Whether mortgagee waived its right to compel arbitration through litigation-conduct waiver was an issue for the courts rather than the arbitrators: AMERICAN GENERAL HOME EQUITY, INC. V. KESTEL (SC 5/22/2008)

AMERICAN GENERAL HOME EQUITY, INC. v. KESTEL
ARBITRATION:   Litigation conduct and waiver of arbitration
2006-SC-000830-DG.pdf
PUBLISHED: REVERSING AND REMANDING
OPINION BY MINTON; NOBLE NOT SITTING
FROM MERCER COUNTY
DATE RENDERED: 5/22/2008

American General Home Equity, Inc., filed a mortgage foreclosure action in circuit court against Teresa Kestel. Kestel counterclaimed, asserting fraud and federal and state statutory claims under the Truth in Lending Act and the Kentucky Consumer Protection Act. The trial court denied American General’s motion to compel arbitration on Kestel’s counterclaims, finding that no arbitration agreement existed between American General and Kestel. A majority of the Court of Appeals panel hearing the case on appeal disagreed with the trial court about the absence of an arbitration agreement; but the panel upheld the denial of American General’s motion to compel arbitration anyway, holding, instead, that American General had waived its arbitration rights through its “nine-month delay in moving for arbitration” following the filing of Kestel’s counterclaims.

SCOKY granted discretionary review in order to provide guidance to courts and counsel concerning when a party’s litigation conduct amounts to an implied waiver of its rights to enforce a contractual right to arbitration. The Court concluded that the mortgagee’s litigation conduct was not clearly inconsistent with asserting contractual arbitration rights and did not waive its right to arbitrate the mortgagor Kestel’s counter-claim; and the Court of Appeals erred in determining that American General waived its arbitration rights.  Case was reversed and remanded to the trial court for proceedings consistent with this opinion. This ruling leaves open on remand the possibility that Kestel may, by proper motion, raise her contention that application of the arbitration provisions could, by cost or otherwise, deprive her of an adequate opportunity to present her claims and defenses.  Issue of whether mortgagee waived its right to compel arbitration through litigation-conduct waiver was an issue for the courts rather than the arbitrators.

Mike Stevens, ed.