* Hon. John R. Gibson, of the Eighth Circuit, sitting by

designation.

United States Court of Appeals

For the First Circuit

No. 03-2221

IN RE CITIGROUP, INC., CAPITAL ACCUMULATION PLAN LITIGATION,

WILLIAM LOMAS, On Behalf of Himself

and All Others Similarly Situated,

Plaintiffs, Appellees,

v.

TRAVELERS PROPERTY CASUALTY CORP.,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Robert E. Keeton, U.S. Senior District Judge]

Before

Torruella, Circuit Judge,

Gibson,* Senior Circuit Judge,

and Lynch, Circuit Judge.

Thomas J. Dougherty, with whom Kara E. Fay, Michael D.

Blanchard, Skadden, Arps, Slate, Meagher & Flom LLP, Boston Office,

William P. Frank, Seth M. Schwartz, and Skadden, Arps, Slate,

Meagher & Flom LLP, New York Office, were on brief, for appellant.

Nicholas J. Walsh, with whom Michael A. Collora, David A.

Bunis and Dwyer & Collora, LLP, were on brief, for appellees.

July 16, 2004
1 Defendants in this case are Citigroup, Inc.; Travelers Group,

Inc.; Salomon Smith Barney, Inc.; and Salomon Smith Barney

Holdings, Inc. Until 1998, Salomon Smith Barney Holdings, Inc.,

the parent of Salomon Smith Barney, Inc., was a subsidiary of

Travelers Group, Inc. In 1998, Travelers Group, Inc. merged with

Citicorp, Inc. to form Citigroup, Inc., the successor in interest

to Travelers Group.

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TORRUELLA, Circuit Judge. Defendant-appellant Travelers

Property Casualty Corp. ("Travelers") appeals from the district

court's denial of its motion to partially stay or dismiss the class

action as to certain class members under the Federal Arbitration

Act, 9 U.S.C. § 1-16. The district found Travelers had waived by

its conduct any arbitration rights it had. We have jurisdiction

over this interlocutory appeal under 9 U.S.C. § 16. We affirm.

I.

Plaintiff William Lomas ("Lomas") filed a class action in

Connecticut Superior Court in March 2000 on behalf of all former

Connecticut employees of Salomon Smith Barney, Inc. ("SSB");

Salomon Smith Barney Holdings, Inc.; Travelers Group, Inc.; and all

subsidiaries thereof.1 The case was removed to the United States

District Court for the District of Connecticut, and was

consolidated and transferred, along with eleven other actions, to

the United States District Court for the District of Massachusetts

pursuant to an order of the Judicial Panel on Multidistrict

Litigation ("MDL"). The underlying claims in the consolidated
2 The plan provides covered employees with the opportunity to

receive a portion of their earnings in awards of restricted stock

in lieu of commissions. Other employees are required to

participate in the plan and receive the stock as part of their

annual discretionary bonus. The awards are subject to two or three

year vesting periods as well as forfeiture of non-vested stock if

the plan participant terminates his or her employment. The class

action challenges the plan's vesting and forfeiture provisions

under Connecticut law.

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cases challenge the legality of the forfeiture provisions of the

Capital Accumulation Plan sponsored by Travelers.2

The district court granted class certification on October

26, 2001. The class was defined as 

[a]ll former employees of Citigroup, Salomon

Smith Barney, Travelers Group, Inc. or related

and affiliated companies in Connecticut who

participated in the Capital Accumulation Plan

of Citigroup, Inc., Travelers Group, Inc.,

Travelers, Inc., and/or Primerica Corporation

who resigned or who were terminated on or

after March 13, 1994 and as a consequence lost

the right to receive shares of stock and/or

options and/or other earned income under the

terms of the plan upon termination.

 

On July 23, 2002, the district court granted Travelers's motion to

amend their answer to assert their right to arbitrate as an

affirmative defense. 

The class as certified included employees both who were

subject to arbitration and those who were not. Some members of the

class were excluded from arbitration because they were members of

the National Association of Securities Dealers ("NASD"). That is

because under NASD rules, a claim submitted as a class action

"shall not be eligible for arbitration," nor may a member of NASD
3 The district court also held that the motion to stay should be

denied because it did not provide a precise and clear form of

proposed order specifying the relief sought. Because we agree with

the district court that Travelers waived its right to arbitration,

we do not address that portion of the district court's order.

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seek to enforce an arbitration agreement against another member who

initiated a class action. See NASD Unif. Code of Arbitration §

10301(d). This meant that neither Lomas himself or those class

members subject to NASD rules could be compelled to arbitrate. But

the former Travelers employees who were within the class were not

NASD members, nor was Travelers. Travelers argued that this group

could be compelled to arbitrate their claims.

On May 5, 2003, Travelers moved pursuant to 9 U.S.C. § 3

to partially stay or dismiss the litigation as to any class members

who had arbitrable claims asserted on their behalf by William

Lomas, the lead plaintiff. The district court held that Travelers

had waived its right to arbitration and denied the motion.3 

II.

Travelers challenges the district court's determination

that Travelers waived its right to arbitrate any claims with class

members who were covered by the class action certification. "Under

federal law, such a [waiver] is an issue for the judge . . . and

pertinent fact findings by the judge aside (which would be reviewed

for clear error), our review is plenary." Rankin v. Allstate Ins.

Co., 336 F.3d 8, 12 (1st Cir. 2003)(internal citation omitted).
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Federal policy strongly favors arbitration, see Moses H.

Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25

(1983), but parties are not free to invoke arbitration rights at

any time or under any circumstances. A party may waive arbitration

expressly or implicitly. See Restoration Pres. Masonry, Inc. v.

Grove Europe Ltd., 325 F.3d 54, 61 (1st Cir. 2003). In the instant

case, the district court found that Travelers implicitly waived its

right to arbitrate by participating in the litigation, unduly

delaying assertion of its arbitration right, and prejudicing the

plaintiffs.

"If arbitration is invoked in response to a lawsuit, it

must be done early on in the case so resources are not needlessly

deployed." Rankin, 336 F.3d at 13 (citing Menorah Ins. Co., Ltd.

v. INX Reinsurance Corp., 72 F.3d 218, 221 (1st Cir. 1995)).

Travelers argues that it invoked its right to arbitration in a

timely manner, and that when it did so, plaintiffs had not suffered

any prejudice; thus, Travelers argues, it did not implicitly waive

any of its rights as to the arbitrable claims. We disagree.

In this Circuit, no one factor dominates the analytical

framework for determining whether a party has implicitly waived its

right to arbitrate.

In determining whether a party to an

arbitration agreement, usually a defendant,

has waived its arbitration right, federal

courts typically have looked to [1] whether

the party has actually participated in the

lawsuit or has taken other action inconsistent
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with his right, . . . [2] whether the

litigation machinery has been substantially

invoked and the parties were well into

preparation of a lawsuit by the time an

intention to arbitrate was communicated by the

defendant to the plaintiff, . . . [3] whether

there has been a long delay in seeking the

stay or whether enforcement of arbitration was

brought up when trial was near at hand . . . .

Other relevant factors are [4] whether

the defendants have invoked the jurisdiction

of the court by filing a counterclaim without

asking for a stay of the proceedings, . . .

[5] whether important intervening steps (e.g.

taking advantage of judicial discovery

procedures not available in arbitration . . .)

had taken place, . . . and [6] whether the

other party was affected, misled, or

prejudiced by the delay.

Creative Solutions Group, Inc. v. Pentzer Corp., 252 F.3d 28, 32-33

(1st Cir. 2001)(quoting Jones Motor Co., Inc. v. Chauffeurs,

Teamsters & Helpers Local Union No. 633, 671 F.2d 38, 44 (1st Cir.

1982)). We have emphasized that, to succeed on a claim of waiver,

plaintiffs must show prejudice. See Menorah Ins., 72 F.3d at 221

(quoting Sevinor v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

807 F.2d 16, 18 (1st Cir. 1986)). "Prejudice is relevant to waiver

when it is the product of a defendant's failure to timely invoke

the arbitration procedure." Creative Solutions, 252 F.3d at 33.

When determining whether a defendant prejudicially failed to invoke

arbitration in a timely manner, we consider the larger context of

the litigation. See Restoration Pres. Masonry, 325 F.3d at 61; see

also Navieros Inter-Americanos, S.A. v. M/V Vasilia Express, 120

F.3d 304, 316 (1st Cir. 1997).
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Travelers argues that it timely asserted its right to

arbitration in its motion to amend the complaint on April 17, 2002,

filed six months after the class certification on October 28, 2001.

We disagree. Travelers's April 17, 2002 motion to amend did indeed

articulate its potential intentions to raise the arbitrability of

certain claims as an affirmative defense within the class-certified

action. See Fed. R. Civ. P. 8(c). It was not until Travelers

filed its motion to stay arbitration, however, that Travelers

actually asserted its right to arbitration and to proceedings

extrinsic to the class action. See 9 U.S.C. § 3. Accordingly, in

evaluating the extent of Travelers's delay in initiating

arbitration, we look to the date of the motion to stay on May 5,

2003 rather than the motion to amend on April 17, 2002.

Three full years had elapsed between the filing of the

complaint on March 10, 2000 and the motion to stay. Travelers

argues, however, the claims were not arbitrable until the district

court certified the class in October 2001 because it was prohibited

under NASD rules from compelling arbitration on any pending claim.

See NASD Unif. Code of Arbitration § 10301(d). Even assuming

arguendo that the filing of the complaint did not trigger

Travelers's arbitration rights, the class certification sufficed to

alert Travelers that some of the class members in this action were

covered by the arbitration clause. Thus, Travelers was on

constructive notice that claims were asserted which were subject to
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the arbitration provision for at least eighteen months prior to

filing the motion to stay. There is no excuse for Travelers's

delay in notifying the class members of its intention to seek

arbitration nor for failing to seek arbitration promptly.

"Litigation frequently puts parties to hard choices . . . ."

Navieros, 120 F.3d at 316. Travelers knew its legal rights were

implicated in this class action. "[W]e have . . . recognized that

the very rationale for arbitration may be undercut if a party is

permitted to pursue a claim through the courts and then later claim

a right to arbitration . . . . Accordingly, we have repeatedly held

that a party may, by engaging in litigation, implicitly waive its

contractual right to arbitrate." Id. (citing Menorah Ins., 72 F.3d

at 223)(internal citation omitted). In the context of this case,

the delay of more than three years after the filing of the

complaint and of 18 months after class certification were

sufficient to waive Travelers's right to arbitrate, as long as the

delay was prejudicial to plaintiffs. See Menorah Ins., 72 F.3d at

221-22 (waiver after one year delay). 

Plaintiffs claim prejudice due to the delay for several

reasons. First, plaintiffs argue, and we agree, that if the

arbitrable claims are sent to arbitration they may be subject to

new defenses related to the statute of limitations and the

equitable doctrine of laches; and even if the defenses are not

successful, plaintiffs will have to respond to them. Second, the
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class notice was approved by the court in October 2001 and was sent

immediately thereafter. See Hoxworth v. Blinder, Robinson & Co.,

Inc., 980 F.2d 912, 925-26 (3d Cir. 1992)(finding of waiver where

defendants in three class actions agreed to their consolidation).

Finally, plaintiffs argue that they have structured their

litigation as part of a class action regarding the same cause of

action and not as individual actions focused on individual

recovery. In the consolidated cases, the plaintiff class had

already begun taking depositions and were subjects of motions to

compel and motions to seal. In this case, at least fifteen

depositions relevant to the Connecticut class action have been

taken and at least twelve case management conferences were held.

See Restoration Pres. Masonry, 325 F.3d at 61 (stating that there

was prejudice when at least five depositions and thirteen pre-trial

conferences had been held). We believe that the plaintiffs have

shown prejudice. 

Travelers argues that virtually all of the discovery

which has taken place is relevant to the claims by class members

not subject to arbitration. As to class members subject to

arbitration, Travelers argues, discovery amounts only to five

narrowly tailored and court-approved interrogatories. Further,

that discovery was available to plaintiffs in arbitration in any

event, so plaintiffs could not have been prejudiced. We believe,

however, the waiver issue must be viewed through the lens of
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Travelers's behavior and the detriment to the plaintiffs as a

result of that behavior. If those claims were the only claims

involved in the litigation Travelers's argument against a finding

of prejudice would carry more weight. Travelers cannot now, after

failing to invoke its arbitration right, rely solely on the

fortuitous number of interrogatories allegedly related to the class

members subject to arbitration. When a defendant has failed to

timely invoke its rights, and during that delay, the litigation has

proceeded into discovery, it cannot, particularly in the context of

a class action, claim that the class members subject to arbitration

will not suffer prejudice. Moreover, we must evaluate this

argument in the context of the entire litigation, not a part of it.

See id.; Navieros, 120 F.3d at 316. Discovery that implicated the

class has begun: at least twelve sets of document requests have

been served and answered; three sets of interrogatories have been

served and answered; and requests for admissions have been served

and answered. See Restoration Pres. Masonry, 325 F.3d at 61. 

As stated above, Travelers took advantage of judicial

resources such as depositions and case management conferences and

availed itself of the uniquely judicial process of MDL

consolidation. See id.; Menorah Ins., 72 F.3d at 222 ("To require

that parties go to arbitration despite their having advanced so far

in the court proceedings before seeking arbitration would often be

unfair, for it would effectively allow a party sensing an adverse
4 Travelers argues that no trial date has been set and that

plaintiffs' trial strategy cannot therefore be implicated. The

trial date cannot currently be set for this matter by the district

judge. See 28 U.S.C. § 1407(a)(stating that once the MDL procedure

is complete, the matters will be remanded to the transferor courts

and set for trial). Given that this is an MDL litigation, we

believe that this argument cannot be successful when viewed in the

context of the litigation proceedings that have already occurred.

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court decision a second chance in another forum."). Thus,

Travelers's argument that plaintiffs are not prejudiced because

only five interrogatories have been answered which are relevant to

the class members with arbitrable claims is unavailing because it

fails to account for two important factors: the costs already

incurred in discovery to both class members with and without

arbitrable claims and the delay in invoking its arbitration rights;

both of which caused the class members with arbitrable claims

prejudice.4 

Other litigation activity points to Travelers's implicit

waiver of their right to arbitration. See Jones Motor Co., 671

F.2d at 44 (listing factors other than time and prejudice when

determining whether a party has waived arbitration). Travelers

invoked the litigation machinery by filing a motion for summary

judgment, which was denied without prejudice by the district court

as premature. See id.; see also Ritzel Communications, Inc. v.

Mid-American Cellular Tel., Co., 989 F.2d 966, 969 (8th Cir.

1993)(filing a dispositive motion invokes the litigation

machinery). Travelers sought to certify questions to the
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Connecticut Supreme Court and vigorously opposed class

certification. Travelers also filed a compulsory counterclaim

under Fed. R. Civ. P. 13(a) in this lawsuit. See Jones Motor Co.,

671 F.2d at 44 (one factor in determining waiver is "whether the

defendants have invoked the jurisdiction of the court by filing a

counterclaim without asking for a stay of the proceedings").

Travelers cannot overcome the prejudice suffered by plaintiffs due

to the delay in asserting its right to arbitration. Given the

complexity of the litigation, knowing full well the wide-ranging

implications for all parties involved (across several

jurisdictions), Travelers should have acted in a prompt manner to

assert its right to arbitrate claims in issue. 

III.

For the reasons stated above, we affirm the district

court's denial of the motion to stay.

Affirmed.