The Mississippi Supreme Court held that the contractor-seller waived its right to arbitration by failing to raise it as an affirmative defense and actively participating in the lawsuit. The contractor-seller's waiver, however, had no impact on the broker's ability to assert its right to arbitration. The court rejected the purchaser's argument that as a non-signatory the broker had no right to arbitration. Instead, the court held that as an agent expressly recognized in the agreement, the broker had an independent right to assert arbitration over claims arising from the agreement.
The court further rejected the purchaser's argument that the contractor-seller's waiver of arbitration was binding on the broker. For guidance, the court looked to an earlier Mississippi case, Am. Family Life Assurance of Columbus v. Ellison, 4 So.3d 1049 (Miss. 2009), which held that the decision to challenge venue was a personal decision that could not be waived by another defendant. In Lemon Drop, the court reasoned that the exercise of the right to arbitrate is a strategic decision and is therefore also personal in nature. The court concluded that the logic of Ellison was controlling, and the actions of one defendant could not operate as a waiver of the rights of another defendant.
Lemon Drop Dissent
One justice dissented; writing that the majority's reliance on Ellison was misplaced because arbitration is a purely contractual right that is governed by the laws of agency. Thus, the broker "stepping into the shoes of [the seller] had no right to assert a separate right to arbitration for actions taken solely as the agent of [the seller] where [the seller] had chosen to waive that right."
Approach of Other Jurisdictions
Courts in two other states have addressed this issue and reached the same result as Lemon Drop, but on different logical grounds. In Kiskadee Commc'ns v. Father, 2011 WL 1044241 (N.D. Cal. March 22, 2011), the Northern District of California relied solely on agency law in refusing to impute a principal's arbitration waiver to its agent. In sharp contrast to the Lemon Drop dissent, the Kiskadee court held that although the actions of an agent may bind a principal, the actions of a principal may not bind its agent. The decision of the Court of Appeals of Texas, in Garcia v. Huerta, 340 S.W. 3d 864 (Tex. App. 2011), focused on the legal requirements for the waiver of a right, holding that the waiver of any right may only be achieved through the personal acts and expressions of each defendant.
It is unclear whether other jurisdictions will reach the same conclusion as the Mississippi Supreme Court if they are confronted with the same issue. While there is extensive law establishing the circumstances under which a principal may be bound by the acts of its agent, the converse is not true; the Restatement (Third) of Agency provides no guidance on whether a principal may bind an agent. Additionally, as evidenced by the dissonance between the Lemon Drop dissent and the Kiskadee majority, the proper application of agency law to this issue is disputed.
Keywords: litigation, alternative dispute resolution, agent-principal, arbitration, right to arbitration waiver, waiver