the litigation process to the detriment or prejudice of the other party” and had not “actively participated in a lawsuit or [] taken other action inconsistent with the right to arbitration” (original brackets and quotation marks omitted).

First, Clark had not waived its right to arbitrate by including in the motion to compel arbitration an alternative pleading in the form of a complaint for damages—this merely protected Clark’s other legal rights in addition to the arbitration right. Second, Clark’s later-vacated entry of default without accompanying motion for default did not invoke the litigation process because, in sum, it went nowhere. Third, Clark’s responses to South Central’s counterclaim and various dispositive motions did not attempt to assert any legal rights other than the right to arbitrate and merely responded to the actions South Central took to move litigation forward. Similarly, EBM followed a pleading and motion strategy nearly identical to Clark’s that also did not waive its right to arbitration.

Nor had Clark and EBM’s resulted in prejudice to South Central, even assuming that they had substantially invoked the litigation process. The court observed that South Central was well aware of their asserted right to arbitration, and any delays that South Central experienced in ultimately being compelled to arbitrate after some litigation maneuvers was the result solely of South Central’s own actions, not Clark and EBM’s. Similarly, the Court rejected South Central’s contention that Clark and EBM had acted inconsistently with their right to arbitrate; Clark and EBM had repeatedly sought to move the process toward arbitration and had reasserted their rights at every stage. Accordingly, the Court affirmed the trial court’s decision to compel arbitration.

The critical reminder here is that a party seeking to arbitrate under a contractual arbitration clause will likely be able to compel arbitration and also defend itself against litigation attacks the other side of the lawsuit makes, provided that the party seeking arbitration makes clear at every stage that it insists upon its right to arbitration.