Kentucky Supreme Court Rules on Waiver of Arbitration Contract Clauses

The Kentucky Court of Appeals recently reversed an order of the Powell Circuit Court which vacated its prior order compelling arbitration in a dispute between Weis Builders, Inc. and Complete Contracting, Inc. The circuit court found that Weis Builders waived its right to arbitration of the claims due to correspondence it sent to Complete Contracting prior to initiation of the lawsuit. Weis Builders appealed the order claiming it did not waive its right to arbitrate, and the Court of Appeals agreed.

Weis Builders and Complete Contracting entered into a contractual relationship for various construction projects. According to the contract, Weis Builders had the unilateral authority to determine whether a dispute between the parties would be resolved by arbitration or litigation.

After a dispute arose, various correspondence were exchanged between the parties. In one particular correspondence, counsel for Weis Builders stated “at this point in time, Weis Builders’ preference is to litigate the dispute rather than arbitrate it, although this is open to discussion.” Based on this, Complete Contracting filed a lawsuit against Weis Builders in Powell Circuit Court. When Weis Builders moved the circuit court to compel arbitration, the circuit court ultimately agreed with Complete Contracting’s argument that the correspondence represented Weis Builders’ decision to proceed with litigation instead of arbitration.

On appeal, the Court was asked to determine whether the correspondence constituted a waiver of Weis Builders’ right to arbitrate. The Court answered this question in favor of Weis Builders for several reasons. First, the statement at issue was “something less than an unequivocal declaration of [Weis Builders’] intent to waive a contractual right.” Second, it is widely recognized that a “waiver will not be inferred lightly.” Thus, at most, Weis Builders stated only a preference which it was open to discussing. Finally, Kentucky public policy favors arbitration provisions, and if the evidence shows the existence of a right to arbitrate, there is a presumption of validity which will not be easily rebutted.

This case therefore demonstrates that arbitration provisions in a contract can be waived, but the waiver must be unequivocal. Something greater than a mere inference of intent will be required.