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By: Jake Carroll
Recently, the Georgia Court of Appeals held that a party’s conduct in an original cause of action can constitute a waiver of its right to arbitrate in a renewed action. The opinion brings Georgia jurisprudence in line with related federal courts and clarifies a previously undecided area of arbitration law in Georgia, while also teaching a practical lesson to both practicing attorneys and parties who contract and litigate in Georgia.
In SunTrust Bank v. Lilliston, the Plaintiff, Lilliston, originally filed suit against SunTrust regarding charged and collected interest on loans issued by SunTrust. One of the loan agreements at issue contained an arbitration clause. Lilliston voluntarily dismissed the action twenty-one months after initially filing the case, following removal, discovery, summary judgment, and being placed on the trial calendar. When Lilliston refiled the case sixth months later, SunTrust moved to compel arbitration as provided in one of the loan agreements. The trial court denied the motion—finding that SunTrust waived its right to compel arbitration based on its actions in the original litigation.
The Court of Appeals affirmed the lower court, relying on legal precedent from the Eleventh Circuit, as well as prior decisions from its own docket. The opinion discussed the issue as one of first impression, but also aligned itself with a growing majority of courts in looking at the parties’ conduct to determine if arbitration has been waived. The Court of Appeals also upheld the trial court’s factual finding that “the delay and cost associated with conducting discovery prejudiced the [appellees].” The Court of Appeals again looked to the Eleventh Circuit, which has recognized prejudice in situations where litigation expenses could have been avoided had the parties gone to arbitration.
From this decision, both attorneys, and contracting parties can take away two practical lessons. First, parties should consider arbitration as an option at the outset of a case—not in the middle or end of a case. This can save time and money, and insure that arbitration is still available as an alternative to costly litigation later on in the case. The Court of Appeals makes clear that the purpose of arbitration is to reduce the cost of resolving a dispute, and that behaving inconsistently with that purpose waives the ability to arbitrate in the future.
Second, parties need to be mindful of how costly the litigation is likely to be for both sides if they want to pursue arbitration at a later date. The opinion in SunTrust suggests that a finding of waiver by the court is not governed by a defined set of rules. Instead, a finding of waiver is based on the totality of the circumstances—taking into account inconvenience to the other party, costs, time, involvement in discovery, and motions practice.
This may not be final answer from the Georgia courts on this issue as SunTrust filed certiorari to the Supreme Court of Georgia, yet developments in this area of the law remain important to monitor as courts take a harder line on wasting judicial and private resources.
For any questions you may have, please contact Jake Carroll at [email protected]