Can filing a lawsuit waive the right to arbitration in Utah? Hardman v. Hardman Explained

The Utah Court of Appeals addressed a critical question for practitioners in Hardman v. Hardman: when does filing a lawsuit constitute a waiver of the contractual right to arbitrate? The court’s decision provides important guidance on the distinction between preserving the status quo and substantially participating in litigation.

Background and Facts

The case involved a family dispute over Hardman Properties LLC, which owned thirty-two parcels of land in Cache County. The LLC’s operating agreement contained a mandatory arbitration clause requiring all disputes to be submitted to binding arbitration. After the parents allegedly dissolved the LLC in August 2021, brothers Paul and Jon Hardman filed suit in September 2021 to prevent distribution of the properties. Crucially, they simultaneously filed a motion for a temporary restraining order explicitly stating the need to preserve the status quo “pending resolution of the dispute at Arbitration.” Three months later, they moved to compel arbitration.

Key Legal Issues

The central issue was whether the brothers waived their right to arbitrate by filing a complaint and participating in litigation activities. Under Utah’s Chandler test, waiver requires both: (1) substantial participation in litigation to a point inconsistent with the intent to arbitrate, and (2) prejudice to the opposing party. The district court found waiver based on the brothers’ filing of the complaint, TRO motion, answers to counterclaims, and exchange of initial disclosures.

Court’s Analysis and Holding

The Court of Appeals applied correctness review to the district court’s waiver determination, finding it was based solely on documentary evidence rather than factual findings about the parties’ intent. The court distinguished this case from prior precedents where parties clearly intended to litigate rather than arbitrate. Here, the brothers’ TRO motion explicitly referenced arbitration, and their subsequent actions were consistent with maintaining the status quo pending arbitration rather than pursuing litigation to conclusion. Importantly, the court noted that under the 1996 version of the Utah Arbitration Act (which applied to the parties’ agreement), no provisional remedies were available, making the lawsuit necessary to preserve the disputed properties.

Practice Implications

This decision clarifies that parties can take necessary procedural steps to preserve the status quo without waiving arbitration rights, provided they consistently express intent to arbitrate. However, practitioners should explicitly reference arbitration agreements and intent to arbitrate in initial pleadings to avoid potential waiver arguments. The ruling also highlights the importance of understanding which version of the Utah Arbitration Act applies to older agreements, as this affects available remedies and procedural options.