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.
