PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______________

No. 10-4325

______________

GRAY HOLDCO, INC., 

Appellant

v.

RANDY CASSADY and

RWLS, LLC

______________

On Appeal from the United States District Court

for the Western District of Pennsylvania

(D.C. Civ. No. 2-09-cv-01519)

Honorable Robert C. Mitchell, Magistrate Judge

sitting pursuant to 28 U.S.C. § 636(c)(i)

______________

Submitted Pursuant to Third Circuit LAR 34.1(a)

June 23, 2011
2

BEFORE: HARDIMAN and GREENBERG, Circuit Judges,

and POLLAK*, District Judge

(Filed: August 17, 2011)

______________

Ryan P. Hartman

Fulbright & Jaworski

801 Pennsylvania Avenue, N.W.

Suite 500 

Washington, DC 20004-0000

Thomas H. May

Dickie, McCamey & Chilcote

Two PPG Place

Suite 400

Pittsburgh, PA 15222-5402

Gerard G. Pecht

Fulbright & Jaworski

1301 McKinney Street

Suite 5100

Houston, TX 77010-0000

 Attorneys for Appellant

____________________

*Honorable Louis H. Pollak, Judge of the United States 

 District Court for the Eastern District of Pennsylvania, 

 sitting by designation.
3

Kevin P. Lucas

Erin M. Lucas

Manion, McDonough & Lucas

600 Grant Street

U.S. Steel Tower, Suite 1414

Pittsburgh, PA 15219-0000

 Attorneys for Appellee Randy Cassady 

Heather J. Brandau

Willman & Arnold

705 McKnight Park Drive

Pittsburgh, PA 15237-0000

Terrance R. Henne

Concetta A. Silvaggio

Willman & Silvaggio

5500 Corporate Drive 

Suite 150 

Pittsburgh, PA 15237

 Attorneys for Appellee RWLS, LLC

______________

OPINION OF THE COURT

______________

GREENBERG, Circuit Judge.

I. INTRODUCTION
4

This matter comes on before this court on an appeal from 

orders the District Court1 entered on November 10, 2010, 

denying appellant Gray Holdco, Inc.’s (Gray) Motion to Stay 

Proceedings in the District Court pending the outcome of a 

separate arbitration proceeding of its claims against appellee 

Randy Cassady (Cassady) and granting Cassady’s Motion to 

Enjoin the same arbitration proceedings. Gray made the

arbitration demand more than ten months after it initiated this 

civil suit in the District Court on November 13, 2009, alleging 

that Cassady breached the employment contract between him 

and Gray and that Cassady and a new business venture that he 

established, RWLS, were interfering with Gray’s contractual 

relationships.2

 On September 17, 2010, Gray, pursuant to an 

arbitration provision in an agreement between it and Cassady, 

filed the demand to arbitrate its claims against Cassady with the 

American Arbitration Association (“AAA”) in Delaware and 

filed the Motion to Stay the Proceedings against Cassady in the 

District Court.3

 1 A magistrate judge entered all the District Court orders that we 

discuss in this opinion inasmuch as the parties consented to 

proceed before a magistrate judge under 28 U.S.C. § 636(c)(i).

 Cassady opposed the Motion to Stay and filed 

2 In certain portions of the record and in appellant’s brief 

“RWLS” sometimes is referred to as “Renegade.”

3

 RWLS is not a party to the arbitration agreement and it and 

Cassady were distinct parties represented by different attorneys 

in the District Court. Moreover, Cassady’s attorneys filed an 

appellee’s brief on this appeal only on behalf of Cassady, and, 

although RWLS’s attorneys have filed an appearance on the 
5

the Motion to Enjoin the arbitration proceedings arguing that 

Gray, through its initiation and pursuit of this litigation in the 

District Court, waived the right to enforce the arbitration 

agreement. Inasmuch as we agree with the District Court that 

Gray waived its right to enforce the arbitration agreement, we 

will affirm the Court’s orders. 

II. FACTS AND PROCEDURAL HISTORY

In June 2006, Cassady began work for Gray’s second-tier 

operating subsidiary, Gray Wireline Service, Inc. (Gray 

Wireline), a cased-hole wireline business, as a manager of its 

facility in Granbury, Texas. Gray alleges that, as part of 

Cassady’s employment agreement with Gray Wireline, he 

agreed to an “Option Agreement” with “certain restrictive 

covenants” which prohibited him from: (1) misusing Gray 

Wireline’s confidential information; (2) engaging in business 

while still an employee of Gray Wireline; (3) competing with 

Gray Wireline for two years after the end of his employment 

with Gray Wireline; and (4) soliciting Gray Wireline employees 

for one year following the end of his employment relationship 

with Gray Wireline. App. at 74-77. Gray Wireline also alleges 

that an additional agreement between Gray and Cassady, entitled 

the 2006 New Hire Stock Option Plan, contains the following 

arbitration provision:

SECTION 13. ARBITRATION. Any dispute or 

 

appeal, RWLS is not participating in this appeal.
6

controversy between the Company and a 

Participant, arising out of or relating to this Plan 

or the Participant’s Option Agreement, the breach 

of this Plan or the Participant’s Option 

Agreement, or otherwise, shall be settled by 

arbitration in Wilmington, Delaware administered 

by the American Arbitration Association in 

accordance with its Commercial Rules then in 

effect and judgment on the award rendered by the 

arbitrator may be entered in any court having 

jurisdiction thereof. . . . [E]ither party may, 

without inconsistency with this arbitration 

provision, apply to any court having jurisdiction 

over such dispute or controversy and seek interim 

provisional, injunctive or other equitable relief 

until the arbitration award is rendered or the 

controversy is otherwise resolved.

Id. at 70-71.4

In March 2009, Gray Wireline promoted Cassady to 

 4 We recognize that Cassady denies that the 2006 New Hire 

Stock Option Plan ever was enforceable against him, though we 

do not address that contention. We also note that the parties on 

this appeal make no distinction between Gray and Gray Wireline 

with respect either to the entity employing Cassady or to the 

party to their agreements with Cassady and thus, in effect, they 

treat Gray and Gray Wireline as a single entity. In these 

circumstances, we similarly are treating Gray and Gray Wireline 

as a single entity, as, indeed, did the District Court.
7

District Manager of its facility in New Kensington, 

Pennsylvania, and in July 2009, Cassady rose to the position of 

Region Manager of Gray Wireline’s operations in Pennsylvania, 

Louisiana, and Mississippi. According to Gray, on September 

21, 2009, Cassady resigned his position at Gray Wireline and 

formed RWLS, an entity that competed with Gray in the casedhole wireline business. Gray also alleges that Cassady solicited 

multiple Gray Wireline employees to join RWLS and solicited 

Gray Wireline customers to transfer their business to RWLS. 

On November 13, 2009, Gray filed the complaint in this 

action in the District Court against Cassady and RWLS, 

asserting that Cassady breached the Option Agreement and 

tortiously interfered with Gray’s existing contractual 

relationships. The complaint also asserted claims of unjust 

enrichment and civil conspiracy based on Cassady and RWLS’s 

solicitation of Gray clients and employees. The complaint 

primarily requested injunctive relief although it also sought 

money damages. Significantly, the complaint did not mention 

the arbitration agreement in the New Hire Stock Option Plan or 

include any arbitration clause in the employment agreement 

labeled as “Exhibit A” which Gray attached to the complaint. 

On the same day that Gray filed the complaint, it filed a motion 

for a preliminary injunction against both defendants, requesting 

that the Court enjoin them from, among other things, soliciting 

Gray’s customers and employees.

On November 17, 2009, Gray filed a motion for 

expedited discovery which the District Court granted the next 

day. An attorney representing RWLS filed an appearance in the 
8

District Court on November 20, 2009, and a separate attorney 

representing Cassady filed an appearance on November 25, 

2009. Cassady and RWLS then filed a joint motion opposing 

expedited discovery. On December 4, 2009, the Court 

conducted a discovery conference during which the parties 

agreed to a discovery schedule and the Court set the dates for 

hearing the application for a preliminary injunction as January 

12-13, 2010. 

The parties intensely litigated the preliminary injunction 

proceedings. In the discovery Gray served 15 requests for the 

production of documents and 11 interrogatories and deposed 

Cassady and a corporate representative of RWLS. Cassady 

propounded 118 requests for production of documents and 

RWLS propounded 15 requests for production of documents, 7 

requests for admissions, and 13 interrogatories. The District 

Court conducted an evidentiary hearing on the preliminary 

injunction application and on January 13, 2010, following the 

conclusion of the hearing, the Court filed an opinion setting 

forth its conclusion that Gray did not meet its burden to establish 

that it was entitled to injunctive relief under Federal Rule Civil 

Procedure 65. In its conclusion, the Court, inter alia, held “as a 

matter of law, that the agreement entered into between Cassady 

and the plaintiff is not enforceable” and that “the plaintiff has 

not demonstrated that it will likely succeed on the merits.” Gray 

Holdco, Inc. v. Cassady, Civ. No. 2:09-cv-1519, 2010 WL 

235106, at *5 (W.D. Pa. Jan. 13, 2010) (Gray I). Consequently, 

the Court denied Gray’s motion for a preliminary injunction. 

On March 2, 2010, the parties filed a Federal Rule Civil 

Procedure 26(f) discovery report and a proposed discovery plan. 
9

On March 9, 2010, the District Court conducted a status 

conference and set deadlines for mediation and for filing 

motions for judgment on the pleadings. On March 19, 2010, 

Cassady and RWLS separately moved for judgment on the 

pleadings pursuant to Fed. R. Civ. P. 12(c) or, in the alternative, 

to dismiss the complaint under Fed. R. Civ. P. 12(b)(6), with 

Cassady asserting that the Court’s findings at the preliminary 

injunction hearing were “law of the case” and barred Gray’s 

claims as a matter of law and RWLS asserting that Gray did not 

suffer any damage as a result of Cassady’s alleged contract 

breach. As a matter of convenience we will refer to the motions 

simply as motions to dismiss. Gray filed a brief opposing the 

motions to dismiss. On June 8, 2010, the Court held another 

status conference and established discovery deadlines and on 

June 30, 2010, the Court denied Cassady’s and RWLS’s motions 

to dismiss. 

On September 17, 2010, after obtaining a new attorney, 

Gray filed a demand for arbitration against Cassady with the 

AAA in Delaware. Gray based the demand on the arbitration 

clause included in the New Hire Stock Option Plan that we 

already have quoted. Then, on September 21, 2010, Cassady 

filed a motion in the District Court to enjoin the arbitration and 

to impose sanctions under 28 U.S.C. § 1927. In the motion, 

Cassady argued that Gray waived its right to arbitrate by

participating in substantial litigation and discovery in the 

District Court and by acting inconsistently with its later action 

seeking to enforce its right to arbitrate. The following day Gray 

filed a motion pursuant to the Federal Arbitration Act (FAA), 9 

U.S.C. § 1 et seq., in the District Court to stay the judicial 

proceedings as to Cassady pending the outcome of the Delaware 
10

arbitration. Gray argued that the arbitration agreement was 

mutual and enforceable and that Cassady could not demonstrate 

the necessary prejudice arising from Gray’s participation in the 

litigation to justify the Court to hold that it waived its right to 

arbitrate. Cassady opposed the motion and renewed its 

argument that Gray waived its right to enforce the arbitration 

provision and also contended that the provision was not 

enforceable against him. 

The District Court granted Cassady’s motion to enjoin the 

arbitration and denied Gray’s motion to stay the proceedings 

pending arbitration. It did not, however, impose sanctions 

against Gray. In its opinion accompanying its orders, the Court 

determined that three of the six non-exclusive factors we 

outlined in Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912 

(3d Cir. 1992), for determining whether a party has waived its 

right to arbitrate weighed in favor of finding waiver, one factor 

weighed against finding waiver, and two factors were neutral. 

Gray Holdco, Inc. v. Cassady, Civ. No. 2:09-cv-1519, 2010 WL 

4687744, at *5 (W.D. Pa. Nov. 10, 2010) (Gray II). Inasmuch 

as the Court found that Gray waived its right to enforce the 

arbitration provision, it did not decide whether in the absence of 

the waiver the arbitration provision would have been 

enforceable. Gray filed a notice of appeal challenging the 

Court’s denial of its request for a stay and granting Cassady’s 

request to enjoin the arbitration proceedings. 

III. JURISDICTION AND STANDARD OF REVIEW
11

The District Court had jurisdiction over this diversity of 

citizenship action under 28 U.S.C. § 1332(a)(1). Although, 

generally, with exceptions not applicable here, we only have 

jurisdiction to hear appeals from district courts’ final orders, we 

have jurisdiction in this case under the FAA to hear an appeal 

from the District Court’s order denying a request to stay the 

proceedings pending arbitration and granting Cassady’s request 

to enjoin the arbitration proceedings. See 9 U.S.C. § 16(a)(2); 

Zimmer v. CooperNeff Advisors, Inc., 523 F.3d 224, 228 (3d 

Cir. 2008) (citing 9 U.S.C. § 16(a)(1)). 

We exercise plenary review over both “questions of law 

concerning the applicability and scope of arbitration 

agreements” and whether a party “through its litigation conduct, 

waived its right to compel arbitration.” Nino v. Jewelry Exch., 

Inc., 609 F.3d 191, 200 (3d Cir. 2010) (internal quotation marks 

and citations omitted). To the extent that a district court makes 

factual findings in making these determinations, we review its 

findings for clear error. Id.

IV. DISCUSSION

The FAA provides that:

A written provision in any . . . contract evidencing 

a transaction involving commerce to settle by 

arbitration a controversy thereafter arising out of 

such contract . . . shall be valid, irrevocable, and 

enforceable, save upon such grounds as exist at 
12

law or in equity for the revocation of any contract.

9 U.S.C. § 2. The Supreme Court has stated that this provision 

reflects a “‘liberal federal policy favoring arbitration.’” AT&T 

Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1745 (2011) 

(quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. 

Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941 (1983)). Thus “any 

doubts concerning the scope of arbitrable issues should be 

resolved in favor of arbitration, whether the problem at hand is 

the construction of the contract language itself or any allegation 

of waiver, delay, or a like defense to arbitrability.” Moses H. 

Cone, 460 U.S. at 24-25, 103 S.Ct. at 941; see also Volt Info. 

Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 

U.S. 468, 476, 109 S.Ct. 1248, 1254 (1989) (“There is no 

federal policy favoring arbitration under a certain set of 

procedural rules; the federal policy is simply to ensure the 

enforceability, according to their terms, of private agreements to 

arbitrate.”). Given this strong preference to enforce private 

arbitration agreements, we will not infer lightly that a party has 

waived its right to arbitrate and we will find that a party has 

waived the right “only where the demand for arbitration came 

long after the suit commenced and when both parties had 

engaged in extensive discovery.” PaineWebber Inc. v. Faragalli, 

61 F.3d 1063, 1068-69 (3d Cir. 1995) (internal quotation marks 

and citation omitted). 

We also have held that a party seeking arbitration may 

waive its right to arbitration when the party opposing the 

arbitration demonstrates sufficient prejudice arising from the 

delay of the party seeking arbitration in making its demand. 

Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 223 (3d Cir. 
13

2007). To that end, in Hoxworth we identified six nonexclusive factors to guide the prejudice inquiry: (1) timeliness or 

lack thereof of the motion to arbitrate; (2) extent to which the 

party seeking arbitration has contested the merits of the 

opposing party’s claims; (3) whether the party seeking 

arbitration informed its adversary of its intent to pursue 

arbitration prior to seeking to enjoin the court proceedings; (4) 

the extent to which a party seeking arbitration engaged in nonmerits motion practice; (5) the party’s acquiescence to the 

court’s pretrial orders; and (6) the extent to which the parties 

have engaged in discovery. Hoxworth, 980 F.2d at 926-27. 

While these factors generally are indicative of whether a party 

opposing arbitration would suffer prejudice attributable to the 

other party’s delay in seeking arbitration, the answer to the 

question of whether a party invoking the arbitration clause 

waived its right to arbitrate is necessarily case specific and thus 

depends on the circumstances and context of each case. Nino, 

609 F.3d at 209. 

The District Court determined that in a Hoxworth

analysis the first and last factors were neutral, the fourth factor 

weighed against finding waiver and the remaining three factors 

weighed in favor of finding a waiver. We will consider each 

factor separately but first we will consider Gray’s overarching 

argument that we should not factor its conduct in pursuing 

litigation seeking a preliminary injunction into our Hoxworth

prejudice analysis. We point out that our weighing of the 

Hoxworth factors involves an analysis that goes beyond merely 

counting the factors for or against finding a waiver.

A. “No Waiver” Clause
14

The arbitration agreement on which Gray relies contains 

a disclaimer that “either party may, without inconsistency with 

this arbitration provision, apply to any court having jurisdiction 

over such dispute or controversy and seek interim provisional, 

injunctive or other equitable relief until the arbitration award is 

rendered or the controversy is otherwise resolved.” App. at 71. 

Gray argues that this provision precluded the District Court from 

considering its actions in pursuing litigation seeking a 

preliminary injunction in its analysis of the Hoxworth factors. 

The District Court disagreed and held that while Gray’s pursuit 

of injunctive relief did not waive its right to arbitrate, neither did 

the “no waiver” clause act as a shield against a possible finding 

that Gray waived that right. Gray II, 2010 WL 4687744, at *3.5

We agree with the District Court that the clause in the 

New Hire Stock Option Plan allowing either party to seek 

injunctive relief until the arbitration award is rendered does not 

override the applicability of the Hoxworth multipart analysis 

which examines whether a party, by its participation in 

litigation, has waived its right to invoke arbitration. Thus, we 

Gray contends that the District Court, by factoring the 

preliminary injunction proceedings into its Hoxworth waiver 

analysis, refused to enforce Gray’s agreement with Cassady 

insofar as that agreement allowed Gray to apply for injunctive 

relief without waiving its right to arbitration. 

 5 Cassady disputes the characterization of the clause in the New 

Hire Stock Option Plan as a “no waiver” clause. We, however, 

do not find its characterization significant as we are concerned 

with the content of the clause rather than its characterization.
15

also agree with the holding in S & R Co. of Kingston v. Latona 

Trucking, Inc., 159 F.3d 80, 86 (2d Cir. 1998), “that the 

presence of a ‘no waiver’ clause does not alter the ordinary 

analysis undertaken to determine if a party has waived its right 

to arbitration.” 

Gray distinguishes Latona Trucking by first arguing that 

the court in that case interpreted a “no waiver” clause6

In Ortho Pharmaceutical we indicated “that a district 

court has the authority to grant injunctive relief in an arbitrable 

to allow a 

party seeking arbitration “to seek provisional remedies or other 

judicial proceedings that would not function to displace 

arbitration on the underlying dispute.” Appellant’s br. at 19 

(quoting Latona Trucking, 159 F.3d at 85). Gray then argues 

that inasmuch as the appellant in Latona Trucking had not 

sought a preliminary injunction, which Gray categorizes as 

provisional relief, “the holding of Latona Trucking does not 

support the district court’s conclusion that it could construct a 

finding of waiver based on Gray’s efforts to secure a preliminary

injunction.” Id. Gray also argues that the District Court’s 

decision to take its pursuit of a preliminary injunction into 

consideration in its waiver analysis was inconsistent with our 

opinion in Ortho Pharmaceutical Corp. v. Amgen, Inc., 882 F.2d 

806 (3d Cir. 1989).

 6 The “no waiver” clause in Latona Trucking was an AAA rule 

incorporated into the parties’ contract stating that: “No judicial 

proceeding by a party relating to the subject matter of the 

arbitration shall be deemed a waiver of the party’s right to 

arbitrate.” Latona Trucking, 159 F.3d at 85.
16

dispute, provided that the traditional prerequisites for such relief 

are satisfied.” Id. at 812. Yet we only were holding that a 

district court’s action in exercising its equitable powers to grant 

a preliminary injunction was not inconsistent with the FAA and 

that a party does not waive its right to seek a preliminary 

injunction by entering into an arbitration agreement. Id. We did 

not address the distinct question of whether a party’s conduct in 

pursuit of the preliminary injunction may establish prejudice in 

the context of an arbitration waiver inquiry. Moreover, while 

Latona Trucking did not involve a preliminary injunction, its 

rationale is applicable to this case: a party should not be allowed 

to delay its demand for arbitration and use federal court 

proceedings to “‘test[] the water before taking [a] swim.’” 159 

F.3d at 86 (quoting Home Gas Corp. of Mass., Inc. v. Walter’s 

of Hadley, Inc., 532 N.E.2d 681, 685 (Ma. 1989)) (first 

alteration in original). In other words, “the fact that an 

arbitration agreement incorporates [a no waiver clause] would 

not prevent a court from finding that a party has waived 

arbitration by actively participating in protracted litigation of an 

arbitrable dispute.” Id. at 85. 

We disagree with Gray’s argument that the District 

Court, through its consideration of the proceedings on the 

preliminary injunction application in its Hoxworth analysis, 

nullified the contractual provision allowing either party, without 

inconsistency with the arbitration provision, to pursue injunctive 

relief. To the contrary, the Court specifically recognized Gray’s 

contractual right to apply for injunctive relief and honored that 

provision by not weighing its participation in discovery related 

to the application in determining whether Gray waived the right 

to arbitration. Gray II, 2010 WL 4687744, at *4. 
17

Nevertheless, like the District Court, we think that the 

contractual no waiver provision does not require a court to 

disregard completely Gray’s conduct in pursuit of the 

preliminary injunction. Adopting Gray’s position that any 

conduct in pursuit of a preliminary injunction is exempt from a 

prejudice inquiry could allow a party, under the guise of seeking 

a preliminary injunction, to conduct discovery which would not 

be allowed in arbitration proceedings. See, e.g., Zwitserse 

Maatschappij Van Levensverzekering En Lijfrente v. ABN Int’l 

Capital Mkts. Corp., 996 F.2d 1478, 1480 (2d Cir. 1993) (per 

curiam) (holding that taking deposition of witnesses not 

available in arbitration proceedings is sufficient prejudice to find

waiver of right to arbitrate); St. Mary’s Med. Ctr. of Evansville, 

Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 591 (7th Cir. 

1992) (“By delaying its demand for arbitration, Disco was able 

to obtain discovery it would not necessarily have been entitled to 

in an arbitration proceeding.”).7

More fundamentally, in addition to addressing the 

important question of whether the non-moving party suffers 

prejudice from the moving party’s delay in invoking an 

arbitration clause, a court, by finding that there has been a 

waiver of the right to arbitrate predicated on a party’s litigation 

conduct, effectuates the principle that a party may not use 

arbitration to manipulate the legal process and in that process 

waste scarce judicial resources. See, e.g., Republic Ins. Co. v. 

 

 7 As Gray points out, Cassady does not claim that he was 

prejudiced in this manner. However, the cases above 

demonstrate why we will not adopt the position which Gray 

advocates. 
18

PAICO Receivables, LLC, 383 F.3d 341, 348 (5th Cir. 2004) 

(holding that a “no waiver” clause does not override district 

court’s inherent authority to control its own docket and to find 

that a party, through extensive litigation, has waived its right to 

arbitrate); Nat’l Found. for Cancer Research v. A. G. Edwards & 

Sons, Inc., 821 F.2d 772, 776 (D.C. Cir. 1987) (“To give 

Edwards a second bite at the very questions presented to the 

court for disposition squarely confronts the policy that 

arbitration may not be used as a strategy to manipulate the legal 

process.”). For example, if faced with a contract that stated that 

neither party implicitly would waive the right to arbitrate by 

engaging in extensive litigation inconsistent with that right a 

court would not need to dispense completely with a prejudice 

inquiry in analyzing whether one of the parties, through its 

pursuit of litigation, did, indeed, waive the right to arbitration. 

See Richard A. Lord, Williston on Contracts § 39:36 (4th ed. 

2000) (“The general view is that a party to a written contract can 

waive a provision of that contract by conduct expressly or 

surrounding performance, despite the existence of a so-called 

anti-waiver or ‘failure to enforce’ clause in the contract.”). 

Therefore, while Gray’s motion for a preliminary 

injunction in itself does not factor into the waiver inquiry, the 

question for purposes of finding an arbitration waiver remains 

whether Gray, through its litigation conduct, waived its right to 

compel arbitration because of the prejudice Cassady suffered 

attributable to Gray’s delay in invoking its right to arbitrate. See

Nino, 609 F.3d at 209. In answering that question, we find that 

it is appropriate to consider Gray’s litigation conduct as a whole, 

including its conduct in its pursuit of a preliminary injunction. 
19

B. Timeliness

Gray filed its complaint and motion for preliminary 

injunctive relief against Cassady in the District Court on 

November 13, 2009, but did not file its demand for arbitration 

with the AAA until September 17, 2010. Though, at least 

insofar as we are aware, Gray did not explain to the District 

Court its reason for the delay, the Court nevertheless held that 

Gray’s ten-month delay, while “questionable,” neither weighed 

in favor of nor against finding that Gray waived its right to 

arbitrate. Gray II, 2010 WL 4687744, at *3. Gray argues that 

the District Court nevertheless erroneously counted the time it 

spent litigating the preliminary injunction against it and ignored 

the fact that the parties did not actively pursue the litigation 

following the preliminary injunction hearing.8

In considering the timeliness question we first reject 

Gray’s contention that the Court should have disregarded the 

time that Gray was seeking a preliminary injunction. In this 

regard, we point out that there was no reason why Gray could 

not have demanded arbitration while it was seeking the 

preliminary injunction as there is no rule precluding a party from 

simultaneously traveling on both procedural avenues. Indeed, 

Gray does not suggest that it could not have sought a 

preliminary injunction and demanded arbitration in parallel 

proceedings. 

 8 As we discuss below, we do not agree with Gray’s contention 

that, after the preliminary injunction hearing, the parties were 

not engaged actively in litigation.
20

In any event, while we agree with the District Court that 

the ten-month period between Gray’s initiation of the lawsuit in 

the District Court and its initiation of arbitration with the AAA 

is not, standing alone, outcome determinative on the waiver 

issue here, see Zimmer 523 F.3d at 232, the ten-month delay is 

substantially longer than the delays we have encountered in 

cases where we have not found a waiver of the right to arbitrate 

on a delay basis. See Palcko v. Airborne Express, Inc., 372 F.3d 

588, 598 (3d Cir. 2004) (finding that 38-day delay, while not 

determinative, did not establish waiver where opponent of 

arbitration had not demonstrated prejudice); Wood v. Prudential 

Ins. Co., 207 F.3d 674, 680 (3d Cir. 2000) (holding that short 

delay of one-and-a-half months and lack of significant steps in 

litigation that could have caused prejudice to plaintiff counseled 

against finding waiver); Faragalli, 61 F.3d at 1069 (waiver not 

found after two-month delay with no showing of prejudice); 

Gavlik Constr. Co. v. H. F. Campbell Co., 526 F.2d 777, 783-84 

(3d Cir. 1975) (holding that defendant did not waive right to 

arbitrate where it moved for stay pending arbitration 

immediately after removing case to federal court). 

The foregoing cases should be contrasted to cases in 

which, after a party delayed seeking arbitration, we have found 

that it waived its right to arbitrate. These cases in which we 

found a waiver featured delays which were closer to ten months, 

the period of delay here. Thus, in Hoxworth itself we found a 

waiver following a more than 11-month delay where the party 

seeking the finding that there had been a waiver participated in 

numerous pretrial proceedings and engaged in extensive 

discovery. 980 F.2d at 925-27. And in Nino we found that a 

15-month delay weighed in favor of a finding of waiver. 609 
21

F.3d at 210. Thus, in Nino we found that the first Hoxworth

factor weighed in favor of finding that there was a waiver where 

the delay was significant and the explanations for its delay by 

the party seeking arbitration were unpersuasive. Id. It is 

significant that, at least to the best of our knowledge, Gray 

offered no explanation to the District Court for its delay in 

waiting ten months after filing suit in the District Court before 

seeking enforcement of the arbitration provision and that it 

certainly has not offered such an explanation on this appeal.9

Overall, we are satisfied that while the length of the time 

between when a party initiates or first participates in litigation 

and when it seeks to enforce an arbitration clause is not 

dispositive in a waiver inquiry, in this case this factor weighs in 

favor of finding waiver. 

 

 9 In his answering brief Cassady suggests that the explanation 

for Gray’s delay is that Gray made a “tactical decision” to seek 

arbitration after it failed in its attempt to secure preliminary 

injunctive relief and then switched attorneys. Appellee’s br. at 

27. Though it had the opportunity to do so when it filed its reply 

brief, Gray has not contended that Cassady’s explanation was 

incorrect. Even though we will not speculate on why Gray 

waited ten months after filing this litigation to demand 

arbitration of its dispute with Cassady, we cannot help but note 

that it appears that Gray’s complaint was significantly weakened 

after the District Court held in denying the preliminary 

injunction application that “as a matter of law . . . the agreement 

entered into between Cassady and the plaintiff is not 

enforceable.” Gray I, 2010 WL 235106, at *5. This point could 

not have been lost on Gray.
22

C. Gray’s contesting of Cassady’s claims 

The second Hoxworth factor is the degree to which the 

party seeking to compel arbitration has contested the merits of 

its opponent’s claims. The wording of this factor as usually set 

forth suggests that the factor is immaterial in this case because 

Cassady has not filed any counterclaims against Gray and thus 

there was no litigation in which Gray would have had reason to 

contest any claim against it. In Hoxworth we formulated this 

factor in the way we did because in Hoxworth, as in most cases 

in which there is an arbitration demand after the initiation of 

litigation, the defendant invokes an arbitration provision after 

the plaintiff files the court action. See, e.g., Gavlik, 526 F.2d at 

780. But this case is unusual because Gray both initiated this 

litigation and, more than ten months later, invoked the right to

arbitrate the claims it already had advanced judicially. 

Nevertheless, we agree with the District Court that a literal 

reading of this factor would support Gray’s attempt to avoid 

scrutiny of its litigation activity in a Hoxworth analysis. 

Accordingly, to make the factor germane here, we, like the 

District Court, will apply this factor by examining the degree to 

which Gray participated in substantive legal proceedings and 

“has pursued or challenged the legal positions and arguments 

advanced by the respective parties [in this litigation].” Gray II, 

2010 WL 4687744, at *3. 

The District Court held that this factor weighed strongly 

in favor of waiver inasmuch as Gray “participated in 

considerable legal action, no matter its context, related to the 

substantive merits of the underlying lawsuit.” Id. Specifically, 

the Court pointed to the fact that in pursuit of a preliminary 
23

injunction motion Gray called four witnesses, cross-examined 

five witnesses, and introduced numerous exhibits into evidence. 

Moreover, the Court noted that Gray filed briefs opposing 

Cassady’s and RWLS’s motions to dismiss.10

Gray first argues that the District Court’s consideration of 

its pursuit of a preliminary injunction will “eviscerate” our 

holding in Ortho Pharmaceutical because every preliminary 

injunction proceeding necessarily entails an inquiry into whether 

a “movant has shown a reasonable probability of success on the 

merits.” Appellant’s br. at 25 (citing Am. Civil Liberties Union 

v. Ashcroft, 322 F.3d 240, 247 (3d Cir. 2003) (identifying 

probability of success on merits as requirement to obtaining 

preliminary injunction)). This argument is without force for in a 

preliminary injunction proceeding a district court analyzes a 

movant’s likelihood of success on the merits of its claims 

without affecting the movant’s ability later to arbitrate those 

claims if the movant files its motion for a preliminary injunction 

when it already has sought to arbitrate the dispute. Indeed, this 

was the exact scenario we addressed in Ortho Pharmaceutical, 

882 F.2d at 809. Even where the party moving for a preliminary 

injunction does so before filing for arbitration, it can avoid 

waiving its right to arbitrate by notifying the opposing party of 

 Gray argues that 

the District Court erred because it considered Gray’s conduct 

during the preliminary injunction proceedings, and because it 

erroneously considered its defense against Cassady’s motion to 

dismiss Gray’s allegations. 

 10 Of course, Gray’s opposition to RWLS’s motion is immaterial 

inasmuch as the Gray-RWLS dispute was not subject to 

arbitration.
24

its intent to invoke arbitration in the future. Here, Gray did 

neither, and thus the District Court did not err in considering 

Gray’s conduct during the proceedings on its preliminary 

injunction application in analyzing the second Hoxworth factor. 

The District Court also properly considered Gray’s 

opposition to Cassady’s motion to dismiss in the waiver 

analysis. Gray argues that this Hoxworth factor should not 

apply to a moving party’s defense against a motion to dismiss 

because it is intended to prevent a movant from getting a second 

bite at the apple by filing a motion to dismiss and then filing a 

motion to compel arbitration if the motion to dismiss is not 

successful. Of course, it is ironical that Gray makes this twobite argument because here it is Gray that is seeking a second 

bite by seeking arbitration after it failed in its attempt to secure a 

preliminary injunction. In that regard, we note that when it 

sought arbitration Gray knew that the District Court already had 

held “as a matter of law, that the agreement entered into 

between Cassady and the plaintiff is not enforceable.” Gray I, 

2010 WL 235106, at *5. Thus it is not difficult to find prejudice 

where a party, such as Gray, is allowed to test out the merits of 

its case in a preliminary injunction application but then resorts to 

arbitration when it becomes apparent that the court regards its 

case as standing on weak footing. In any event, as we stated in 

Nino, the focus of this factor is whether a party engaged “in 

motion practice on the merits prior to moving to compel 

arbitration.” Nino, 609 F.3d at 210-11. By responding to 

Cassady’s motion to dismiss, Gray undoubtedly engaged in 
25

motion practice on the merits of the dispute.11

Therefore, like the District Court, we find that this factor 

weighs in favor of finding waiver. 

D. Gray’s Late Notification to Cassady of Its Intent to 

 Arbitrate

The third factor in the Hoxworth balancing test asks 

whether Gray informed Cassady of its intent to seek arbitration 

before it filed its motion to stay the District Court proceedings. 

980 F.2d at 926-27. The Court held that this factor weighed 

heavily in favor of finding waiver inasmuch as Gray notified 

Cassady of its intent to arbitrate on September 17, 2010, the 

same day that it filed its demand for arbitration with the AAA. 

Gray acknowledges that it did not provide Cassady with earlier 

notice of its intent to arbitrate but argues that this factor should 

be neutral because Cassady has not shown that it suffered any 

prejudice from Gray’s failure to provide earlier notice. 

 11 We point out that one might have expected that Gray would 

have moved to compel arbitration as soon as Cassady filed his 

motion to dismiss if Gray had an intent at that time to seek 

arbitration later. After all, if Gray had that intent at the time 

Cassady filed the motion to dismiss it would seem that it would 

have been almost reckless for it not to have demanded 

arbitration when it received the motion because if the District 

Court granted the motion and Gray later demanded arbitration 

Cassady undoubtedly would have raised the preclusive effect of 

the Court’s order in the arbitration proceedings.
26

We reject Gray’s argument that Cassady has not suffered 

any prejudice due to Gray’s failure to provide notice of its intent 

to arbitrate in this case. In the arbitration waiver context we 

have recognized two distinct types of prejudice: substantive 

legal prejudice and prejudice a party suffers due to the 

unnecessary delay and expense of having to litigate a case that 

an arbitrator later decides. See Ehleiter, 482 F.3d at 224. A 

showing of either type of prejudice is sufficient for a party 

objecting to arbitration to prevail in the waiver inquiry. Id. 

Gray argues that the case was dormant and “there was 

literally no activity going on” for much of the ten months 

between Gray’s initiation of the proceedings in the District 

Court and its demand for arbitration. Appellant’s br. at 27. 

However, we have stated that “a party’s capacity to develop a 

litigation strategy with regard to the likelihood of arbitration 

diminishes the longer the case is litigated with no . . . indication 

that a motion to compel arbitration is forthcoming.” Nino, 609 

F.3d at 211. In Nino, we held that even though the party seeking

arbitration included mandatory arbitration as one of the ten 

affirmative defenses in its answer to the plaintiff’s complaint, 

the third Hoxworth factor weighed in favor of finding a waiver 

of the right to arbitrate because the significance of the notice 

diminished the longer the defendant delayed in moving to 

compel arbitration. Id. at 211-12. Specifically, we stated that 

notice of arbitration could change a party’s approach to 

discovery as well as its litigation strategy based on whether it 

could recover attorney’s fees. Id. at 211. 

Between the time the District Court denied preliminary 

injunctive relief and Gray filed its notice of arbitration, Cassady 
27

filed a motion to dismiss,

12 the parties set a discovery schedule 

and submitted a Rule 26(f) discovery plan, the District Court 

held status conferences, and the parties participated in 

mandatory mediation. Cassady argues that during these 

proceedings, it conducted its defense preparation “with the 

understanding and reasonable expectation . . . that the parties’ 

entire dispute would be resolved by a jury in a single trial 

conducted in the District Court.”13

In addition to substantive legal prejudice, Cassady also 

argues that he had to expend considerable time and money to 

educate his attorney to defend him in preparation for a trial in 

the District Court. Cassady further points out that the threat to 

his livelihood “likely will be outstanding . . . in excess of two 

 Appellees’ br. at 39. 

Therefore, Gray’s failure to notify Cassady of its intent to seek 

arbitration substantively has prejudiced Cassady’s approach to 

this case. 

 12 Of course, RWLS filed a similar motion but we are not 

considering it in our analysis.

13 Notwithstanding Cassady’s expectations, even if we disregard 

the possibility of a resolution of this case on a summary 

judgment motion, in which event there will not be a trial in this 

case, we can see two possible reasons why this case might not 

be resolved by a jury: (1) as a matter of law the District Court 

might hold that there is no right to a jury trial inasmuch as Gray 

in its complaint primarily was seeking injunctive relief; and (2) 

the District Court might rule that Cassady waived its right to a 

jury trial in its agreement with Gray. We have no need to 

address those possibilities now.
28

years—far longer than necessary if Gray Holdco had remained 

committed to its originally selected forum . . . .” Appellee’s br. 

at 45. We agree that the time and expense that Cassady incurred 

in opposing Gray’s suit and the resulting delay weigh in favor of 

finding waiver.

In reaching our conclusion, we have no doubt that 

Cassady has expended considerable resources in defending 

against Gray’s lawsuit. Even setting aside the discovery during 

the preliminary injunction phase of the litigation, Cassady has 

had to retain counsel to represent him in this litigation for 

several months. While Gray argues that after the District Court 

denied its application for a preliminary injunction the case was 

“dormant” and there was “literally no activity going on,” 

(appellant’s br. at 27-28) a review of the record demonstrates 

that this characterization is inaccurate. As we have discussed, 

the District Court held three status conferences, and the parties 

filed a Rule 26(f) discovery report and attended a court ordered 

mediation hearing. At all of these proceedings the clock on 

Cassady’s legal bill undoubtedly was running and, as Cassady 

points out, should the dispute proceed to arbitration under the 

New Hire Stock Option Plan he will be responsible for one-half 

of the professional fees and costs of the arbitrators. App. at 71. 

Thus, we cannot ignore the legal expenses Cassady incurred 

while Gray sat on its arbitration rights, expenses which would be 

compounded if the District Court did not enjoin the Delaware 

arbitration. See, e.g., Cotton v. Slone, 4 F.3d 176, 180 (2d Cir. 

1993) (“Slone’s conduct has imposed unnecessary expense and 

delay on Cotton, which would be compounded if she were now 

required to arbitrate her claim.”).
29

Second, Cassady makes a compelling argument that 

Gray’s claims, which present a substantial threat to his 

livelihood, now have been outstanding for over two years 

(including during this appeal) due to Gray’s delay in invoking 

the arbitration clause. When Gray filed its motion to arbitrate, 

the end of discovery was in sight and the parties would have 

been ready to file dispositive motions or to proceed to trial. If 

the District Court had granted Gray’s motion to compel 

arbitration, the proceedings would have started again in a 

different forum, requiring the parties, at least to some degree, to 

duplicate the efforts they expended in the District Court and thus 

frustrating the fundamental purposes underlying arbitration:

[A]rbitration is meant to streamline the 

proceedings, lower costs, and conserve private 

and judicial resources, and it furthers none of 

those purposes when a party actively litigates a 

case for an extended period only to belatedly 

assert that the dispute should have been arbitrated, 

not litigated, in the first place.

Nino, 609 F.3d at 209.

Due to Gray’s delay in invoking the arbitration clause, 

this proceeding has not conserved private or judicial resources 

and it has been anything but streamlined. We thus agree that 

Gray’s failure to notify Cassady of its intent to arbitrate weighs 

heavily in favor of finding waiver. 

E. Extent of Non-Merits Motion Practice
30

The District Court found that there had not been 

significant non-merits motion practice between Gray and 

Cassady and, therefore, this factor weighed against finding a 

waiver of Gray’s right to arbitrate. Neither Gray nor Cassady 

argues that the District Court erred in its analysis of this factor 

and, therefore, we adopt the District Court’s finding that this 

factor counsels against finding that Gray waived its right to 

arbitrate.

F. Gray’s Acquiescence to Pre-Trial Orders

The fifth Hoxworth factor asks to what extent a party 

“assent[ed] to the district court’s pretrial orders.” 980 F.2d at 

927. The District Court found that Gray assented to its orders 

because it attended three status conferences, filed a Rule 26(f) 

discovery report, attended a court-ordered mediation, established 

discovery deadlines, including time limits for experts’ reports 

and depositions, and then, eight days prior to filing for 

arbitration, requested and received extensions of time to 

complete discovery. Furthermore, Gray does not contend that it 

objected to participating in any of these proceedings. Gray 

argues that the District Court’s holding ignores the circumstance 

that there would have been status conferences regardless of 

when Gray filed its motion to compel arbitration because the 

litigation in the District Court would have continued against 

RWLS even if there was arbitration of the dispute between Gray 

and Cassady. Gray contends, moreover, that the status 

conferences did not prejudice Cassady inasmuch as there was no 

discovery between the time of the preliminary injunction hearing 

and the time when Gray filed its Motion to Stay the Proceedings.
31

We agree with the District Court that Gray, through its 

assent to its orders, acted inconsistently with an intent to 

arbitrate. Gray compares this case with Nino in which we found 

that the defendant waived the right to arbitrate where he actively 

litigated the case for more than 15 months and engaged in “no 

fewer than ten pretrial conferences,” and “extensive discovery.” 

Nino, 609 F.3d at 199. However, in Nino we also stated that a 

“case-specific waiver analysis is not susceptible to precise linedrawing.” Id. at 212. Thus, Nino does not establish a base line 

of what must be shown for acquiescence in pre-trial orders to 

waive the right to arbitrate.

Here, in addition to the three pre-trial conferences, the 

parties at the District Court’s direction, engaged in mediation 

and filed Rule 26(f) discovery reports. Gray at no point during 

any of these proceedings indicated that it intended to invoke the 

arbitration clause. Further, the absence of discovery between 

the proceedings on the preliminary injunction application and 

the motion to stay the arbitration does not alleviate the litigation 

expenses, which we discussed above, that Cassady incurred by 

participating in status conferences, the mediation, and the filing 

of a discovery report. In that regard, Gray’s argument that there 

would have been status conferences even if there had been 

arbitration because the litigation would have continued after the 

preliminary injunction hearing does not address the prejudice 

Cassady suffered inasmuch as Cassady and RWLS are separate 

entities represented by different attorneys in the District Court 

litigation. Thus, though the judicial proceedings may have 

continued following the denial of the preliminary injunction 

application, even if the Gray-Cassady dispute had been 

arbitrated, Cassady would not have needed to participate in 
32

them. Considering the factors that we have set forth we find 

that Gray’s acquiescence to the District Court’s pre-trial orders 

weighs heavily in favor of finding that Gray waived its right to 

arbitrate this dispute.

G. Extent to Which Both Parties Engaged in 

 Discovery

The final Hoxworth factor focuses on the amount and 

scope of discovery in which the parties engaged prior to the 

request for arbitration. The District Court found that while the 

parties’ engaged in discovery during the preliminary injunction 

proceedings which was closely related to the merits of the 

underlying dispute, the arbitration clause authorized the parties 

to seek preliminary relief without jeopardizing their arbitration 

rights. Thus, inasmuch as the parties did not engage in any 

discovery after the preliminary injunction hearing, the District 

Court held that the last factor neither weighed in favor nor 

against finding a waiver of Gray’s right to arbitrate.

Gray argues that the lack of extensive discovery in this 

case should be a “powerful factor supporting enforcement of the 

arbitration provision in this case.” Appellant’s br. at 31. 

However, like the District Court, we are not prepared to 

discount completely the preliminary injunction discovery which, 

in this case, was quite extensive: the parties took the depositions 

of eight separate individuals; exchanged extensive written 

discovery responses, including 200 separate interrogatories, 

requests for admission and written document production 

requests; the parties exchanged more than 20,000 pages of 

documents and submitted to the District Court approximately 
33

100 pages of Proposed Findings of Fact and Conclusions of 

Law.14 Further, as the District Court held, the discovery was 

closely related to the merits of the dispute. Overall, even 

considering the lack of further discovery after the preliminary 

injunction hearing, we agree with the District Court that the 

absence of such discovery, considered from Gray’s viewpoint, at 

best is a neutral factor in a waiver analysis.

V. CONCLUSION

In sum, we find that four of the Hoxworth factors weigh 

in favor of finding that Gray waived its right to arbitrate, one 

factor is neutral and one factor weighs in favor of finding that 

Gray did not waive its right to arbitrate. Moreover, it is clear 

that Cassady has suffered prejudice as a result of Gray’s delay in 

invoking the arbitration clause. If the arbitration goes ahead, the 

substantial time and expense that Cassady spent litigating the 

case in the District Court will to some degree need to be 

duplicated in the arbitration despite the fact that the dispute was 

close to proceeding to trial in the forum that Gray itself choose. 

Moreover, we think that the overall circumstances of this 

 14 Gray argues that Cassady served the majority of the document 

requests and took a majority of the depositions during the 

preliminary injunction proceedings. In considering the sixth 

Hoxworth factor, however, we look at “the extent to which both

parties have engaged in discovery.” Hoxworth, 980 F.2d at 927 

(emphasis added) (citing Gavlik, 526 F.2d at 783). 
34

case indicate that Gray, through its litigation conduct, has 

waived its right to arbitrate. From the beginning of this dispute, 

when Gray initiated the lawsuit without mentioning the 

arbitration provision in the New Hire Stock Option Plan to its 

compliance without objection to the District Court’s various 

orders for ten months and its participation in extensive discovery 

and status conferences, Gray indicated, through its conduct, that 

it was choosing to litigate its dispute with Cassady. It changed 

its strategy from pursuing litigation to demanding arbitration 

only after it substituted attorneys, and it did so without any 

advanced notification to Cassady. In the meantime, Cassady had 

prepared its litigation strategy in anticipation of a trial in the 

District Court, and in that preparation participated in the 

significant proceedings that we have described and thus incurred 

expenses that would not have been necessary if this case is 

arbitrated. Considering all that has transpired, whether we 

weigh the Hoxworth factors qualitatively or quantitatively, we 

agree with the District Court that Gray waived its right to 

enforce the arbitration provision contained in the New Hire 

Stock Option Plan.15

 15 As an alternative argument for affirming the District Court’s 

order to enjoin the arbitration, Cassady argues that the 

arbitration clause is unenforceable. Inasmuch as we are 

affirming the District Court’s orders denying arbitration on a 

waiver basis, we need not address this argument. 

 Accordingly, we will affirm the District 

Court’s orders granting Cassady’s motion to enjoin the 

Delaware arbitration and denying Gray’s request to stay the 

judicial proceedings pending arbitration.