Dispute Resolution: The Alabama Supreme Court allows arbitration to proceed, even after litigation had been initiated
Recently, the Alabama Supreme Court affirmed a Mobile County trial court’s order granting the stay of an action until arbitration was completed. IBI Group, Michigan, LLC v. Outokumpu Stainless USA, LLC. In 2007 and 2008, IBI Group (“IBI”) entered into contracts with Outokumpu and other steel companies (the “steel companies”) to provide architectural and engineering services associated with the construction of a steel-processing facility.
These contracts contained identical provisions regarding the resolution of any disputes that might arise from the contracts: “Any dispute arising out of or related to the contract[s] shall be subject to mediation, arbitration or the institution of legal or equitable proceedings at the sole discretion of [the steel companies].” Disputes arose between IBI and the steel companies and the steel companies sued IBI in the United States District Court for the Southern District of Alabama (the “District Court”) in March of 2012. Subsequently, after filing answers and beginning the discovery process, in June of 2013, the District Court questioned whether its jurisdiction was proper.
In response to the District Court’s jurisdictional question, the steel companies filed a stay of the litigation and initiated arbitration proceedings against IBI. Simultaneously, IBI filed a new action in Mobile County (the “trial court”). The District Court dismissed the federal action and the steel companies filed an answer and moved to stay the state court action pending the arbitration.
The trial court granted the steel companies’ motion to stay the litigation pending arbitration and IBI appealed to the Alabama Supreme Court. IBI first argued that the steel companies were prevented from selecting arbitration after initially selecting litigation as a means of resolving the dispute. However, the Supreme Court disagreed, finding that the language of the contracts did not preclude the steel companies from now seeking arbitration. The Supreme Court found that the use of the word “or” in the dispute resolution provision was used as a conjunctive, allowing the availability of multiple dispute resolution methods. This permitted the steel companies to select another method of dispute resolution after the litigation in the District Court failed.
IBI next argued that the right to invoke arbitration was waived because the litigation process had been substantially invoked and IBI was now prejudiced. IBI argued that litigation had been substantially invoked based on its $80,000 expense in complying with the discovery of the District Court. However, the Supreme Court held that IBI failed to produce the required evidence of prejudice and further held that the $80,000 in discovery costs from the District Court case would “presumably still be required in arbitration” and was not considered evidence of prejudice.
Based on the reasoning above, the Alabama Supreme Court held that the “steel companies have not waived their rights to arbitration and that the trial court’s order staying the action until arbitration was complete was proper.”