Brickstructures, Inc. v. Coaster Dynamix, Inc., Case No. 19-2187, 2020 WL 1164270 (7th Cir. March 11, 2020).
Issue Discussed: Waiver of arbitration clause
Submitted by Martha Conlin
Date Promulgated: March 11, 2020
Case: Brickstructures, Inc. v. Coaster Dynamix, Inc., Case No. 19-2187, 2020 WL 1164270 (7th Cir. March 11, 2020).
Issue Discussed: Waiver of arbitration clause
Court: U.S. District Court for the Northern District of Illinois
Date Decided: March 11, 2020
Issue Decided: Whether a party can rely on an arbitration clause after it withdraws a motion to enforce it.
Submitted by: Martha E. Conlin, Partner, Troutman Sanders LLP
Brickstructures, Inc. and Coaster Dynamix, Inc. collaborated to create a LEGO-compatible roller coaster playset. The two companies signed a joint venture agreement that included an arbitration provision. When the relationship soured, Brickstructures filed a lawsuit in the U.S. District Court for the Northern District of Illinois, asserting claims for breach of the joint venture agreement, breach of fiduciary duty, and false advertising. Coaster Dynamix responded with a motion to dismiss, alleging the agreement between the parties was an unenforceable contract. Coaster Dynamix did not at this time raise the agreement to arbitrate. The trial court dismissed the complaint on jurisdictional grounds.
Brickstructures amended its complaint and Coaster Dynamix again moved to dismiss, reasserting a claim that the joint venture was an unenforceable contract. In this second motion, however, Coaster Dynamix raised the agreement to arbitrate. Coaster Dynamix claimed arbitration was the exclusive forum for claims between the parties and even if there was a valid contract, the lawsuit should be dismissed for improper venue. In response, Brickstructures wrote to Coaster Dynamix objecting to the argument in favor of arbitration and threatening to seek sanctions. After receiving the letter, Coaster Dynamix formally withdrew its arbitration-based venue argument. The court then denied the remaining argument on the motion to dismiss.
Following the court’s decision, Coaster Dynamix changed course and moved to compel arbitration approximately one month later. In this motion, Coaster Dynamix argued that it asserted its right to arbitrate in the second motion to dismiss but had received no ruling. Brickstructures accused Coaster Dynamix of “playing games” and argued that Coaster Dynamix had waived any right to arbitrate by withdrawing its earlier motion. Coaster Dynamix defended its position, stating that it withdrew the argument in response to the threat of sanctions. The trial court denied the motion to compel arbitration, agreeing that Coaster Dynamix had waived its right to arbitrate by withdrawing its motion. The trial court reasoned that by seeking arbitration and then withdrawing the argument, Coaster Dynamix “chose a course inconsistent with submitting the case to an arbitral forum.”
On appeal, the Seventh Circuit agreed that Coaster Dynamix had, in fact, waived its right to arbitrate through its actions in the litigation. The opinion notes that “federal law favors arbitration,” but finds no clear error in the district court’s ruling that Coaster Dynamix waived its right to arbitrate. Specifically, the appellate court reasoned that having “put the arbitration card on the table and then taken it back, [Coaster Dynamix] was not permitted to play that card again later.”
Significantly, the court also noted that a party does not waive a right to arbitrate simply because a motion to compel arbitration is not the first thing it files in a lawsuit. Rather, Coaster Dynamix surrendered its right to arbitration by seeking arbitration in its motion to dismiss but expressly withdrawing that position. Finally, the court noted that a party may be allowed to rescind a waiver, but such rescission is reserved for “abnormal” circumstances, which this case does not present.
