Maggie King, Inc. v. ABC Bus Companies, Inc.

Background

Maggie King, Inc. bought a coach bus from the defendants in 2017 for $300,000. The bus had previously been totaled after a garbage-truck collision, then purchased and rebuilt by a third party. Maggie King alleges that the bus’s title did not disclose its salvaged condition, that the defendants knew about that history, and that they failed to disclose it. Maggie King alleges that the bus was worth between $25,000 and $40,000 at the time of purchase.

Maggie King asserted ten Minnesota-law claims involving fraud, negligent misrepresentation, breach of warranties, violation of a Minnesota title-branding statute, promissory estoppel, and unjust enrichment. The opinion states that the complaint does not identify which of the three defendants sold the bus, and that the parties generally referred to the defendants collectively.

Arbitration Agreement and Litigation History

The purchase agreement and bill of sale required the parties to attempt negotiation and mediation and, if mediation did not resolve the dispute, to submit the dispute to final and binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association. The agreement identified the company as “ABC Bus, Inc., its parent or one of its subsidiaries or affiliates.”

After the case was filed, the defendants first sought additional time to respond and then filed a motion under Rule 12(b)(6), which is a request to dismiss claims for failure to state a legally sufficient claim. That motion sought dismissal of four of the ten counts on statute-of-limitations grounds. It did not mention the arbitration provision. The court denied the motion from the bench.

The defendants then asserted arbitration as an affirmative defense in their answer and listed it in the parties’ joint report concerning discovery and case scheduling. About one month later, they moved to compel arbitration. The joint report included proposed discovery, expert, and motion deadlines, but the opinion states that no discovery or discovery-related motion practice had occurred.

Waiver Analysis

The court applied the two-part waiver framework agreed upon by the parties: whether the defendants knew about their arbitration right and whether they acted inconsistently with that right. The court did not apply the older requirement that the opposing party show prejudice, because the Supreme Court had rejected that requirement.

The defendants acknowledged that they knew about the arbitration clause. The court found that they had not acted inconsistently with that right. Although the defendants did not seek arbitration at the earliest possible time, their motion to dismiss was partial, based on one statute-of-limitations defense, and did not seek a decision on the merits or threaten to end the entire case in federal court. The court also emphasized that the defendants raised arbitration in their answer and in the joint scheduling report soon after the motion to dismiss was denied.

The court recognized that the defendants had agreed to a litigation plan that could have led to discovery, expert testimony, dispositive motions, and trial. But those events had not occurred, and the record did not show other conduct inconsistent with arbitration. The court therefore concluded that the defendants had not substantially invoked the federal litigation process and had not waived their contractual arbitration rights.

Other Arguments

The court rejected Maggie King’s argument that the defendants’ statute-of-limitations defense was inconsistent with seeking arbitration. The court found nothing logically inconsistent about asserting a limitations defense in court while also pursuing arbitration rights under the same contract.

The court also rejected Maggie King’s argument that only Maggie King, Inc. and ABC Bus Leasing, Inc. were parties to the purchase agreement. The agreement identified the company as ABC Bus, Inc., its parent, or one of its subsidiaries or affiliates. Because the complaint treated the defendants collectively and the arbitration provision incorporated the American Arbitration Association’s Commercial Rules, the court left the arbitrability of claims against non-seller defendants to the arbitrator.

Disposition

Judge Eric C. Tostrud ordered that the defendants’ motion to compel arbitration was GRANTED. The court also ordered that the action was STAYED pending arbitration. The order did not decide the underlying fraud, warranty, title-branding, or other claims on their merits.