9 N.Y.3d 59 (2007)
A party waives its right to arbitrate when it actively participates in litigation in a manner inconsistent with an intent to arbitrate, but actions to preserve the status quo or address urgent needs do not necessarily constitute waiver.
Summary
Linda Stark, a former partner at Molod Spitz DeSantis & Stark, sued the firm for breach of contract, gender discrimination, and other claims after her termination. The firm initially participated in a special proceeding and related court actions regarding client files and fees, before moving to compel arbitration based on an employment agreement. The New York Court of Appeals held that the firm’s prior actions in court did not constitute a waiver of its right to arbitrate, as those actions were primarily aimed at resolving immediate issues related to client representation and fees, and the firm had reserved its rights. The case was remitted to the Appellate Division to determine if the gender discrimination claim was arbitrable.
Facts
Linda Stark was a contract partner at Molod Spitz DeSantis & Stark. Her employment agreement contained an arbitration clause for all disputes. After the firm terminated Stark, she removed files and solicited clients. Stark initiated a special proceeding seeking client file access, fee arrangements, and unpaid wages. The firm opposed the application and cross-moved for retaining and charging liens and other reimbursements, but did not initially seek to compel arbitration. A stipulation was reached regarding client files and disbursements, with a mutual reservation of rights. Stark then filed a plenary action alleging breach of contract, gender discrimination, and defamation.
Procedural History
Stark initiated a special proceeding, followed by a plenary action. The firm moved to dismiss or compel arbitration in the plenary action. Supreme Court dismissed some claims, compelled arbitration on the gender discrimination claim, and denied Stark’s cross-motion to stay arbitration. The Appellate Division reinstated dismissed claims, denied the motion to compel arbitration, and granted Stark’s cross-motion to stay arbitration, finding the firm had waived its right to arbitrate. The Court of Appeals granted leave to appeal on the arbitration issue.
Issue(s)
Whether the law firm waived its right to compel arbitration by participating in a special proceeding and related court actions before moving to compel arbitration in a subsequent plenary action.
Holding
No, because the firm’s actions in the initial special proceeding and related court actions were primarily focused on resolving urgent, practical issues related to client representation and fees, and the firm had included a mutual reservation-of-rights clause in the stipulation.
Court’s Reasoning
The Court of Appeals recognized New York’s strong public policy favoring arbitration. However, the right to arbitration can be waived if a party’s actions are inconsistent with an intent to arbitrate. Citing De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 405 (1974), the Court emphasized that waiver occurs when a party’s participation in litigation “manifests an affirmative acceptance of the judicial forum.” The Court distinguished the firm’s actions from a waiver, noting that the initial court actions were prompted by Stark’s application for emergency relief regarding client files and fees. The stipulation minimized interruption of Stark’s client representation. The Court stated, “Notably, the motions in the trial courts seeking attorneys’ fees and disbursements were contemplated by the stipulation, and the firm’s only other affirmative motion subsequent to the stipulation sought to enforce it.” The mutual reservation-of-rights clause in the stipulation also preserved the firm’s right to demand arbitration for other claims. The Court remitted the case to the Appellate Division to determine whether Stark’s gender discrimination claim was arbitrable. The Court reasoned that the firm’s actions were consistent with an attempt to preserve the status quo and address immediate needs, rather than an affirmative acceptance of the judicial forum for resolving all disputes.