De Sapio v. Kohlmeyer, 35 N.Y.2d 402 (1974)
A party waives its right to arbitration when it affirmatively uses the judicial process in a manner inconsistent with an intent to arbitrate, such as by asserting a cross-claim or engaging in discovery.
Summary
De Sapio, a former employee of Kohlmeyer, sued Kohlmeyer for defamation based on statements made to an investigator hired by De Sapio’s prospective new employer. Kohlmeyer, despite having an arbitration agreement with De Sapio, initially participated in the lawsuit by interposing a cross claim and taking De Sapio’s deposition before moving to stay the proceedings and compel arbitration. The New York Court of Appeals held that Kohlmeyer waived its right to arbitration by actively participating in the litigation, thus demonstrating an acceptance of the judicial forum. This decision clarifies that a party cannot use the judicial system for its advantages and then later insist on arbitration.
Facts
James De Sapio, a former block trader for Kohlmeyer, was discharged in April 1971. In January 1972, he sought new employment and authorized an investigation into his employment history. A representative of Fidelifacts, an investigative firm, interviewed a Kohlmeyer partner, who allegedly made defamatory remarks about the reasons for De Sapio’s termination. De Sapio then sued Kohlmeyer for defamation, claiming Fidelifacts republished the defamatory statements to his prospective employer.
Procedural History
De Sapio filed suit against Kohlmeyer in Supreme Court. Kohlmeyer answered, asserting an affirmative defense based on its arbitration agreement with De Sapio. Kohlmeyer then deposed De Sapio and moved to stay the court proceedings pending arbitration. Special Term denied the stay. The Appellate Division affirmed. The Court of Appeals granted leave to appeal and certified the question of whether the order affirming the denial of the stay was properly made.
Issue(s)
Whether Kohlmeyer waived its right to compel arbitration by actively participating in the lawsuit through actions such as asserting a cross-claim and taking the plaintiff’s deposition.
Holding
Yes, because Kohlmeyer’s actions demonstrated an affirmative acceptance of the judicial forum, which is inconsistent with a later claim that only the arbitral forum is satisfactory. These actions constituted a waiver of Kohlmeyer’s right to stay the action and compel arbitration.
Court’s Reasoning
The court reasoned that while a defendant does not automatically waive its right to arbitration by merely interposing an answer, affirmative use of the judicial process is inconsistent with a later attempt to invoke arbitration. The court emphasized that the key is the degree of participation in the lawsuit. Actions consistent with asserting the right to arbitrate do not constitute a waiver. However, when a defendant’s participation shows an affirmative acceptance of the judicial forum, with its attendant advantages, it waives the right to stay the action and compel arbitration.
The Court found that Kohlmeyer’s interposition of a cross-claim seeking apportionment of liability and its procurement of a deposition of De Sapio constituted an affirmative use of the judicial process. The court noted that apportionment of liability could not be obtained in arbitration because Fidelifacts was not a party to the arbitration agreement. Furthermore, the court highlighted the importance of discovery procedures in distinguishing judicial and arbitral proceedings, stating that “It is contemplated that disclosure devices will be sparingly used in arbitration proceedings. If the parties wish the procedures available for their protection in a court of law, they ought not to provide for the arbitration of the dispute.” The court concluded that Kohlmeyer could not use the courtroom as a “convenient vestibule to the arbitration hall” to combine litigation and arbitration strategically. The court also stated, “where the defendant’s participation in the lawsuit manifests an affirmative acceptance of the judicial forum, with whatever advantages it may offer in the particular case, his actions are then inconsistent with a later claim that only the arbitral forum is satisfactory.”