In the

United States Court of Appeals

For the Seventh Circuit

No. 99-4238

Andrew S. Grumhaus and

Leslie Grumhaus-Davidson,

Plaintiffs-Appellees,

v.

Comerica Securities, Inc., as successor-in-interest

to Comerica Financial Services Inc.,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 99 C 1776--James B. Moran, Judge.

Argued May 30, 2000--Decided August 3, 2000

 Before Posner, Coffey and Kanne, Circuit Judges.

 Kanne, Circuit Judge. A year after Andrew S.

Grumhaus and Leslie Grumhaus Davidson ("the

Grumhaus children") sued Comerica Securities in

state court and nearly six months after the case

was dismissed, they demanded a chance to

arbitrate the dispute. Comerica resisted

arbitration on the ground that the contractual

right to arbitrate had been waived. The Grumhaus

children moved to compel arbitration, and the

district court ruled that the Grumhaus children

had not waived arbitration and entered an order

to compel. We find that no special circumstances

absolve the Grumhaus children from the effect of

their waiver of the right to arbitrate, and we

vacate the district court’s order.

I. History

 Peter Dean Grumhaus, Sr., the Grumhaus

children’s father, had borrowed heavily from

LaSalle Bank on his own behalf and for several

businesses he either owned or controlled. After

some financial setbacks, Grumhaus found himself

strapped for cash to pay off the loans. The

Grumhaus children owned large blocks of stock in

Dean Foods, a company that the family had

controlled for many years, and Grumhaus decided

to use this stock to pay back LaSalle Bank. To do
so, Grumhaus needed to establish accounts with a

securities trading firm and liquidate the Dean

Foods stock that was in his children’s names. The

Grumhaus children signed the papers establishing

the brokerage accounts, and LaSalle presented

those papers to Comerica, a securities firm

affiliated with LaSalle. The children never

agreed to sell their stock, and Grumhaus

apparently forged his children’s signatures on

the loan applications pledging the stock as

collateral and on the orders to sell the stock.

The stock was sold in 1994 and the proceeds used

to pay off the LaSalle loans. Two years later,

after Grumhaus died, his children discovered

their stock had been sold. 

 In October 1997, the Grumhaus children sued

Comerica, LaSalle and another brokerage firm in

Illinois state court. That complaint stated

several claims "collectively against the

defendants" revolving around the unauthorized

sale of the children’s stock by Comerica to pay

off the LaSalle loans. The complaint sought

damages equal to the present value of the stock

and the establishment of a constructive trust for

the proceeds of the sale. LaSalle moved to

dismiss the case, and on March 17, 1998, the

state court dismissed the complaint against all

defendants, with leave to refile. In its order,

the court stated that "[n]othing contained herein

shall waive any party’s right (i) to argue that

an alleged contractual arbitration clause compels

litigation of this case in another tribunal, or

(ii) to argue that any such arbitration clause is

either inapplicable or unenforceable." Two months

later, the Grumhaus children refiled their

complaint against LaSalle, but voluntarily

dismissed without prejudice their claims against

Comerica. In their voluntary dismissal, the

Grumhaus children expressed an intent to

arbitrate the dispute with the brokerage firms. 

 Six months later, the Grumhaus children filed a

demand for arbitration with the National

Association of Securities Dealers. That demand

alleged that Comerica had wrongfully sold the

Dean Foods stock, relying on forged documents

supplied by LaSalle, to pay off the LaSalle

loans. For damages, the Grumhaus children sought

the value of the stock. Comerica refused to enter

arbitration. 

 The federal district court held that the

parties had an enforceable arbitration agreement

and that the Grumhaus children had not waived

that right by litigating in state court. The

district court recognized the presumption that a

party waives a right to arbitrate by choosing a

judicial forum instead of arbitration, but held

that the presumption was outweighed by several
factors. Among them, the court found that the

issues in arbitration were different than those

in the state complaint, Comerica had not been

prejudiced by the judicial proceeding and that

the "skeletal nature" of the proceeding and the

court’s order had not indicated an intent to

waive arbitration.

II. Analysis

 We first address whether this Court has

jurisdiction to decide this appeal. We find that

we do. Under the law of this Circuit, an order to

compel arbitration cannot be appealed if it is

part of a larger suit still before the district

court, or "embedded" among multiple issues. See

Iowa Grain Co. v. Brown, 171 F.3d 504, 508 (7th

Cir. 1999); Napleton v. General Motors Corp., 138

F.3d 1209, 1212 (7th Cir. 1998). This Court may

hear an appeal from an order in an "independent"

proceeding, or one in which the motion to compel

arbitration is the "sole issue before the

district court." Iowa Grain, 171 F.3d at 508. The

Grumhaus children contend that their motion is

embedded, and therefore the order compelling

arbitration cannot be appealed. 

 The Grumhauses initially filed an independent

complaint in the district court to compel

arbitration of their dispute. After briefing and

while awaiting the court’s decision, they filed

an amended complaint adding substantive claims

against Comerica in an attempt to transform their

arbitration action into an embedded action. All

along, they admitted they wanted those

substantive claims, which were the same as the

claims to be submitted to arbitration, to be

arbitrated, not decided by the court. In fact,

they asked the court to stay litigation of the

amended complaints and not require Comerica to

answer it because the court’s disposition of the

arbitration claim would completely dispose of the

substantive claims. The Federal Arbitration Act

prohibits only appeals from interlocutory orders

to proceed with arbitration, not from final

orders. See 9 U.S.C. sec. 16(b)(2). The district

court in this case entered a final judgment that

indicated "cause dismissed" and ordered the

parties to arbitration. No further issues remain

for the district court to answer, and so it is

clear that the Grumhaus’s arbitration motion was

the sole issue before the court. Therefore, the

court’s order constitutes a final order from

which appeal can be taken. 

 We next decide whether the Grumhaus children

waived their right to arbitrate the dispute with

Comerica. We review a district court’s finding of

waiver for clear error, but review de novo any

conclusions of law. See Iowa Grain, 171 F.3d at
509. A contractual right to arbitrate may be

waived, either expressly or implicitly. See

Cabinetree of Wisconsin, Inc. v. Kraftmaid

Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir.

1995); St. Mary’s Med. Ctr. of Evansville, Inc.

v. Disco Aluminum Products Co., 969 F.2d 585, 587

(7th Cir. 1992). In fact, we have held that a

court must presume that a party implicitly waived

its right to arbitrate when it chooses a judicial

forum for the resolution of a dispute. See

Cabinetree, 50 F.3d at 390. Once a party selects

a forum, the courts have an interest in enforcing

that choice and not allowing parties to change

course midstream. See id. The central question is

whether the party against whom the waiver is to

be found intended its selection and not whether

either party would be prejudiced by the forum

change. See id. In the case of an implied waiver,

we must determine whether "based on all the

circumstances, the [party against whom the waiver

is to be enforced] has acted inconsistently with

the right to arbitrate." St. Mary’s, 969 F.2d at

588; see also Iowa Grain, 171 F.3d at 510

(holding that courts must look at totality of the

circumstances to find waiver).

 In Cabinetree, the plaintiff filed a breach of

contract suit in state court, and the defendant

chose to remove the case to federal court, which

had jurisdiction under diversity of citizenship.

After six months of pretrial proceedings and

discovery, the defendant moved to stay the court

action pending arbitration. The district court

denied the motion, and the defendant appealed. We

held that the election to proceed in a

nonarbitral forum acted as a presumptive waiver

of the right to arbitrate and that a party need

not show that it would be prejudiced if

arbitration were compelled. 50 F.3d at 390. 

 Similarly, in St. Mary’s, the plaintiff had

filed an amended complaint for breach of warranty

in federal district court in July 1990. 969 F.2d

at 586-87. The defendant waited about five months

and then moved for dismissal of the complaint as

time barred and, in the alternative, as

insufficient as a matter of law. Several more

months passed without mention of arbitration, and

after the district court finally denied the

motion to dismiss, the defendant for the first

time moved for a stay pending arbitration. The

district court found that the defendant had

waived arbitration for three reasons: delay,

participation in discovery and filing a motion to

dismiss. We upheld the district court, finding

that the defendant’s participation in several

months of litigation was inconsistent with an

intent to exercise an arbitration right. Id. at

590-91. "Submitting a case to the district court

for decision is not consistent with a desire to
arbitrate. A party may not normally submit a

claim for resolution in one forum and then, when

it is disappointed with the result in that forum,

seek another forum." Id. at 589. Furthermore, we

held that "a court may find waiver even if [the

decision to forgo arbitration] did not prejudice

the non-defaulting party." Id. at 590. 

 Here, the plaintiffs filed suit against Comerica

in October 1997 and litigated their claims for

several months. In March 1998, the state court

dismissed the complaint. Understandably

disappointed with that result, the Grumhaus

children decided that they wanted to arbitrate.

Still they waited several more months, until more

than year after filing the initial action, to

demand arbitration formally. The plaintiffs were

aware of their right to arbitrate, as it was

included in the documents they signed

establishing their brokerage accounts, but chose

instead to litigate. Just as in St. Mary’s and

Cabinetree, this knowing selection of one forum

over another and willing participation in the

ensuing litigation was plainly inconsistent with

a desire to arbitrate. 

 The Grumhaus children attempt to distinguish St.

Mary’s on the ground that, unlike the defendants

in St. Mary’s, they "never submitted their state

court action for judgment." This is not even

technically correct. Filing a complaint in

district court most certainly constitutes a

request for judgment, as the words "prays for

entry of judgment" as used repeatedly by the

Grumhaus children would tend to indicate.

Although it is true that in St. Mary’s the

defaulting party submitted a motion to dismiss

while here the non-defaulting party (Comerica)

submitted the motion, that distinction relates

solely to the different roles of the parties as

plaintiff or defendant. In St. Mary’s, the issue

was whether the defendants had submitted the case

for resolution in a judicial forum, a fact

indicated by filing a motion to dismiss, while

here the issue is whether the plaintiffs had.

Unlike a defendant, a plaintiff expresses his

intent to submit to a judicial forum by filing a

complaint, as the Grumhaus children did. Had

Comerica failed to respond at all to the suit, we

have no doubt the Grumhaus children would have

thought themselves entitled to a default judgment

against Comerica. The Grumhaus children having

filed a complaint in district court may not now

say they did not submit the case for judgment. 

 The Grumhaus children also contend that waiver

cannot be inferred because their state court

action against Comerica involved different causes

of action than those at issue in their request to

arbitrate. In Gingiss International, Inc. v.
Bormet, 58 F.3d 328, 332 (7th Cir. 1995), we held

that a decision to litigate state law breach of

contract claims did not evince an intent to waive

arbitration of federal Lanham Act claims because

the two claims "involved different issues." See

also Doctor’s Associates, Inc. v. Distajo, 107

F.3d 126, 133 (2d Cir. 1997) ("[O]nly prior

litigation of the same legal and factual issues

as those the party now wants to arbitrate results

in waiver of the right to arbitrate."). Doctor’s

Associates involved claims by franchisees that

the franchisor had waived its right to arbitrate

disputes under the franchise agreement by

litigating eviction proceedings under leases

between the franchisor and franchisees. Id. The

franchisor sought to enforce rights to payments,

royalties and so forth under the franchise

agreements through arbitration as allowed by the

agreements, but also sought to enforce rights

created by the leases through eviction

proceedings. The Second Circuit, citing Gingiss,

58 F.3d at 330-32, rejected a simple fact-based

analysis of whether the defaulting party had

waived its right to arbitrate, but looked instead

to whether the parties had "litigate[d]

substantial issues going to the merits of the

franchisees’ current claims." Doctor’s

Associates, 107 F.3d at 133. The court found the

issues sufficiently distinct to avoid a finding

of waiver because, among other things, the claims

in the eviction proceedings, unlike those in the

franchise agreement disputes, were nonarbitrable.

Id.; see also Gilmore v. Shearson/American

Express, Inc., 811 F.2d 108, 114 (2d Cir. 1987)

(holding that complaint did not "alter the scope

or theory" of the claims to which one party had

already explicitly waived arbitration, and

therefore the waiver applied to the claims raised

in the complaint). 

 We agree that different claims may arise from a

common factual basis, and that in one claim, a

party may wish to waive arbitration while

preserving that right in the other. However, as

we said in Gingiss, when the same issues are

presented, a party may not escape the effect of

its waiver by minimally restyling the claim and

presenting it for arbitration. The Grumhaus

children contend that because they brought

"different causes of action" in their request to

arbitrate, they have successfully brought

different issues. In this view, any distinction

between the legal elements required to plead one

cause and those required for a second would allow

the plaintiff to escape the effect of a waiver.

The federal courts long ago ceased using the

arcane and overly technical system of code

pleading and causes of action in favor of a more

substance oriented system that focuses on the

merits of issues raised in court filings. See,
e.g., Bartholet v. Reishauer A.G. (Zurich), 953

F.2d 1073, 1078 (7th Cir. 1992) (explaining

purposes behind shift from fact to notice

pleading). Our choice of the word "issue" in

Gingiss reflects this continuing determination to

focus on the substantive merits of various

claims, rather than on the purely technical

aspects. 

 The Grumhaus children contend that the causes

of action brought in the state court--conversion,

unjust enrichment, constructive trust and

constructive fraud--are different from those in

the arbitration claim--negligence, breach of

duty, violations of state and federal securities

laws. However, it is all one dispute, stemming

entirely from Comerica’s action in liquidating

the Dean Foods stock belonging to the Grumhauses,

and the issue-- whether Comerica wrongfully

liquidated the stocks--is the same. The choices

of remedies are the same in both actions, and a

favorable resolution of one would have precluded

as a double recovery relief in the other. Thus,

the case is distinguishable from Gingiss and

Doctor’s Associates, in which the rights and

remedies underlying the different claims were

distinct. When the Grumhaus children chose to

file suit against Comerica over the wrongful

liquidation of their assets, they waived their

right to have an arbitrator resolve that dispute. 

 We have held that even when the presumption

applies, other factors may absolve the defaulting

party of its effect. See Cabinetree, 50 F.3d at

390-91. We outlined some of those special

circumstances in Cabinetree, 50 F.3d at 391, but

none applies here. The plaintiffs had no special

concern about a statute of limitations or doubts

about whether their claims were arbitrable, nor

did the litigation take such unexpected turns to

make it obvious that the Grumhaus children should

be relieved from their waiver. Prejudice and

delay also may be factors in relieving one party

from its waiver, see id., but these factors are

not compelling here. Comerica was not unduly

prejudiced by the Grumhaus children’s delay in

seeking arbitration, but the Grumhaus children

did not do all they reasonably should have been

expected to do to make the "earliest feasible

determination" of which forum to elect. Id. It

took more than a year after they initiated a

court suit to formally demand arbitration. Until

then, Comerica could not be sure, despite some

suggestions in May 1998, that the plaintiffs

would seek arbitration. This lack of diligence by

the Grumhaus children counsels against absolving

them of their waiver.
III. Conclusion

 The Grumhaus children chose to litigate their

dispute against Comerica and thereby waived their

contractual right to arbitrate. Under the law of

this Circuit, they must now live with that

choice. The district court erred in finding that

the plaintiffs had not waived arbitration, and we

hereby Vacate the order compelling arbitration.