Cabinetree of Wis. v. Kraftmaid Cabinetry - 50 F.3d 388 (7th Cir. 1995)

Rule:

An election to proceed before a nonarbitral tribunal for the resolution of a contractual dispute is a presumptive waiver of the right to arbitrate. An election to proceed in court is a waiver of a contractual right to arbitrate, without insisting on evidence of prejudice beyond what is inherent in an effort to change forums in the middle (and it needn't be the exact middle) of a litigation. What is in question here is not a choice between remedies in the usual sense (rescission versus damages, damages versus an injunction, and so forth) but the selection of the forum. In ordinary contract law, a waiver normally is effective without proof of consideration or detrimental reliance. 

Facts:

The plaintiff, Cabinetree, had made a contract with the defendant, Kraftmaid, in 1989 whereby Cabinetree became a franchised distributor in Wisconsin of kitchen and bath cabinets made by Kraftmaid. In September 1993, Cabinetree filed suit in a Wisconsin state court against Kraftmaid, charging that Kraftmaid had terminated the franchise in violation of the Wisconsin fair dealership law, Wis. Stat. §§ 135.01 et seq., and of Wisconsin common law as well. The case was removable to federal district court, and within the thirty-day limit specified by law Kraftmaid removed the case to a federal district court in Wisconsin. 28 U.S.C. §§ 1441(a), 1446(b). Discovery began. In January 1994, a trial date of December 6, 1994, was set. In response to Kraftmaid's discovery demands, Cabinetree produced almost two thousand documents. Kraftmaid dragged its heels in responding to Cabinetree's discovery demands. On July 11 Kraftmaid dropped a bombshell into the proceedings. It moved the district court under 9 U.S.C. § 3 to stay further proceedings pending arbitration of the parties' dispute. The franchise agreement, which had been drafted by Kraftmaid, provides that "any controversy, claim, dispute, credit, or other matter in question should be decided by arbitration in Cleveland, Ohio in accordance with the rules of the American Arbitration Association." Cleveland is Kraftmaid's headquarters. The district court denied the motion, and Kraftmaid appeals, as it is entitled to do, even though the denial of its motion to stay was an interlocutory ruling. 9 U.S.C. § 16(a)(1)(A).

Issue:

By removing the case to federal district court, rather than moving for a stay of the suit in state court, did Kraftmaid presumptively waive its right to arbitrate under the contract?

Answer:

Yes.

Conclusion:

The court held that, by removing the case to federal district court, rather than moving for a stay of the suit in state court, Kraftmaid presumptively waived its right to arbitrate under the contract. The court found that the presumption of a waiver of the right to arbitrate had not been rebutted, and that neither party was prejudiced by the delay in seeking arbitration. The arbitration clause gave either party the choice of an alternative, nonjudicial forum in which to seek a resolution of a dispute arising out of the contract, and the failure of either to move promptly for arbitration was evidence that they made their election against arbitration.