Nevada Supreme Court Finds Waiver of Right to Arbitrate Based on Separate, But Related Litigation

The Nevada Supreme Court recently ruled that a party defendant waived its right to compel arbitration due to its litigation conduct in a separate, but related litigation.  The court also clarified Nevada jurisprudence regarding whether the court or arbitrator should decide if a party waived its right to compel arbitration by that party’s litigation activities.  While not a construction case, Nevada courts might apply the same principles in pending construction matters, so the case is instructive.

Principal Investments, Inc. v. Harrison, 2016 WL 166011 (Nev. 2016), concerned a class action for fraud against a payday loan company and its process server related to default judgments the company obtained in prior litigations using affidavits of service allegedly falsified by the process server.  The loan company defendant sought to compel the class action plaintiffs to arbitrate their claims based on arbitration provisions in the loan documents.

After discussing the general criteria Nevada courts apply to determine whether the court or the arbitrator should decide waiver, the court determined that courts presumptively should decide issues of waiver based on litigation activities, “unless the arbitration agreement clearly commits the question to the arbitrator.”  Id. at *1.  While the loan agreements at issue provided that issues regarding the validity, scope, enforceability, and applicability of the arbitration clauses were subject to arbitration, the court did not find “clear and unmistakable intent” by the parties to arbitrate issues of waiver based on litigation activities.  Id. at *7. 

Regarding the merits of the waiver, the court found that the loan company’s litigation activities in the prior litigations in which the company obtained the default judgments against the plaintiffs waived the company’s right to demand arbitration of the plaintiffs’ current claims.  The court acknowledged prior jurisprudence and that “only prior litigation of the same legal issues as those the party now wants to arbitrate results in waiver of the right to arbitrate.”  Id. at *8.  However, the court found that “[t]he claims the named plaintiffs have asserted in district court arise of, and are integrally related to the litigation Rapid Cash conducted in justice court.”  Id. at *9.  The court also stated the arbitration agreements “should not be applied to sanctify a fraud upon the court allegedly committed by the party who itself elected a litigation forum for its claim.”  Id.

A copy of the decision is linked here.