Defendant tries to compel arbitration after trial judge adopts plaintiff’s contract interpretation – no dice, says Fifth Circuit

Use it or lose it — “it” being an arbitration clause in a contract dispute: That’s the lesson of Petroleum Pipe Americas Corp. v. Jindal Saw Ltd., No. 08-20461 (5th Cir. Jul. 9, 2009) (affirming denial of motion to stay and to compel arbitration).

After the plaintiff filed its breach-of-contract lawsuit in state court, the defendant removed the case to federal court and filed an answer and counterclaim. Over the next several months, the parties exchanged documents, engaged in settlement discussions, and participated in several off-the-record conferences in the judge’s chambers. Eventually they filed a joint status report setting forth their respective interpretations of the contract. See id., slip op. at 3-4.

But then things started going south for the defendant: In one of the off-the-record chambers conferences, the district judge indicated that he was going with the plaintiff’s interpretation of the contract language.

Shortly thereafter — and one day short of a year after the lawsuit had been filed — the defendant suddenly remembered that the contract contained an arbitration clause. It moved to stay the litigation and to compel arbitration. The plaintiff opposed the motion (naturally), and the judge denied it.

The appeals court had no trouble holding that the defendant, by engaging in the litigation process as much as it had, had waived its right to arbitrate. The defendant was not entitled to a second bite at the apple, said the appeals court; having seen which way the district judge was leaning on the contract interpretation issue, it could not call for a do-over in a new, arbitration proceeding.