While arbitration clauses are ubiquitous in contracts, they are meaningless if the parties do not move quickly enough to enforce them. In Lennar Communities Nevada, LLC v. Whalen, the plaintiff executed a residential purchase and sale agreement that included an arbitration clause. She then tripped and fell within the community. She sued the developer, and the parties participated in extensive discovery.
The developer did not attempt to enforce the arbitration clause for 17 months. While waiver is disfavored, the Supreme Court concluded that the three-factor test for waiver was satisfied. First, the developer knew of the waiver. Second, they acted inconsistently with the right to arbitrate by actively litigating the case in court for such a long time. The Court then introduced a new factor to the analysis. "[C]ourts should consider the totality of the circumstances when evaluating whether a party has already litigated an issue it subsequently seeks to arbitrate." That factor was met too.
The Court next considered whether not invoking the arbitration clause earlier prejudiced the plaintiff. It expressed doubt whether that factor was valid but did not overrule it. Regardless, prejudice was found because the developer was able to obtain discovery in court that typically is unavailable in arbitration.
The opinion reiterates the importance of identifying potential arbitration clauses and deciding whether to invoke them as soon as possible.
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