No Abuse Of Discretion In Finding Law Firm Waived Right To Arbitration

Jeffrey Woods and three associated parties had a dispute with the Patterson Law firm. The law firm claimed Woods et al. owed $47,000 for legal fees; Woods claimed the law firm committed legal malpractice. The law firm sued for the fees, but voluntarily dismissed its case. Woods then sued for malpractice.

In the malpractice case, the law firm raised an affirmative defense that its agreement with Woods required arbitration of “[a]ny controversy, dispute or claim arising out of or relating to our fees, charges, performance of legal services …” But the firm also made two motions to dismiss the case, filed a demand for a bill of particulars, served interrogatories on plaintiff, and issued a subpoena for documents to a third-party.

After all that, the firm asked the court to compel arbitration of the dispute. The trial court ruled that the law firm waived its right to compel arbitration because it participated so heavily in Woods’s lawsuit. The law firm appealed the denial of its attempt to compel the arbitration.

The appeal was pursuant to Illinois Supreme Court Rule 307(a), which permits interlocutory appeals as of right from an order granting, modifying, refusing, dissolving, or refusing to dissolve or modify an injunction. The First District Illinois Appellate Court ruled that “a motion to compel arbitration is analogous to a motion for injunctive relief,” and that the standard of review is “abuse of discretion.”

The appeal evoked three separate opinions from the three-judge panel. Two of the opinions agreed with the trial court so the waiver ruling was affirmed. One judge dissented.

The primary opinion discussed some of the policy considerations involved in waiver of a claim to arbitrate: “Illinois courts disfavor a finding of waiver … However, the right to compel arbitration of a dispute can be waived as with any other contractual right … Illinois courts will find waiver of a party’s right to compel arbitration when a party’s conduct is inconsistent with an arbitration clause, thus indicating an abandonment of the right to arbitration … Additionally, a party waives its right to arbitrate by submitting arbitrable issues to a court for decision … Illinois courts also consider the delay in a party’s assertion of its right to arbitrate and any prejudice the delay caused the plaintiff …”

This opinion stated that overlooking waiver might result in heavier costs for the parties to resolve the dispute; parties would be motivated to take discovery in the lawsuit, to which they might not be entitled in the arbitration, then demand arbitration. All of that would defeat an important purpose of arbitration – saving the costs of litigation.

The dissent saw the more important policy as encouraging arbitration. The dissent also was concerned that “the plaintiffs are trying to slip out of their contractual duty to arbitrate. We should not let it happen. I believe the trial court abused its discretion when it denied the defendants’ motion to compel arbitration.”

Read the whole opinion, Woods v. Patterson Law Firm, No. 1-08-0066 (3/31/08), by clicking here. (The Public Law Library; free account required.)