Nevada Supreme Court Determines That Waiver of the Right to Arbitrate Must be Decided by the Courts

1794297759_6d53e7c4f5_b The Nevada Supreme Court recently decided that the waiver of the right to arbitrate a dispute is presumptively within the jurisdiction of the courts, not arbitrators to decide unless the arbitration agreement clearly reserves this question of arbitrability to the arbitrator.  That is if the claimed waiver arises from litigation conduct.

The case involves claims against a payday lender who obtained, according to the court, “thousands of default judgments” against defendants who failed to appear in collection actions brought after default on the short term loans.  Plaintiffs sued as a class to, inter alia, have the court deem the default judgments void and uncollectable when it was learned that the lender’s process server engaged in “sewer service—the practice of accepting summonses and complaints for service, failing to serve them, then falsely swearing in court-filed affidavits that service had been made when it was not.”

The lender’s motion to compel arbitration based on agreements to arbitrate was denied when the District Court held the lender waived its right to arbitration by bringing the collections actions and obtaining the default judgments at issue.  The Nevada Supreme Court reasoned that courts must determined the “gateway questions” of arbitrability, “such as ‘whether the parties are bound by a given arbitration clause,’ or ‘whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.” Because “courts presume that the parties intend courts, not arbitrators, to decide [gateway questions of arbitrability,” these gateway questions are for the court to decide, unless the parties’ agreement (or, possibly, conduct) provides “clear and unmistakable evidence” that they intended to commit the questions to the arbitrator in the first instance.

The Court further reasoned that waiver is typically a procedural gateway matter, and therefore one for an arbitrator to decide.  It determined, however, to follow what it deems the majority position that litigation-conduct waiver—that is, a party may waive its right to arbitrate by participating in litigation without invoking the right to arbitrate—is a matter presumptively for the court to decide.   The court allowed, however, that if the arbitration agreement had specifically reserved the right to determine arbitrability where litigation-conduct waiver is claims to the arbitrator, the matter may be heard by the arbitrator and not the court.  “An issue that is presumptively for the court to decide will be referred to the arbitrator for determination only where the parties’ arbitration agreement contains clear and unmistakable evidence’ of such an intent.”



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