A recent decision of the Supreme Court has removed one of the strongest arguments that an attorney resisting arbitration had - that the party demanding arbitration had waived the right to so demand by engaging in discovery procedures not available to the demanding party in arbitration. In the case of HCW Retirement and Financial Services v. HCW Employee Benefit Services, the Court granted discretionary review of a unanimous Court of Appeals decision upholding the trial court's denial of a motion to compel arbitration. Although there was also a dispute about whether some or all of the claims were subject to the arbitration clause, the operative issue was waiver by the time the case reached the Supreme Court. At issue was the interpretation of two Supreme Court decisions from nearly 30 years ago, Cyclone Roofing Co. v. David M. LaFave Co., 312 N.C. 224, 321 S.E.2d 872 (1984) and Servomation Corp. v. Hickory Constr. Co., 316 N.C. 543, 342 S.E.2d 853 (1986)).
The plaintiffs had argued that arbitration was waived because the defense attorney had deposed a witness under the Rules of Civil Procedure and had asked about an hour's worth of questions about the claims clearly subject to arbitration. Since one point of arbitration is to avoid the expense and delay caused by the judicial discovery process, prior decisions of the Court of Appeals had interpreted Cyclone Roofing and Servomation Corp to mean that if a party exercised a discovery device like a deposition, then a waiver had occurred. In the context of UM/UIM arbitration this was the precise result in Capps v. Virrey, 184 N.C.App. 267, 645 S.E.2d 825 (2007), where a plaintiff waived his arbitration rights by sending interrogatories, requests to produce, and requests for admission.
Rejecting this line of authority, the Supreme Court bought instead the defense argument, that under the rules of arbitration, discovery is allowable at the discretion of the arbitrators - and thus depositions or other forms of discovery are not "unavailable in arbitration." As such, the language in the earlier Supreme Court decisions would not support a waiver of the right to demand arbitration. The Court did not discuss in its opinion the Court of Appeals precedent overruled by this decision, as it need not worry about such things, but those of us in practice need to realize that what we thought the law was is just plain wrong (particularly in the area of UM/UIM arbitration where this issue often arises). This result also essentially means that there no longer is any waiver argument to make based on discovery conducted by the moving party, because in theory virtually every potential discovery device under the Rules of Civil Procedure could in fact be allowed by the arbitrators. It is hard to imagine any such waiver argument succeeding under the test now clarified by this Supreme Court decision.
