Arizona Court of Appeals Division Two Holds That Constructive Knowledge is Sufficient for the Waiver of a Contractual Right to Arbitration.

Fraces Cortez was admitted to the La Colina nursing home in December 2003 and resided there until her death two months later.  In December 2007, her daughter, Juanita, filed a complaint against Avalon, alleging negligence, abuse or neglect of a vulnerable adult, and wrongful death.  Avalon answered the complaint in March 2008.  Nearly one year later, Avalon moved to dismiss the complaint and compel arbitration.  After an evidentiary hearing, the trial court granted Avalon’s motion, concluding that Avalon had not waived its right to enforce the arbitration agreement because it filed its motion to compel arbitration as soon as it found the arbitration agreement in its files.  Juanita Cortez immediately appealed.

The Arizona Court of Appeals reversed the trial court’s ruling.  Although public policy favors arbitration, it is generally agreed in Arizona that a party can waive the right to enforce an arbitration agreement.  Establishing waiver of an arbitration agreement by conduct requires “the showing of conduct inconsistent with the utilization of the arbitration remedy—conduct showing an intent not to arbitrate.”  EFC Dev. Corp. v. F.F. Baugh Plumbing & Heating Inc., 24 Ariz. App. 566, 569, 540 P.2d 185, 188 (1975).  In this case, Avalon not only failed to assert any contractual right to arbitrate in its answer, but exhibited additional conduct inconsistent with enforcing the agreement by demanding a jury trial, conducting discovery, and participating in a comprehensive pretrial conference.  According to the Arizona Court of Appeals, Avalon must be deemed to have waived its right to arbitrate by such behavior. The Arizona Court of Appeals then rejected Avalon’s argument that, because it did not know about the arbitration agreement until shortly before it filed its motion, it could not have knowingly waived its right to arbitrate.  The Court adopted the longstanding rule from courts in other jurisdictions that constructive knowledge is sufficient for the waiver of a contractual right, such as arbitration.   Because the same arbitration agreement is presented to every patient admitted to La Colina and most of them agree to sign it, the Court concluded that Avalon had sufficient knowledge of its right to arbitration to have waived it.    

Judge Eckerstrom authored the opinion; Judges Vasquez and Kelly concurred.