Fourth Circuit: Active and Protracted Litigation of Claims Waives Compulsory Arbitration

On January 18, 2018, the U.S. Court of Appeals for the Fourth Circuit held that when a party to an arbitration agreement actively and substantially participates in prolonged litigation, it waives its right to compulsory arbitration under the agreement. In Degidio v. Crazy Horse Saloon & Restaurant, 2018 WL 456905 (4th Cir. Jan. 18, 2018), the Fourth Circuit upheld the lower court’s decision denying Crazy Horse Saloon and Restaurant’s (Crazy Horse) motion to compel arbitration in a suit alleging violations of the Fair Labor Standards Act (FLSA) and state employment laws. The court essentially held that the Crazy Horse’s participation in litigation for over three years before filing a motion to compel arbitration severely prejudiced the plaintiffs and consequently its right to compulsory arbitration was waived. In very interesting dicta, the court indicated that the arbitration agreements were also invalid because they were presented under circumstances that were “ripe for duress.” However, the court stopped short of analyzing the arbitration agreement under the contract principle of unconscionability.