Denial of a motion to compel arbitration; Federal Arbitration Act (9 USC § 1 et seq.); Johnson Assocs. Corp. v. HL Operating Corp.; Whether defendants waived their arbitration rights through a pre-litigation letter; Shy v. Navistar Int’l Corp.; Hurley v. Deutsche Bank Trust Co. Ams.; A pre-litigation letter distinguished from a party’s representations in other settings; Highlands Wellmont Health Network v. John Deere Health Plan, Inc.; Principle that once litigation begins a party is typically bound by its action; Kay v. Minacs Group (USA), Inc. (Unpub. 6th Cir.); Eubanks v. CBSK Fin. Group, Inc.; MacDonald v. General Motors Corp.; Public policy strongly favoring settlement of disputes without litigation; Aro Corp. v. Allied Witan Co.; Whether plaintiff was prejudiced by the letter; Kramer v. Hammond (2d Cir.); Whether a showing of prejudice is necessary for an “express waiver”; General Star Nat’l Ins. Co. v. Administratia Asigurarilor De Stat; Gilmore v. Shearson/Am. Express, Inc. (2d Cir.); Gordon v. Dadante (Unpub. 6th Cir.); Policy favoring arbitration when ambiguity exists; Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.

The court reversed the district court, holding that the pre-litigation letter defendants (collectively Oro) sent to plaintiff-Borror did not constitute a waiver of their right to arbitration under the parties’ contract. They entered into a property management contract that contained an arbitration clause. Oro accused Borror of breaching the contract, and sent it a letter threatening future litigation unless Borror notified Oro within six days that it preferred arbitration. Within a week after receiving the letter, Borror sued in federal court. Oro then moved for arbitration. But the district court ruled that Oro waived its contractual right to arbitration through its pre-litigation letter. The main dispute was whether that letter constituted “conduct ‘completely inconsistent’ with its arbitration rights[,]” a necessary finding to establish a waiver. The court held that it was insufficient where “letters between parties as a prelude to more formal dispute resolution is a time-honored tradition.” It noted that the purposes of the letters are varied (e.g., “puffery” or a means to express the parties’ concerns), but without knowing a party’s intentions when drafting the pre-litigation letter, it was “understandably reluctant to give those letters the same legal force as . . . representations in other settings” such as an admission during discovery. The court did not consider Oro’s letter to be “‘completely inconsistent’ with" their arbitration rights. Oro, in fact, identified in the letter “the possibility of arbitration, even if it otherwise indicated a preference for litigation. And as soon as Borror filed its complaint, Oro moved to compel arbitration.” The court concluded that any other result would deter settlements before litigation or arbitration. It also noted that Borror could not show that it was “materially prejudiced by Oro’s actions.” The court rejected Borror’s argument that prejudice need not be established when considering an “express” rather than an “implied” waiver, noting that even if this were the case, “Oro did not expressly waive its arbitration rights.” Remanded.