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We leave open the possibility that the presumption that courts decide issues of litigation-conduct waiver might be rebutted in certain circumstances, such as where an arbitration agreement between sophisticated parties explicitly provides that arbitrators will decide questions of whether arbitration rights have been waived by inconsistent litigation conduct. American General, citing a portion of the Arbitration Agreement that defines a “covered claim” subject to arbitration as including “any defenses as to the enforceability of the Loan Agreement or the Arbitration Provisions,” asserts that the contract provides for the arbitrator to decide litigation-conduct waiver. Nevertheless, we decline to decide today whether this contractual language is sufficient to rebut the presumption that the issue of litigation conduct waiver should be resolved by the courts because that issue has not been briefed by the parties; and it is not necessary for resolution of this case. Litigation-conduct waiver by arguing that arbitrators rather than courts should resolve issues of whether rights under an otherwise binding agreement to arbitrate have been waived through a party's litigation conduct. In other words, American General contends that having found a binding agreement to arbitrate, the Court of Appeals should have refrained from considering the issue of litigation-conduct waiver but simply reversed the trial court's judgment with directions to send the case to an arbitrator to decide whether litigation-conduct waiver occurred.
So we do not believe we should violate the law-of-the-case principle to reach Kestel's issue. Sallee v. Sallee, 142 S.W.3d 697, 698 (Ky.App.2004) (refusing to reach appellant's argument to reverse trial court's judgment on maintenance that was not among issues raised in prehearing statement or by timely motion under CR 76.03). Kestel contends that she is entitled to a hearing before the trial court concerning whether she can effectively vindicate her federal statutory rights in arbitration before the trial court could stay the court action and compel arbitration.41 Because this issue was understandably not raised in the trial court since Kestel prevailed there, we decline to express any opinion on it. But we see no reason why Kestel could not raise this issue in the trial court upon timely motion on remand.42 So, rather than direct the trial court to enter an order compelling arbitration at this time, we will simply reverse and remand for proceedings consistent with this opinion. We believe that the significance of this rule is that the Court of Appeals will not consider arguments to reverse a judgment that have not been raised in the prehearing statement or on timely motion. After all, the issues on appeal are the issues used to challenge the trial court's judgment.
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See The Beyt, Rish, Robbins Group, Architects v. Appalachian Regional Healthcare, Inc., 854 S.W.2d 784, 786 (Ky.App.1993). That case did not present the question of whether arbitration rights had been waived through inconsistent conduct in litigation but, rather, a question of pure delay in demanding arbitration outside of court. American General cites the United States Supreme Court decision in the Howsam case, which states in dicta that generally questions of waiver are presumed to be issues for the arbitrator rather than a court. But Howsam did not actually reach the question of litigation-conduct waiver. Rather Howsam focused upon whether a party waived its arbitration rights by not complying with a contractual time limitation for asserting arbitration. Some federal courts have applied Howsam's dicta to conclude that litigation-conduct waiver must be decided by arbitrators, while other federal courts have continued to decide litigation-conduct waiver issues themselves even after Howsam.
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. Rather, we stress that a court's task is to determine, given all the facts and circumstances of the litigation conduct that has occurred before it,39 whether the party seeking arbitration has acted in a manner inconsistent with the intent to exercise arbitration rights such that one could reasonably infer that the party has voluntarily relinquished their arbitration rights. Because waiver is not to be lightly inferred and because the general policy of both federal law and Kentucky law is to favor arbitration where parties have reached a valid agreement that disputes be arbitrated,40 courts must enforce arbitration agreements where the party seeking arbitration has not engaged in litigation conduct that is clearly inconsistent with asserting their arbitration rights. 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.
A. Applicability of Arbitration Agreement Is Law of the Case.
While American General's litigation conduct does not demonstrate a prompt and decisive invocation of arbitration rights, its conduct is not clearly inconsistent with an intent to seek arbitration. And we hold that the Court of Appeals erred when it implied waiver by conduct. Because we are essentially reviewing the Court of Appeals' application of the law to facts,23 we review its decision under a de novo standard.24 In the present case, the litigation-conduct issue boils down to American General's delaying for several months a motion to compel arbitration after giving notice in pleadings of the possibility of arbitration of arbitrable claims and defending motions filed in the circuit court by its party-opponent after the party-opponent was on notice of the possibility of arbitration. It is not necessary to the resolution of this case that we decide whether prejudice must be shown because the record of the litigation conduct in this case does not reveal litigation conduct that is clearly inconsistent with asserting arbitration rights. In other words, the essence of waiver is not established. Rather, we stress that a court's task is to determine, given all the facts and circumstances of the litigation conduct that has occurred before it, whether the party seeking arbitration has acted in a manner inconsistent with the intent to exercise arbitration rights such that one could reasonably infer that the party has voluntarily relinquished their arbitration rights.
In January 2004, Teresa Kestel filed an answer and counterclaim against American General in the Mercer Circuit action, alleging fraud and federal and state statutory claims under the Truth in Lending Act and the Kentucky Consumer Protection Act. American General immediately filed a motion for an extension of time to answer the counterclaim, stating it was evaluating its affirmative defenses, "including the right to insist upon arbitration as provided in the loan documents." American General filed its answer in Mercer Circuit Court in late February 2004, raising arbitration as an affirmative defense to the counterclaim. American General immediately filed a motion for an extension of time to answer the counterclaim, stating it was evaluating its affirmative defenses, “including the right to insist upon arbitration as provided in the loan documents.” American General filed its answer in Mercer Circuit Court in late February 2004, raising arbitration as an affirmative defense to the counterclaim. We recognize that the Court of Appeals has applied CR 76.03 to bar consideration of an appellant's arguments for reversal that were not raised in a prehearing statement or by timely motion.
Teresa KESTEL, Appellee.
But considering the settled principle that an appellate court has authority to affirm a trial court judgment, based on different grounds and the lack of requirement that an appellee file a prehearing statement under CR 76.03, we think it is clear that CR 76.03 does not prohibit the Court of Appeals from affirming a judgment on grounds that the appellee failed to raise in a prehearing statement. Kestel argues that we should revisit the issue to avoid a misleading application of the law despite her failure to file a cross-motion. But Mitchell makes clear that ignoring a failure to cross-appeal is outside the normal procedure and appropriate only on "rare occasions." And Mitchell involved the court's deciding the case on the question of the defendant physician's duty, an issue never litigated by the parties in that case, rather than ruling on whether physical contact was required, which was the issue actually resolved by the lower courts. In contrast, in the instant case, Kestel was clearly aware of the arbitration provision applicability issue because she argued it both to the trial court and in the Court of Appeals; but she chose not to challenge the Court of Appeals' adverse finding through a cross-appeal.
We 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. Because we conclude that American General's litigation conduct at issue here was not clearly inconsistent with asserting contractual arbitration rights and thatthe Court of Appeals erred in determining that American General waived its arbitration rights, we reverse and remand to the trial court for proceedings consistent with this opinion. Our ruling here 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. We do not reach the question of whether courts or arbitrators must decide questions of other types of waiver, such as failure to comply with contractual time limitations for demanding arbitration. We note that the Court of Appeals previously held that arbitrators must decide a question of whether arbitration was timely demanded where the contract required that such demand be made within a reasonable time within the applicable statute of limitations and where the only litigation conduct of the party seeking arbitration was to file an action for an order enjoining the other party to participate in arbitration.
American General argues that there are genuine issues of material fact which preclude entry of summary judgment. We are aware of no statutory, contractual, or other particular time limit for bringing the motion to compel arbitration in the instant case. Kestel's Motion to Strike Arbitration Defenses was a tactical attempt to force the resolution of the issue of arbitration quickly.
Thus Countrywide's interest is clearly superior to any interest American may have, and at this point, American appears to have no valid mortgage interest in the subject property. Select from over 115 networks below to view available data about this business. If this data is unavailable or inaccurate and you own or represent this business, click here for more information on how you may be able to correct it. The #1 financial advisor directory with 12 financial advisors in Lewisburg and 98,401 total listings.
John Kestel defaulted on his obligations under the October note, so American General sued him and Teresa in Fayette Circuit Court and in Mercer Circuit Court to foreclose the two mortgages securing the October note. The Mercer Circuit Court foreclosure was filed in late October 2003, two days after the Fayette Circuit case. When Teresa Kestel defaulted on the November note, American General filed a separate action against her in Fayette Circuit Court to collect on that note. Meanwhile, John Kestel had failed to file an answer or other pleading in Mercer Circuit Court so American General moved for default judgment against him. After Teresa served notice of John's death in late March, the trial court declined to enter default judgment against John Kestel.
That ruling is now the law of the case because Kestel did not file a cross-motion for discretionary review in this Court of the adverse ruling by the Court of Appeals. Motion to strike, American General pointed to the November note, arguing that she had agreed to arbitrate any disputes and that the arbitration provisions in the November note applied to the dispute arising out of the October note. It also indicated in the response to the summary judgment motion that the motion was premature because of the possibility of arbitration and the complete lack of discovery. We will not address the applicability of the arbitration agreement in the November note further in this opinion.7 Instead, we will focus solely on whether the Court of Appeals erred in its determination that American General impliedly waived its rights to compel arbitration rights and whether any further proceedings must take place in the Mercer Circuit Court. Two motions she brought while giving notice that arbitration might be sought. American General sought and was granted discretionary review in this Court of the Court of Appeals decision.
In mid-December, the trial court conducted a hearing on American General's motion to compel arbitration and ruled from the bench that the arbitration provisions of the November note did not apply to Kestel's counterclaim because her counterclaim stemmed from the October 2001 loan transaction. The trial court issued a written order denying the motion to compel arbitration in January 2005 but did not state any grounds for its ruling in its written order. American General then filed a timely appeal to the Court of Appeals, which affirmed the trial court on the alternative ground of litigation-conduct waiver. The majority disagreed with the trial court's finding that the arbitration provisions were not applicable. American General then filed a timely appeal to the Court of Appeals,2 which affirmed the trial court on the alternative ground of litigation-conduct waiver. Although the trial court ruled from the bench at a hearing in April 2004 that it would grant Kestel's motion to strike the arbitration defenses based on its finding that the arbitration clause in the November note did apply to the dispute over the October note, the trial court did not enter a written order to this effect until August 2004.
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