Participation in Arbitration Despite Earlier Litigation Waives Right To Contest Arbitration Award

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Posted on: Oct 8 2025

As we have noted in prior articles, New York has a “long and strong public policy favoring arbitration”.[1] Indeed, New York “favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties.”[2] “Therefore, New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration.”[3] “Nonetheless, ‘[l]ike contract rights generally, a right to arbitration may be modified, waived or abandoned.’”[4] “Accordingly, a litigant may not compel arbitration when its use of the courts is ‘clearly inconsistent with [its] later claim that the parties were obligated to settle their differences by arbitration.’”[5]

“The crucial question … is what degree of participation by the defendant in the action will create a waiver of a right to stay the action.”[6] “In the absence of unreasonable delay, so long as the defendant’s actions are consistent with an assertion of the right to arbitrate, there is no waiver.”[7] “However, where the defendant’s participation in the lawsuit manifests an affirmative acceptance of the judicial forum, with whatever advantages it may offer in the particular case, his actions are then inconsistent with a later claim that only the arbitral forum is satisfactory.”[8]

Further, “[n]ot every foray into the courthouse effects a waiver of the right to arbitrate…. [W]here urgent need to preserve the status quo requires some immediate action which cannot await the appointment of arbitrators, waiver will not occur.”[9]

In Tomaselli v. Malagese, 2025 N.Y. Slip Op. 05399 (4th Dept. Oct. 3, 2025 (here), the Appellate Division, Fourth Department, addressed the foregoing principles.

Tomaselli stemmed from an arbitration award for nonpayment of services, confirmed after plaintiff commenced an action in Supreme Court on those same issues. Plaintiff commenced the action seeking damages for breach of contract based upon defendants’ alleged failure to pay for architectural services rendered by plaintiff. Although plaintiff subsequently moved to compel arbitration pursuant to the purported contract following nearly two years of litigation, plaintiff withdrew that motion after defendants voluntarily agreed to resolve the dispute by arbitration.

Following an arbitration proceeding before an arbitrator selected by the parties, the arbitrator rendered an award in favor of plaintiff. Supreme Court granted plaintiff’s motion to confirm the arbitration award and denied defendants’ cross-motion to vacate the arbitration award. Defendant appealed. The Fourth Department affirmed.

Defendants contended that they were entitled to vacatur of the arbitration award on the ground that the arbitrator lacked authority to conduct the arbitration because plaintiff had previously waived the right to arbitrate by commencing the action.[10] The Court held that “defendants waived their challenge to the arbitration award.”[11] The Court explained that “[p]laintiff’s commencement of the action and participation in the litigation for nearly two years ‘in effect g[a]ve[ defendants] a choice of forums’ by which they could either ‘insist on arbitration or ignore arbitration and litigate.’”[12] “Defendants,” said the Court, “cannot have things both ways by agreeing to and fully participating in arbitration instead of litigation while thereafter resisting the arbitration award on the ground that [plaintiff’s] very commencement of [the] court action waived [arbitration].”[13] “Indeed,” explained the Court, “where, as here, a party participates in an arbitration proceeding, without availing [themselves] of all [their] reasonable judicial remedies, [they are] . . . not . . . allowed thereafter to upset the remedy emanating from that alternative dispute resolution forum.”[14]

The Court also rejected defendants’ “forum-hedging” strategy, stating: “Defendants made a strategic and knowing decision to proceed with [the] case in the arbitral forum and cannot now seek to cancel the outcome of the very arbitration in which [they] voluntarily and fully participated because allowing such unilateral advantage and forum-hedging would undermine arbitration principles and policies.”[15]

Takeaway

New York law strongly favors arbitration as a preferred method of dispute resolution. However, this form of dispute resolution is not without limits—it can be waived if a party engages in litigation in a manner inconsistent with arbitration.

In Tomaselli, plaintiff initiated a lawsuit and participated in litigation for nearly two years before moving to compel arbitration. Although defendants agreed to arbitrate, they nevertheless attempted to vacate the arbitration award, arguing that plaintiff had waived the right to arbitrate by initially suing. The Court rejected this argument, emphasizing that defendants had voluntarily chosen to arbitrate and fully participated in the process. Their attempt to challenge the award post-arbitration was deemed, among other things, “forum-hedging,” which undermines the integrity of arbitration.

The Court’s ruling reinforces the principle that parties cannot exploit both litigation and arbitration forums to gain a strategic advantage. Once a party elects to arbitrate and participates fully, they are bound by the outcome and cannot later claim the process was invalid due to prior litigation conduct. Stated differently, as the Court noted, the party cannot have it both ways.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Matter of Smith Barney Shearson v. Sacharow, 91 N.Y.2d 39, 49 (1997); see also Stark v. Molod Spitz DeSantis & Stark, P.C., 9 N.Y.3d 59, 66 (2007).

[2] Stark, 9 N.Y.3d at 66.

[3] Smith Barney, 91 N.Y.2d at 49-50 (citations and internal quotation marks omitted); Stark, 9 N.Y.3d at 66.

[4] Stark, 9 N.Y.3d at 66 (quoting Sherrill v. Grayco Bldrs., 64 N.Y.2d 261, 272 (1985)).

[5] Id. (quoting Flores v Lower E. Side Serv. Ctr., Inc., 4 N.Y.3d 363, 372 (2005) (citations and internal quotation marks omitted) (assuming arbitration clause in contract applied to dispute, party seeking its benefit did not assert arbitration as defense in answer or move to compel, electing instead to participate in litigation for 16 months through discovery and filing of note of issue)).

[6] Stark, 9 N.Y.3d at 66 (quoting De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 405 (1974) (internal quotation marks omitted)); see also Singer v. Jefferies & Co., 78 N.Y.2d 76, 85 (1991) (under the Federal Arbitration Act, moving to dismiss before moving to compel arbitration “should not be considered a waiver unless the opposing party demonstrates prejudice”).

[7] Id. (quoting id.).

[8] Id. at 66-67 (quoting id.).

[9] Id. at 67 (quoting Sherrill, 64 N.Y.2d at 273, citing Preiss/Breismeister Architects v Westin Hotel Co.-Plaza Hotel Div., 56 N.Y.2d 787, 789 (1982)).

[10] The Court noted that defendants raised this argument for the first time on appeal and failed to preserve the argument because they did not raise it in opposition to the motion to confirm or in support of the cross-motion to vacate. Slip Op. at *1. (citations omitted). Nevertheless, as discussed, the Court considered the argument and rejected it.

[11] Id. at *2.

[12] Id. (citation and internal quotation marks omitted).

[13] Id. (citations and internal quotation marks omitted).

[14] Id. (citation and internal quotation marks omitted).

[15] Id. (citations and internal quotation marks omitted).

Tagged with: Alternative Dispute Resolution, Arbitration, Arbitration Award, Waiver