Last week, the Sixth Circuit handed down its decision in Supplemental Benefit Committee v. Navistar International Corp., an appeal by a corporation seeking to compel arbitration in an ongoing dispute over employee benefits. Subjecting the disputed contractual issues to arbitration and holding that Navistar had not waived arbitration by participating in litigation, the Sixth Circuit demonstrated just how wide the “strong federal preference” for arbitration sweeps.
The opening salvo in this series of lawsuits was fired as a class action by employees of Navistar after the company attempted to reduce their benefits. There, the court entered a consent decree restructuring the employees’ benefit plan and forming a Supplemental Benefit Committee (SBC) to administer the plan and a trust. Under the decree, Navistar was to report to the SBC its financial information to ensure the company’s compliance with the plan, and disputes over this information were “to be referred for binding determination to an accountant.” After disputing several of Navistar’s reports and calculations under the plan, the SBC requested additional information from Navistar and eventually intervened in the original class action. On Navistar’s motion to dismiss SBC’s intervening complaint, the district court held that, although the informational disputes were subject to the arbitration clause, Navistar had waived arbitration through its conduct before and during litigation.
In vacating the district court’s dismissal of the action and compelling arbitration, the Sixth Circuit first held that, although the arbitration clause “could potentially involve questions of contract interpretation as well as accounting,” (1) the unqualified language of the agreement trumped the assumption that the parties would not commit legal disputes to an accounting firm, and (2) it was reasonable to assume that the parties intended the accounting-related contract disputes to be arbitrated.
Second, the court held that Navistar did not waive its right to arbitrate through its actions before and during litigation. The court indicated that: Navistar had acknowledged the possibility of arbitration in one of its responses to the SBC’s request for information; ignoring a subsequent SBC letter was mere “posturing” and not a refusal of a formal request to arbitrate; SBC could have sought to compel arbitration prior to its motion to intervene; and Navistar could not have waived its right to arbitrate issues alleged in SBC’s complaint that arose after the company’s behavior that allegedly constituted waiver.
In his dissent, Judge Clay disagreed with both the majority’s characterization of the consent decree and its analysis of waiver. Elaborating on some of the facts of the case, the dissent argued that SBC’s complaint was actually that Navistar had deliberately manipulated its corporate structure in order to reduce its contributions to the plan, and that Navistar was “engaging in a bad faith scheme to negate its substantive contractual duty to contribute a portion of its profits to fund the benefits of its retirees.” The dissent also did not accept Navistar’s refusal to answer the SBC as “posturing,” and would have held that Navistar’s delays caused SBC to incur additional litigation costs and thus prejudice.
