Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-15-55696/USCOURTS-ca9-15-55696-0/pdf.json

Nature of Suit Code: 710
Nature of Suit: Fair Labor Standards Act
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PAIGE MARTIN, SUNDAE

WORTHY, MARIA FORD,

and MEGAN TALLERICO, on

behalf of themselves and

classes of those similarly

situated;

Plaintiffs-Appellees,

v.

GARY YASUDA; AMARILLO

COLLEGE OF

HAIRDRESSING, INC., DBA

Milan Institute, DBA Milan

Institute of Cosmetology,

Defendants-Appellants.

No. 15-55696

D.C. No.

5:13-cv-01961-PSG-DTB

OPINION

Appeal from the United States District Court

for the Central District of California

Philip S. Gutierrez, District Judge, Presiding

Argued and Submitted June 8, 2016

Pasadena, California

Filed July 21, 2016

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2 MARTIN V. YASUDA

Before: Stephen Reinhardt and Kim McLane Wardlaw,

Circuit Judges, and Mark W. Bennett,* Senior District

Judge.

Opinion by Judge Reinhardt

SUMMARY**

Arbitration

Affirming the district court’s denial of defendants’ motion

to compel arbitration of labor law claims, the panel held that

the defendants waived their right to arbitration by their

litigation conduct.

The panel held that the district court properly decided the

waiver issue. The panel held that this question of arbitrability

was presumptively for the court, rather than an arbitrator, to

decide, and the broad nature of the parties’ arbitration clause

did not overcome the presumption.

The panel held that the defendants waived their right to

arbitration because they engaged in acts inconsistent with this

right, and the plaintiffs were prejudiced.

* The Honorable Mark W. Bennett, Senior District Judge for the U.S.

District Court for the Northern District of Iowa, sitting by designation.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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MARTIN V. YASUDA 3

COUNSEL

William M. Hensley (argued), Marc D. Alexander, and

Jonathan M. Werner, Alvarado Smith, Santa Ana, California;

Kirsten L. Clevenger, Matthew L. Hoppock, and Ronald L.

Holt, Dunn & Davison LLC, Kansas City, Missouri; for

Defendants-Appellants.

Chaya M. Mandelbaum (argued) and Michelle G. Lee, Rudy,

Exelrod & Zieff, LLP, San Francisco, California; Dana

Sniegocki and Leon Greenberg, Law Office of Leon

Greenberg, Las Vegas, Nevada; Adetunji Olude and Bryan J.

Schwartz, Bryan Schwartz Law, Oakland, California; for

Plaintiffs-Appellees.

OPINION

REINHARDT, Circuit Judge:

Defendants Gary Yasuda and Amarillo College of

Hairdressing appeal the district court’s denial of their motion

to compel arbitration. The district court found that the

defendants waived their right to arbitration by their litigation

conduct. We affirm.

FACTUAL BACKGROUND

Defendant Amarillo College of Hairdressing, Inc., doing

business as “Milan Institute” and “Milan Institute of

Cosmetology” (collectively “Milan”), is a group of nationally

accredited private colleges offering career training in

cosmetology. The plaintiffs are individuals who enrolled in

a cosmetology program at Milan Institute. As part of their

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4 MARTIN V. YASUDA

enrollment, each of the plaintiffs signed an Enrollment

Agreement that contained a binding arbitration provision. 

The arbitration agreement provides, in relevant part:

[A]ny dispute arising from my enrollment at

Milan Institute, no matter how described,

pleaded or styled, shall be resolved by binding

arbitration, under the substantive and

procedural requirements of the Federal

Arbitration Act, by a single arbitrator,

conducted by the American Arbitration

Association (AAA) at Milan Institute . . .

under its Commercial Rules. All

determinations as to the scope, enforceability

and effect of this arbitration agreement shall

be decided by the arbitrator, and not by a

court. The award rendered by the arbitrator

may be entered in any court having

jurisdiction.

In order to graduate from a cosmetology school, students

must, among other things, complete 1600 hours of technical

instruction and practical training. Cal. Code Regs. tit. 16,

§ 950.2(a). The students perform cosmetology, barbering,

and manicure services for the college’s paying clients. The

students also clean, sweep, wash and fold laundry, set up and

take down studios, clean pedicure bowls, sell retail products,

schedule clients, and promote Milan’s services. The services

that students provide do not necessarily correspond to their

education, and they are not paid for their work.

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MARTIN V. YASUDA 5

PROCEDURAL BACKGROUND

The plaintiffs filed a class action lawsuit on October 28,

2013 against the college and its owner and President, Gary

Yasuda, alleging that the defendants violated state labor laws

and the Fair Labor Standards Act (“FLSA”). Specifically, the

plaintiffs contended, among other things, that Milan was an

“employer” within the meaning of state law as well as the

FLSA and thus, as uncompensated employees, they were

entitled to minimum hourly wages, overtime wages, and

unpaid premiums for missed meal and rest breaks. Over

seventy individuals opted to join the action between October

2013 and March 2014.

On February 19, 2014, the defendants were served with a

copy of the summons and complaint via substituted service

and bymail. They disputed the appropriateness of the service

of process. The parties then stipulated that the defendants

were properly and timely served with the summons and

complaint on March 10, 2014. The parties also agreed to

extend the defendants’ time to respond to June 9, 2014. The

defendants’ counsel subsequentlyfiled a notice of appearance

on March 17, 2014.

On May 16, 2014, the parties filed a Joint Stipulation to

Extend Time to File Motion for FLSA Conditional

Certification and Class Certification with the district court. 

They stated that they had “spent considerable time and effort

analyzing the most resourceful and efficient manner with

which to approach discovery and certification motions,” that

it was in the “best interest of judicial resources, time and

effort” to focus discovery on the issue whether the class

members were Milan’s employees under wage laws, and that

they agreed to extend the deadline to file motions for class

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6 MARTIN V. YASUDA

and conditional certification. The parties further agreed that

there should be discovery and an opportunity for the court to

resolve the question whether the plaintiffs were employees of

Milan under wage laws before any effort to certify the class

because the lawsuit presents “unique legal claims regarding

whether or not the purported class members are employees of

the defendants, covered by wage laws.” The district court

subsequently granted the parties’ Joint Stipulation Motion.

The plaintiffs filed their first amended complaint on June

6, 2014. It named additional plaintiffs and added additional

state wage and hour claims. On June 23, 2014, the

defendants moved to dismiss the plaintiffs’ state law claims

against all defendants and their FLSA claim against Yasuda

pursuant to Federal Rule of Civil Procedure 12(b)(6).1 The

defendants asserted that plaintiffs were students and not

employees of Milan as a matter of law, and that the plaintiffs

failed to plead Yasuda’s individual liability. After briefing

and oral argument on the issue, on July 30, 2014, the district

court granted in part and denied in part the defendants’

motion to dismiss. The court dismissed the causes of action

against Yasuda with leave to amend, but denied the

defendants’ motion as to the plaintiffs’ state law claims. As

to the state law claims, the district court concluded after a

detailed analysis that the California Legislature could have

included students performing services at their school for the

fee-paying public within the categories of individuals who

1 The defendants sought to dismiss all of the plaintiffs’ state law claims

(the second through ninth causes of action) with prejudice. They also

sought to dismiss the plaintiffs’state law and FLSA claims against Yasuda

with prejudice. If the motion to dismiss had been successful, it would

have left only the first cause of action, the FLSA claim, against Milan

intact.

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MARTIN V. YASUDA 7

may practice cosmetology without being paid. Because the

Legislature did not do so, the district court declined to

“usurp” the Legislature’s role by rewriting the Cosmetology

Act. The district court therefore held that the Cosmetology

Act did not preclude the plaintiffs’ arguments that they were

employees under state wage laws and that the parties could

proceed to discovery on the issue.

The plaintiffs then filed a second amended complaint on

August 29, 2014, which pleaded additional facts as to

Yasuda’s individual liability. On September 19, 2014, the

defendants filed their answer to the complaint. In addition to

responding to all of the plaintiffs’ causes of action, the

defendants pled arbitration as one of their forty-three

affirmative defenses. They, however, did not move to compel

arbitration.

On November 28, 2014, the parties filed a Joint Rule

26(f) Report, which detailed the scope of discovery and

contained proposed deadlines for the phases of discovery and

motions. In a footnote, the defendants maintained that each

plaintiff executed an arbitration agreement and that theywere

not waiving any rights as to those agreements. In the body of

the report, the parties stated that they participated in a Rule

26(f) conference, exchanged initial disclosures pursuant to

Rule 26(a)(1), and had already begun exchanging written

discovery requests and noticing depositions to occur in early

2015. The parties agreed, subject to approval by the court,

that the first eight months of discovery should focus on the

“employee” issue so that the court could consider that issue

on motions for summary judgment, if the parties chose to file

such motions, followed by two months of expert discovery. 

They also planned to exchange discovery requests and to take

and defend depositions of the parties to the case.

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The district court held a scheduling conference on

December 8, 2014, fourteen months after the plaintiffs filed

the original complaint. During the proceeding, the court

asked the defendants’ counsel whether he intended to file a

motion to compel arbitration. He responded, “[W]e haven’t

made a decision about that. And frankly . . . I think our view

of it is we are probably better off just being here in the court

with the procedures of Rule 23 and discovery and federal

practice than handling it in arbitration.”2 The court then

warned counsel about the possibility of waiver. The next day,

the court issued a scheduling order setting the deadlines for

different phases of discovery and motions. 

Although the plaintiffs made written discovery requests

of the defendants in November 2014, they agreed to extend

the defendants’ time to respond in December 2014 and

January 2015. The defendants eventually produced the

discovery responses on February 4, 2015. Subsequently, on

February 20, 2015, the court issued a stipulated protective

order in which the parties agreed to abide by certain

procedures and guidelines during discovery. Then, on

February 25 and 26, 2015, plaintiffs deposed Milan’s Chief

Financial Officer. It was on February 25, 2015 that

defendants’ counsel informed the plaintiffs’ counsel of their

intent to compel arbitration.

2 At the conference in December 2014, defense counsel stated that he

thought “the agreements as written do not expressly state that they would

bar any individual plaintiff who’s arbitrating from representing not only

his or her own interests but also those of a proposed class.” By March 20,

2015, when defendants filed their memorandum in support of the motion

to compel individual arbitration, they had reversed their position, now

arguing that class arbitration was not permitted and that the arbitrator, not

the court, should decide the question.

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MARTIN V. YASUDA 9

On March 20, 2015, almost seventeen months after the

start of the case, the defendants actually moved to compel

individual arbitration. In the motion, they argued, among

other things, that the court must enforce the parties’

arbitration agreements, that the agreements were valid and

enforceable, and that they, the defendants, had not waived

arbitration. The plaintiffs opposed the motion by arguing that

the defendants had waived their right to compel arbitration

and that the terms were unconscionable and unenforceable.

Applying the three factor waiver test employed in this

circuit, the district court denied the defendants’ motion to

compel individual arbitration. The district court held that all

the factors were satisfied because: (1) it was indisputable that

the defendants had knowledge of their existing right to

compel arbitration, (2) the defendants engaged in acts

inconsistent with that right by delaying their motion to

compel and deciding to actively participate in the litigation

for seventeen months (including the resolution of a motion to

dismiss on the merits), and (3) granting the motion to compel

seventeen months after the start of litigation and after a ruling

partly in favor of the plaintiffs on the motion to dismiss

would result in prejudice to the plaintiffs. The defendants

timely appealed.

DISCUSSION

The defendants contend that the district court erred in two

ways. First, they argue that an arbitrator, rather than the

district court, should decide whether the defendants waived

their right to arbitration through litigation conduct. Second,

they contend that even if the district court was correct to

decide the issue, it erred by finding waiver.

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10 MARTIN V. YASUDA

I.

In Howsam v. Dean Witter Reynolds, Inc., the Supreme

Court distinguished between two categories of gatewayissues

on motions to compel arbitration, each of which has a

different presumption as to whether a court or an arbitrator

should decide. 537 U.S. 79, 83 (2002); see also Cox v. Ocean

View Hotel Corp., 533 F.3d 1114, 1120–21 (9th Cir. 2008)

(describing the two categories of disputes). The first category

of gateway issues is a “question of arbitrability”—that is,

“whether the parties have submitted a particular dispute to

arbitration.” Howsam, 537 U.S. at 83. This category

includes issues that the parties would have expected a court

to decide such as “whether the parties are bound by a given

arbitration clause” or whether “an arbitration clause in a

concededly binding contract applies to a particular type of

controversy.” Id. at 84. These disputes are “for judicial

determination unless the parties clearly and unmistakably

provide otherwise.” Id. at 83. (quoting AT & T Techs., Inc. v.

Commc’ns Workers of Am., 475 U.S. 643, 649 (1986)). In

contrast, the second category—“procedural” issues—is

“presumptively not for the judge, but for an arbitrator, to

decide.” Id. at 84. In Howsam, for example, the Court held

that the question as to whether a party met the arbitral

forum’s statute of limitations for filing a case was a

procedural question that the parties would have expected the

arbitrator to decide; accordingly, as the Court made clear, the

arbitrator should presumptively decide such disputes. Id. at

85.

We have made clear that waiver by litigation conduct is

part of the first category of gateway issues. Cox, 533 F.3d at

1121. In Cox, an employee who had been fired contended

that his employer waived its right to arbitrate his

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MARTIN V. YASUDA 11

discrimination claim because, among other things, it had

refused his earlier request to arbitrate. Id. at 1118, 1125. 

Addressing the defendant’s argument that the arbitrator

should decide the issue, we concluded that the question

whether a party waived its right to arbitrate on the basis of its

litigation conduct is a question of arbitrability and is in the

first category of gateway issues. Id. at 1121; see also id.

1121 n.5. Accordingly, under Howsam, the question before

us is presumptively for a court and not an arbitrator to decide. 

537 U.S. at 83. Every circuit that has addressed this

issue—whether a district court or an arbitrator should decide

if a party waived its right to arbitrate through litigation

conducted before the district court—has reached the same

conclusion. See Marie v. Allied Home Mortg. Corp.,

402 F.3d 1, 14 (1st Cir. 2005) (“The proper presumption in

this case is that the waiver issue is for the court and not the

arbitrator.”); Ehleiter v. Grapetree Shores, Inc., 482 F.3d

207, 217–218, 221 (3d Cir. 2007) (adopting the First Circuit’s

test); JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388,

394 (6th Cir. 2008) (“[W]e conclude that Howsam did not

disturb the traditional rule that the courts presumptively

resolve waiver-through-inconsistent-conduct claims.”);

Grigsby & Associates, Inc. v. M Sec. Inv., 664 F.3d 1350,

1353 (11th Cir. 2011) (“Today we conclude that it is

presumptively for the courts to adjudicate disputes about

whether a party, by earlier litigating in court, has waived the

right to arbitrate.”); see also Hong et al. v. CJ CGV Am.

Holdings, Inc. et al., 222 Cal. App. 4th 240, 256–58 (2013)

(finding that the First, Third, Sixth, and Eleventh Circuits, as

well as the Supreme Courts of Colorado, Nebraska, Texas

and Alabama allow courts to decide the waiver by litigation

conduct issue). But cf. Nat’l Am. Ins. Co. v. Transamerica

Occidental Life Ins. Co., 328 F.3d 462, 466 (8th Cir. 2003)

(holding that the arbitrator presumptively should decide if a

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party has waived the right to arbitration by litigation conduct

in state court).3

The defendants next argue that the broad nature of the

arbitration clause overcomes the presumption because it

contains a clear and unmistakable provision that the question

of waiver based on litigation conduct should be decided by

the arbitrator. Cox again provides the answer. In Cox, the

agreement stated that “[a]ny controversy . . . involving the

construction or application of the terms, provisions, or

conditions of this Agreement or otherwise arising out of or

related to this Agreement shall likewise be settled by

arbitration.” 533 F.3d at 1117. We nevertheless found that the

court and not the arbitrator should decide the issue of waiver

by litigation conduct. In the present case, the provision

regarding the scope of the arbitration agreement—“[a]ll

determinations as to the scope, enforceability and effect of

this arbitration agreement shall be decided by the arbitrator,

and not by a court”—is far less broad than the provision in

Cox, because it does not contain the all inclusive “arising out

of or related to” language. The language in the arbitration

3 The defendants also cite language from Howsam that “the presumption

is that the arbitrator should decide allegations of waiver, delay, or a like

defense to arbitrability.” As other circuits have found, the reference to

waiver in Howsam was whether a party waived arbitration by failing to

comply with the arbitration forum’s specific rules—a question that the

Supreme Court logically concluded was better answered by the forum that

wrote the rules. Howsam, 537 U.S. at 85. The arbitrator, however, does

not have expertise regarding whether litigation conduct in front of the

district court was enough to constitute revocation of the arbitration clause

and would not be expected to resolve that dispute. Id. at 83–84

(differentiating between issues meant for arbitrators rather than judges

based on the parties’ expectations of who would decide); see also Ehleiter,

482 F.3d at 219. Thus, even if Cox did not foreclose the defendants’

argument, our answer would be the same.

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MARTIN V. YASUDA 13

contract before us is therefore a fortiori insufficient to show

an intent that an arbitrator decide the waiver by litigation

conduct issue and to overcome the presumption to the

contrary.

In sum, the district court did not err in deciding the

litigation conduct waiver issue itself. We have made clear

that courts generally decide whether a party has waived his

right to arbitration by litigation conduct. If the parties intend

that an arbitrator decide that issue under a particular contract,

they must place clear and unmistakable language to that

effect in the agreement. See Hong, 222 Cal. App. 4th at 258. 

As they did not do so here, the district court did not err by

deciding the conduct waiver issue.

II.

The right to arbitration, like other contractual rights, can

be waived. United States v. Park Place Assocs., Ltd.,

563 F.3d 907, 921 (9th Cir. 2009). A determination of

whether “the right to compel arbitration has been waived

must be conducted in light of the strong federal policy

favoring enforcement of arbitration agreements.” Fisher v.

A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986). 

Because waiver of the right to arbitration is disfavored, “any

party arguing waiver of arbitration bears a heavy burden of

proof.” Id. (quoting Belke v. Merrill Lynch, Pierce, Fenner

& Smith, 693 F.2d 1023, 1025 (11th Cir. 1982)). As such,

“[a] party seeking to prove waiver of a right to arbitration

must demonstrate: (1) knowledge of an existing right to

compel arbitration; (2) acts inconsistent with that existing

right; and (3) prejudice to the party opposing arbitration

resulting from such inconsistent acts.” Id. Here, the

defendants concede that they had knowledge of the right to

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14 MARTIN V. YASUDA

compel arbitration; thus, we address only the latter two

factors.

A. The Defendants Engaged in Acts Inconsistent with

Their Right to Arbitration

There is no concrete test to determine whether a party has

engaged in acts that are inconsistent with its right to arbitrate. 

We have stated, however, that a party’s extended silence and

delay in moving for arbitration may indicate a “conscious

decision to continue to seek judicial judgment on the merits

of [the] arbitrable claims,” which would be inconsistent with

a right to arbitrate. Van Ness Townhouses v. Mar Indus.

Corp., 862 F.2d 754, 759 (9th Cir. 1988) (quoting Nat’l

Found. for Cancer Research v. A.G. Edwards & Sons,

821 F.2d 772, 777 (D.C. Cir. 1987)). We find this element

satisfied when a party chooses to delay his right to compel

arbitration by actively litigating his case to take advantage of

being in federal court. See id. at 756, 759 (finding waiver

when party answered complaints, moved to dismiss the

action, and did not claim a right to arbitration in any of the

pleadings); Kelly v. Pub. Util. Dist. No. 2, 552 Fed. App’x

663, 664 (9th Cir. 2014) (finding this element satisfied when

the parties “conducted discovery and litigated motions,

including a preliminary injunction and a motion to dismiss”);

see also Plows v. Rockwell Collins, Inc., 812 F. Supp. 2d

1063, 1067–68 (C.D. Cal. 2011) (finding this element

satisfied when the defendant actively litigated the case by

removing it to federal court, seeking a venue transfer,

participating in meetings and scheduling conferences,

negotiating and entering into a protective order, and

participating in discovery that would not have been available

under the arbitration agreement). A statement by a party that

it has a right to arbitration in pleadings or motions is not

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MARTIN V. YASUDA 15

enough to defeat a claim of waiver. See In Re Mirant Corp.

v. Castex Energy, Inc., 613 F.3d 584, 591 (5th Cir. 2010) (“A

party cannot keep its right to demand arbitration in reserve

indefinitely while it pursues a decision on the merits before

the district court.”); Hooper v. Advance Am., Cash Advance

Ctrs. of Missouri, Inc., 589 F.3d 917, 923 (8th Cir. 2009) (“A

reservation of rights is not an assertion of rights.”). This is

especially true when parties state well into the litigation that

they do not intend to move to compel arbitration. Garcia v.

Wachovia Corp., 699 F.3d 1273, 1277 (11th Cir. 2012)

(stating, in denying a motion to compel arbitration, that the

defendant “even went so far as to say that it did not intend to

seek arbitration in the future of the claims brought by most of

the existing plaintiffs . . .”). Additionally, although filing a

motion to dismiss that does not address the merits of the case

is not sufficient to constitute an inconsistent act, seeking a

decision on the merits of an issue may satisfy this element. 

Compare Lake Commc’ns, Inc. v. ICC Corp., 738 F.2d 1473,

1476–77 (9th Cir. 1984) (finding defendant did not act

inconsistently with right to arbitrate by filing a motion to

dismiss for lack of personal jurisdiction, in which it alluded

to its right to arbitrate and its intention to rely upon the right),

overruled on other grounds by Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 632–35 (1985);

and United Computer Systems v. AT&T Corp., 298 F.3d 756,

765 (9th Cir. 2002) (holding that defendant did not waive

arbitration by bringing motion to dismiss based on res

judicata in which the issue of remedy was not raised) with

Van Ness Townhouses, 862 F.2d at 759 (finding that a

“conscious decision to continue to seek judicial judgment on

the merits of [an] arbitrable clai[m]” is inconsistent with a

right to arbitrate); Hooper, 589 F.3d at 922 (holding that

defendant acted inconsistently by seeking a decision on the

merits, which resulted in a game of “heads I win, tails you

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16 MARTIN V. YASUDA

lose”) (citations omitted); Petroleum Pipe Ams. Corp. v.

Jindal Saw, Ltd., 575 F.3d 476, 480 (5th Cir. 2009) (“A party

waives arbitration by seeking a decision on the merits before

attempting to arbitrate.”); and Lewallen v. Green Tree

Servicing, L.L.C., 487 F.3d 1085, 1092 (8th Cir. 2007)

(“[Defendant] also acted inconsistently with its right to

arbitrate by urging the bankruptcy court to dispose of

[plaintiff’s] claims on the merits, reserving arbitration as an

alternative avenue to resolve the dispute.”).

Here, the defendants engaged in conduct inconsistent with

their right to arbitrate. They spent seventeen months

litigating the case. This included devoting “considerable time

and effort” to a joint stipulation structuring the litigation,

filing a motion to dismiss on a key merits issue4, entering into

a protective order, answering discovery, and preparing for

and conducting a deposition. The defendants did not even

4 The defendants argue that the ruling on the motion to dismiss was not

a merits ruling because the motion to dismiss was granted in part and

denied in part without prejudice and because “it was only based on the

pleadings and not directed to the entire dispute.” These arguments are

erroneous. Although a dismissal without prejudice on an issue is not a

merits ruling, Richards v. Ernst & Young, LLP, 744 F.3d 1072, 1074–75

(9th Cir. 2013), the district judge here denied the motion to dismiss with

regard to the key merits issue: whether the Cosmetology Act legally

precluded the students frombeing classified as employees. He granted the

motion to dismiss without prejudice only with respect to the individual

claims against Yasuda. Accordingly, the ruling was in principal part a

ruling on the merits. More important, whatever the judge may have done,

the defendants sought a ruling on the merits. The defendants’ second

contention—that this was not a merits ruling because they were seeking

a ruling on the pleadings—is likewise wrong. When defendants move for

dismissal with prejudice on a key merits issue that would preclude relief

as to one or more of plaintiffs’ claims, as they did here, they are seeking

a ruling on the merits. See In re Mirant., 613 F.3d at 589.

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note their right to arbitration until almost a year into the

litigation and did not move to enforce that right until well

after that time. Indeed, fourteen months into the litigation,

they told the district judge and opposing counsel that they

were likely “better off” in federal court. We agree with the

district court that the totality of these actions satisfies this

element.

B. The Plaintiffs Were Prejudiced

Although litigation conduct inconsistent with a right to

arbitrate most frequently causes prejudice to the opposing

party, the link is not automatic. Lake Commc’ns, 738 F.2d at

1477 (holding that to prove waiver, “[m]ore is required than

action inconsistent with an arbitration provision; prejudice to

the party opposing arbitration must also be shown.”). To

prove prejudice, plaintiffs must show more than “selfinflicted” wounds that they incurred as a direct result of suing

in federal court contrary to the provisions of an arbitration

agreement. Fisher, 791 F.2d at 698; see also Richards, 744

F.3d at 1074–75. Such wounds include costs incurred in

preparing the complaint, serving notice, or engaging in

limited litigation regarding issues directly related to the

complaint’s filing, such as jurisdiction or venue. In contrast,

in order to establish prejudice, the plaintiffs must show that,

as a result of the defendants having delayed seeking

arbitration, they have incurred costs that they would not

otherwise have incurred, see Van Ness Townhouses, 862 F.2d

at 759, that they would be forced to relitigate an issue on the

merits on which they have already prevailed in court, see id.,

or that the defendants have received an advantage from

litigating in federal court that they would not have received

in arbitration, see Richards, 744 F.3d at 1075 (noting that a

plaintiff can show prejudice if the opposing party has

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“gain[ed] information about the other side’s cases that could

not have been gained in arbitration.” (quotation marks

omitted)).

We agree with the district court that the plaintiffs here

easily meet the prejudice requirement. We note first that

arbitration is designed to provide a simpler and more

expeditious system of resolving certain types of disputes—a

system that values “greater efficiency and speed” over

“procedural rigor.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l

Corp., 559 U.S. 662, 685 (2010); see also 14 Penn Plaza LLC

v. Pyett, 556 U.S. 247, 257 (2009) (“Parties generally favor

arbitration precisely because of the economics of dispute

resolution.”). Spending a lengthy amount of time litigating

in the more complex federal court system with its rigorous

procedural and substantive rules will almost inevitably cause

the parties to expend more time, money, and effort than had

they proceeded directly to arbitration. On the other hand, the

federal court system provides advantages that some parties

still prefer to retain, including the type of relief available and

the potential for precedential decisions.

When a party has expended considerable time and money

due to the opposing party’s failure to timely move for

arbitration and is then deprived of the benefits for which it

has paid by a belated motion to compel, the party is indeed

prejudiced. See, e.g., Kelly, 552 Fed. App’x at 664 (finding

prejudice when the defendants waited eleven months to

compel arbitration); Joca-Roca Real Estate, LLC v. Brennan,

772 F.3d 945, 949, 951 n.7 (1st Cir. 2014) (finding prejudice

with a nine-month delay after the filing of the complaint);

Gray Holdco, Inc. v. Cassady, 654 F.3d 444, 454–55 (3d Cir.

2011) (holding that a ten-month delay before moving to

compel, while not dispositive, weighed in favor of waiver);

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Messina v. N. Cent. Distrib., Inc., No. 15-2323, — F.3d —,

2016 WL 2640911, at *3 (8th Cir. May 10, 2016) (finding

prejudice after an eight month delay); and In re Mirant, 613

F.3d at 591 (considering litigation expenses in prejudice

inquiry after defendant waited 18 months before moving to

compel arbitration). At that point, the cost and expenses of

litigating in district court are no longersimply “self-inflicted”

wounds on the part of the plaintiffs, Fisher, 791 F.2d at 698,

because the defendants’ actions have shown that they, too,

have sought at least for some period of time to attempt to

resolve the issue in court rather than in arbitration. See Van

Ness Townhouses, 862 F.2d at 759; see also Kelly, 552 Fed.

App’x at 664 (“A party that is aware that it has a right to

compel arbitration of a dispute cannot wait to exercise that

right until the parties have expended a significant amount of

time and money to litigate that dispute in federal court.”);

Plows, 812 F. Supp. 2d at 1068 (holding that thirteen months

of legal fees and presumably the different choices that would

have been made had plaintiffs known the case was going to

arbitration were contributing factors to a finding of

prejudice).5

5 When we have granted motions to compel filed after substantial

litigation, there have been unique circumstances that have explained the

long delay in filing a motion to compel, such as absence of knowledge, a

party’s pro se status, or intervening law. See Britton v. Co-Op Banking

Group, 916 F.2d 1405, 1413 (9th Cir. 1990) (a two-year delay was not

inconsistent when the party moving for arbitration lacked knowledge of

his right until six months before making the motion and had spent part of

that two years in pursuit of a court-appointed attorney); Fisher, 791 F.2d

at 694–95 (finding that waiting three and a half years to file the motion to

compel did not constitute an inconsistent act because the moving party

“properly perceived that it was futile to file” such a motion until an

intervening Supreme Court case changed the rule).

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Here, because the defendants failed to move for

arbitration for seventeen months, the plaintiffs expended

considerable money and effort in federal litigation, including

conferring with opposing counsel regarding how to conduct

the case on the merits, analyzing how to approach discovery

and class certification, and contesting the defendants’ motion

to dismiss on the merits. As discussed above, even if the

parties exchanged the same information in court as they

would have in arbitration, the process of doing so in federal

court likely cost far more than determining the answer to the

same question in arbitration. The unnecessary, additional

costs incurred by the plaintiffs as a result of the defendants’

dilatory motion to compel constitutes obvious prejudice.

Moreover, the plaintiffs have shown prejudice here

because, should this case go to arbitration, they would have

to relitigate a key legal issue on which the district court has

ruled in their favor. We and other circuits routinely have

found this factor dispositive because the plaintiffs would be

prejudiced if the defendants got a mulligan on a legal issue it

chose to litigate in court and lost. See, e.g., Van Ness

Townhouses, 862 F.2d at 759; Kelly, 552 Fed. App’x at 664

(“A late shift to an arbitrator would force the parties to bear

the expense of educating arbitrators and threaten to require

the appellees to relitigate matters decided by the district

judge.”), Hooper, 589 F.3d at 923 (finding prejudice when

defendant’s “motion to dismiss forced Plaintiffs to litigate

substantial issues on the merits”), and In re Mirant, 613 F.3d

at 591 (finding prejudice when the defendant “waited

eighteen months before moving to compel arbitration while

it attempted to obtain a dismissal with prejudice”).

Because the defendants had knowledge of their right to

arbitrate and they engaged in acts inconsistent with that right

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MARTIN V. YASUDA 21

for a significant period of time, and because the plaintiffs

would be prejudiced should the court now compel arbitration,

we conclude, as did the district court, that the defendants

waived their right to arbitrate.

* * *

A party that signs a binding arbitration agreement and has

subsequently been sued in court has a choice: it can either

seek to compel arbitration or agree to litigate in court. It

cannot choose both. A party may not delay seeking

arbitration until after the district court rules against it in

whole or in part; nor may it belatedly change its mind after

first electing to proceed in what it believed to be a more

favorable forum. Allowing it to do so would result in a waste

of resources for the parties and the courts and would be

manifestly unfair to the opposing party. Here, we reject the

defendants’ attempt to manipulate the judicial and arbitral

systems and to gain an unfair advantage by virtue of their

litigation conduct. Accordingly, they have waived their right

to compel arbitration.

The district court is AFFIRMED.

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