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A party shall be limited on appeal to issues in the prehearing statement except that when good cause is shown the appellate court may permit additional issues to be submitted upon timely motion. We will not address the applicability of the arbitration agreement in the November note further in this opinion. 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. By the mortgage on Kestel's Mercer County property.
Kestel did not file a protective cross-appeal concerning the Court of Appeals ruling on the applicability of the arbitration provisions. 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. 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.
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The merits of the litigation-conduct waiver issue in its reply brief to the Court of Appeals. In summary, we hold that the Court of Appeals has the discretion to address an issue that the appellee did not raise by prehearing statement if it so chooses. “e have interpreted the KUAA consistent with the FAA․” Louisville Peterbilt, Inc. v. Cox, 132 S.W.3d 850, 857 (Ky.2004).
See also Interconex, Inc. v. Ugarov, 224 S.W.3d 523, 534 (Tex.App.2007) (stating that trial court's determination of whether arbitration rights had been waived by implication through inconsistent conduct was subject to de novo review); O.J. We also note that although the Court of Appeals did not expressly reach the question of whether a court or arbitrator should decide whether a party's litigation conduct constituted a waiver of its arbitration rights, the Court of Appeals itself decided that the party's litigation conduct did not constitute waiver while reversing the trial court's decision not to compel arbitration on the basis of unconscionability in Conseco Finance Servicing Corp. v. Wilder, 47 S.W.3d 335, 344–45 (Ky.App.2001). Amicus Curiae, The Kentucky Justice Association, suggests in its brief that arbitration procedures, which "deny discovery", finally motivated the filing of the motion to compel arbitration.
AMERICAN GENERAL HOME EQUITY INC
And we are aware that some courts are more apt to find litigation-conduct waiver once discovery has commenced. In any case, whatever their motivation, American General's conduct was not inconsistent with intent to exercise arbitration rights since they did not, in fact, agree to discovery before seeking to compel arbitration. Similarly, in the instant case, we focus our inquiry on whether American General's litigation conduct was truly inconsistent with asserting its arbitration rights. So we do not find it necessary under the facts of this case to decide whether prejudice must be shown.
So Kestel's failure to identify the litigation-conduct waiver issue in a prehearing statement or by a timely motion did not prevent the Court of Appeals from taking up that issue as an alternate ground for affirming the trial court's denial of the motion to compel arbitration. And we note that both parties briefed the issue of litigation-conduct waiver in the trial court in connection with American General's motion to compel arbitration; although, the trial court's written order denying the motion did not state specific grounds, and it orally stated at the hearing only that it was denying the motion based on lack of applicability. Kestel also briefed the litigation-waiver issue in the Court of Appeals. American General argued to the Court of Appeals in its reply brief that the panel could not consider the waiver issue because it was not raised in a prehearing statement or by motion and did not address the merits of the litigation-conduct waiver issue in its reply brief to the Court of Appeals.12 In summary, we hold that the Court of Appeals has the discretion to address an issue that the appellee did not raise by prehearing statement if it so chooses.
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Meanwhile, the trial court issued a written order denying Kestel's motion for partial summary judgment in late July 2004. Within a week of American General's answer, Teresa Kestel moved for partial summary judgment, claiming that the October note had been rescinded. Then, in mid-March 2004, Teresa Kestel moved to strike American General's arbitration defenses, stating she had not signed the October note. In response to Teresa Kestel's 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.1 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. American General filed these responses in mid-April 2004.
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.
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.
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.
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.
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588 citing Moses H. Cone Memorial Hospital v. Mercury Const. (“So, too, the presumption is that the arbitrator should decide allegation of waiver, delay, or a like defense to arbitrability.”) (quotation marks omitted.). See, e.g., Fischer v. Fischer, 197 S.W.3d 98, 103 (Ky.2006) ( “Appellee's failure to raise the issue in the Court of Appeals does not prevent Appellant from presenting it here as he had no duty to present it to the Court of Appeals since he defended the trial court decision and it had to be affirmed if it was sustainable on any basis.”). ("So, too, the presumption is that the arbitrator should decide allegation of waiver, delay, or a like defense to arbitrability.") (quotation marks omitted.).
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.
It contends that federal court decisions construing the FAA require that arbitrators decide whether waiver should be implied based on litigation conduct. We reject American General's argument on this point because, even reviewing pertinent federal cases, we find little support for American General's interpretation of federal cases as mandating that litigation-conduct waiver must be decided by an arbitrator. Kestel points out that American General did not demand arbitration when responding to her motions for partial summary judgment and to strike arbitration defenses. In short, American General did nothing to avail itself of the power of the court in any offensive maneuver between the time it filed its foreclosure complaint and the time it filed its motion to compel arbitration. American General further takes issue with the Court of Appeals considering 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.
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