Private parties may agree to resolve their disputes in arbitration rather than in court. If a party to an arbitration agreement files a complaint in court raising a claim covered by the agreement, the defendant can file a motion asking the court to stay the lawsuit and send the dispute to arbitration. A defendant who instead litigates the case risks losing the contractual right to compel arbitration.

Until the California Supreme Court decided Quach v. Cal. Commerce Club, Inc. (Quach) California courts had added a requirement to that the party seeking to avoid arbitration show prejudice. This rule was based upon federal appellate court decisions that required a showing of prejudice to establish waiver. However, in Morgan v. Sundance, Inc., (Morgan) the United States Supreme Court rejected this rule. It clarified that the federal “policy favoring arbitration” is about putting arbitration agreements on equal footing with other contracts, not about favoring arbitration. Thus, the Supreme Court held that, under federal law, a court must apply the same rules that apply to any other contract when determining whether a party to an arbitration agreement has lost the right to enforce the agreement.

Since the California state law that an arbitration specific prejudice requirement was based upon the federal precedent that Morgan overruled, the California Supreme Court in Quach decided prejudice is not required to waive the right to arbitration. Thus, it held California courts should apply the same principles that apply to other contracts to determine whether the party seeking to enforce an arbitration agreement has waived its right to do so. Thus, litigation by the defendant of a Court action where an arbitration agreement would otherwise be applied is now considered a waiver by the parties of their right to arbitrate under an arbitration agreement.

If parties subject to an arbitration agreement litigate an action in Court, they have waived their right to arbitrate the dispute. Therefore, defendants who seek to enforce the arbitration agreement should do no more than move that the matter be arbitrated, and the action stayed before engaging further in the litigation.

If a court action is brought against you or your business and the dispute is subject to an arbitration agreement, immediately contact your litigation counsel to move to stay the proceedings should you desire to enforce the arbitration agreement.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.