Sixth Circuit Holds Hospital Defendant Waived Right To Arbitrate

Summary

The Sixth Circuit Court of Appeals reversed a district court’s decision to compel arbitration, holding that the defendant hospital and its administrators had forfeited their right to enforce the arbitration agreement.¹ The court ruled that by litigating the case on the merits for over a year and twice filing motions to dismiss all claims with prejudice, the defendants’ conduct was “completely inconsistent” with an intent to arbitrate. This extended litigation, in which the defendants sought a total judicial victory before finally invoking the arbitration clause, was deemed a “default” on the promise to arbitrate under the Federal Arbitration Act, thus extinguishing their right to demand arbitration.

Why It Matters

This ruling serves as a crucial check on what the court characterized as a “heads I win, tails you lose” litigation strategy. It reinforces the principle that while federal law favors arbitration, a party cannot use an arbitration clause merely as a strategic fallback option after failing to secure a total victory in court. The decision clarifies that a defendant risks waiving the right to arbitrate if their initial, merits-based defense in a lawsuit is an aggressive attempt to end the case permanently. Companies relying on arbitration clauses must now be mindful to assert that defense promptly, particularly if their first procedural move is to seek a dismissal on the merits, rather than on jurisdictional or procedural grounds.

Case Description

The lawsuit was initiated by Valerie Kloosterman, a physician assistant, against her former employer, Metropolitan Hospital (operating as University of Michigan Health-West), and several high-ranking administrators.² The conflict arose when Kloosterman was subjected to mandatory Diversity, Equity, and Inclusion (DEI) training and policies requiring staff to adhere to specific practices when treating LGBTQ+ patients.³ Based on her sincerely held Christian faith and professional medical judgment, Kloosterman sought a religious accommodation.⁴ Her objections included an inability to affirm certain ideological statements, to use a patient’s non-biological-sex pronouns, or to refer patients for sex-alteration procedures.⁵ She proposed an alternative: using patients’ first names rather than contested pronouns.⁶ Following a meeting with hospital staff—which Kloosterman characterized as contentious, alleging she was dismissed and even labeled “evil” for her beliefs—she was promptly terminated.⁷ Kloosterman sued, bringing claims for religious discrimination under Title VII of the Civil Rights Act, violations of her First Amendment Free Exercise rights, and various state law claims.⁸ The Hospital then spent more than a year in the district court actively litigating the merits of the case, notably filing two separate, comprehensive motions that sought to dismiss all of Kloosterman’s claims with prejudice.⁹ Only after the district court allowed many of her claims to survive this merits-based challenge did the Hospital finally invoke the arbitration clause from her employment contract, successfully compelling arbitration before the Sixth Circuit intervened.