2008 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-14-2008

Zimmer v. Cooperneff Advisors

Precedential or Non-Precedential: Precedential

Docket No. 05-1119

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Recommended Citation

"Zimmer v. Cooperneff Advisors" (2008). 2008 Decisions. Paper 1296.

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*

 Hon. Jane A. Restani, Chief Judge, United States Court of

International Trade, sitting by designation.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 05-1119

 

STEVEN A. ZIMMER

v.

COOPERNEFF ADVISORS, INC.;

BNP PARIBAS SA,

 Appellants

 

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 04-cv-03816)

District Judge: Hon. Robert F. Kelly

 

Argued December 20, 2007

Before: SLOVITER, FUENTES, Circuit Judges, and

RESTANI*

, Judge

(Filed April 14, 2008)

____

Edward T. Colbert (Argued)

Brian S. Mudge

Kenyon & Kenyon

Washington, D.C. 20005-0000

Susan K. Herschel
2

Hoyle, Fickler, Herschel & Mathes

Philadelphia, PA l9l07-0000

Attorneys for Appellants

Robert L. Ebby (Argued)

Hangley, Aronchick, Segal & Pudlin

Philadelphia, PA l9l03-0000

Attorney for Appellee

_____

 

OPINION OF THE COURT

 

SLOVITER, Circuit Judge.

Before us is an appeal by CooperNeff Advisors, Inc.

(“CooperNeff”) of the District Court’s order denying its motion

to compel arbitration of the claim filed by its former employee,

Steven A. Zimmer, on the ground that the arbitration clause in

the employment agreement between Zimmer and CooperNeff

was unconscionable and, alternately, that CooperNeff waived its

right to compel arbitration by litigating its claims against

Zimmer.

I.

Zimmer, who holds a Ph.D. in economics from Harvard

University, has worked in the financial industry since 1988,

including at the Federal Reserve Bank of New York and at J.P.

Morgan Chase. He developed an interest in hedge fund

management while he was working as a portfolio manager at the

Vanguard Group (“Vanguard”), and began to search for a new

position in that capacity. During the latter part of 2002, Zimmer

discussed terms of employment with several interested financial

companies, including CooperNeff, a trading and investment

firm.
1

 During oral argument, counsel for CooperNeff assured the

court that if we held the motion to compel arbitration should have

been granted, CooperNeff would not raise Zimmer’s failure to

follow the procedure required by paragraph 8.

3

As part of the interview with CooperNeff’s chairman and

CEO, Andrew Sterge, Zimmer discussed and demonstrated the

capabilities of a stock trading model that he had developed and

that he intended to use in his new employment. CooperNeff

extended Zimmer a job offer by letter dated February 6, 2003,

which stated that the formal agreement between the parties

would be embodied in a forthcoming “Employment Agreement.” 

The letter further stated that “[u]ntil the Employment Agreement

has been finally negotiated, signed and approved by BNP

Paribas’ global headquarters, either CooperNeff or [Zimmer]

may at any time terminate further participation in negotiating the

terms of . . . employment with CooperNeff.” App. at 173. 

Zimmer accepted CooperNeff’s offer of employment. He

alleges that by doing so, he forfeited approximately $370,000 in

deferred compensation from Vanguard.

On March 26, 2003, the first day of Zimmer’s

employment, CooperNeff provided Zimmer with the

Employment Agreement. Paragraph 8 of that agreement

includes an arbitration clause covering “any and all legal or

contractual disputes of any nature arising at any time (including

after termination of employment) between [the employee] on the

one hand and the Company and its affiliates on the other . . . .” 

App. at 177. The employee must first submit such disputes to

the company’s human resources department and, if not mutually

resolved, the dispute would then be sent to an independent

arbitrator.1

 Paragraph 8(c) explains:

The types of claims and disputes that will be resolved

under these procedures include all claims and disputes

arising under this agreement or in connection with your

employment by the Company; all claims arising from the

terms and conditions of your employment; all claims

arising from the termination of your employment . . . .

However, the Company retains the right to bring any
2

 Zimmer’s signature on the Employment Agreement is

dated March 31, 2003, but Zimmer testified that he did not sign the

agreement until sometime in mid-May. CooperNeff does not argue

otherwise. Zimmer’s account is corroborated by Sterge’s

testimony that he spoke with Zimmer about his failure to sign the

agreement at some point in May.

4

claims to enforce any of its rights in paragraph 6 of this

agreement directly in a court of competent jurisdiction

and the Company need not arbitrate any such claims.

App. at 177 (emphasis added).

Paragraph 6 is entitled “Exclusivity of Services, NonSolicitation, Confidentiality, Intellectual Property, Return of

Documents and Property upon Termination, and Enforcement

Provisions.” App. at 175. That paragraph contains six clauses

setting forth the parameters of the substantive provisions listed

in the title. For example, the intellectual property clause states

that any intellectual property that the employee “invented,

discovered, produced or the like using (in whole or in part) any

of the Company’s resources or on Company time . . . will be the

sole and exclusive property of the Company.” App. at 176. The

effect of the retention language underlined above is to authorize

CooperNeff to file a law suit against an employee on any issue

covered in paragraph 6.

Zimmer testified that he initially refused to sign the

Employment Agreement because he was concerned about how

the intellectual property clause in paragraph 6 would be applied

to his model. He stated that he brought his concerns regarding

that clause to CooperNeff’s human resources personnel and then

to Sterge. Sterge stated that the offer letter did not contemplate

his negotiation of the terms of the agreement and that Zimmer

would be terminated if he did not sign the agreement as drafted. 

Zimmer eventually signed the agreement.2

While Zimmer worked at CooperNeff, he implemented

his model as part of a hedge fund called the CooperNeff

Quantitative Strategies Fund. Zimmer testified that he attempted

to keep the model isolated from CooperNeff’s systems to the
3

 The TRO was subsequently withdrawn after QVT

indicated that it would not hire Zimmer before the resolution of his

dispute with CooperNeff.

5

greatest extent possible. For example, he did not permanently

install the model in CooperNeff’s system, instead bringing the

model to work every day on a portable hard drive.

In June of 2004, after Zimmer had been at CooperNeff for

almost fifteen months, he gave notice that he would be resigning

his position at CooperNeff effective July 2, 2004. He intended

to work at another hedge fund, QVT. At his exit interview on

June 30, 2004, he was handed a copy of an unfiled complaint

and motion for an injunction. The following day, CooperNeff

filed a “Complaint in Equity” against Zimmer in Pennsylvania’s

Montgomery County Court of Common Pleas seeking injunctive

and other remedies under six different theories: inadequacy of

legal relief, breach of contract, misappropriation of trade secrets,

breach of fiduciary duty, conversion, and unfair competition. On

July 1, 2004, the state court entered a temporary restraining

order (“TRO”) enjoining Zimmer from disclosing or using the

model.3

 The parties agree that at some point during the state

court proceedings, three depositions were taken, two by Zimmer

and one by Cooperneff.

Zimmer and CooperNeff proceeded to litigate on two

fronts for the remainder of 2004. Zimmer filed a federal

complaint and sought to remove CooperNeff’s state-court action

to the United States District Court for the Eastern District of

Pennsylvania. Because Zimmer had not yet received a copyright

for the model, the District Court dismissed his federal action for

lack of subject matter jurisdiction and remanded the action to

state court.

Zimmer filed his application for a copyright on the

trading model on July 30, 2004, and he obtained it by August 11.

Zimmer then filed the federal complaint underlying this appeal,

alleging copyright infringement, defamation, conversion,

tortious interference with contractual relations, and

misappropriation of trade secrets. On August 19, following a
6

hearing on Zimmer’s motion for a preliminary injunction and

TRO, the District Court granted him a TRO ordering

CooperNeff to “cease all use of Plaintiff’s computer model and

any copies, derivatives, modifications, or adaptations of the

computer model until the Court enters an order with respect to

Plaintiff’s Motion for a preliminary injunction.” Zimmer v.

CooperNeff Advisors, Inc., No. 04-3816, 2004 WL 2933979, at

*2 (E.D. Pa. Dec. 20, 2004). The District Court then scheduled a

preliminary injunction hearing for September 21.

On September 7, CooperNeff answered Zimmer’s

complaint and asserted two counterclaims seeking declaratory

judgments pertaining to Zimmer’s copyright ownership of the

model. On September 13, Zimmer answered CooperNeff’s

complaint in state court. On September 17, CooperNeff filed an

amended answer to Zimmer’s federal complaint, for the first

time asserting a right to arbitration.

On September 20, the day before the scheduled

preliminary injunction hearing, CooperNeff filed a motion to

compel arbitration and stay further proceedings. The District

Court heard argument on that motion and denied it from the

bench before commencing the preliminary injunction hearing. 

On the second day of the hearing, CooperNeff attempted to

renew its motion to compel arbitration. On December 20, the

District Court filed a memorandum opinion denying

CooperNeff’s “renewed” motion to compel, holding that the

arbitration agreement was both procedurally and substantively

unconscionable and that CooperNeff had waived its right to

compel arbitration. See id. at *6-*9. CooperNeff timely

appealed.

II.

The District Court had jurisdiction under the Copyright

Act, 17 U.S.C. § 101 et seq., and 28 U.S.C. §§ 1331, 1338, and

1367. Although there has been no final order, we have

jurisdiction under the Federal Arbitration Act (“FAA”), 9 U.S.C.

§ 1 et seq., which permits appeal from an order denying a motion

to compel arbitration. 9 U.S.C. § 16(a)(1).
7

We exercise plenary review over questions of law

concerning the applicability and scope of arbitration agreements. 

Harris v. Green Tree Fin. Corp., 183 F.3d 173, 176 (3d Cir.

1999). To the extent that the District Court’s decision relied on

factual findings, we review those findings for clear error.

Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247

F.3d 44, 53-54 (3d Cir. 2001). We review the District Court’s

determination of state law de novo. Kowalsky v. Long Beach

Twp., 72 F.3d 385, 388 (3d Cir. 1995).

III.

The District Court provided alternate grounds for its

denial of CooperNeff’s motion to compel, namely that the

arbitration clause was unconscionable and that CooperNeff had

waived its right to compel arbitration by proceeding with its

litigation against Zimmer in state court. We discuss each

holding in turn.

A.

The District Court applied Pennsylvania law in holding

that the Employment Agreement’s arbitration clause was both

procedurally and substantively unconscionable. Procedural

unconscionability refers specifically to “the process by which an

agreement is reached and the form of an agreement, including

the use therein of fine print and convoluted or unclear language.” 

Harris, 183 F.3d at 181. Substantive unconscionability looks to

whether the arbitration provision “unreasonably favors the party

asserting it.” Salley v. Option One Mortgage Corp., 925 A.2d

115, 119 (Pa. 2007).

The District Court found procedural unconscionability on

the basis of the “extreme inequality in bargaining position

between Zimmer and CooperNeff at the time Zimmer signed the

Employment Agreement,” and CooperNeff’s unwillingness to

negotiate that agreement. Zimmer, 2004 WL 2933979, at *6. In

Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 258-60, 266-68

(3d Cir. 2003), the primary authority relied upon by the District

Court, we held that an employment agreement that compelled

minimally-educated crane operators in the Virgin Islands to
8

arbitrate their claims and pay for that arbitration was

procedurally and substantively unconscionable. In discussing

procedural unconscionability, we stated that “[t]he arbitration

agreement in the Hourly Employee Contract was prepared by the

party with excessive bargaining power and presented to plaintiffs

for signature on a take-it-or-leave-it basis.” Id. at 266 (citation

and internal quotation marks omitted). We elaborated that the

employer, “which conducts business throughout the nation and

the world, clearly possessed more bargaining power than two

long-time equipment operators with limited educational

backgrounds and, at best, very narrow options for other

employment.” Id.

In contrast to the employees in Alexander, Zimmer is a

Harvard-educated economist, previously employed by J.P.

Morgan Chase and the Federal Reserve Bank of New York.

Zimmer had been the manager of a two billion dollar fund at

Vanguard, had multiple offers of employment at the time he

accepted CooperNeff’s job offer, quickly secured a new position

when he decided to leave CooperNeff, and, according to counsel

at oral argument, is currently working in the industry.

Zimmer was told by CooperNeff when it offered him the

job that the offer was contingent on the negotiation of a signed

Employment Agreement and that the negotiation of that

agreement could be terminated by either party at will.

CooperNeff presented Zimmer with the Employment Agreement

on his first day of work. There is no evidence that Zimmer

either sought a copy of the agreement or sought to negotiate the

agreement before accepting the job offer or beginning his

employment. Zimmer noted his concern with the intellectual

property provision in paragraph 6 of the agreement, but agreed

to sign the agreement after speaking with Sterge. Thereafter, he

remained at CooperNeff for more than a year. There is no

evidence that Zimmer challenged the provision of the

Employment Agreement that reserved judicial remedies

exclusively for CooperNeff.

Zimmer’s educational background and field of

employment are highly distinguishable from the crane operators

in Alexander. So too is the context in which the “take-it-or-
4

 Zimmer contends that CooperNeff refused to negotiate the

Employment Agreement after he began working at the company.

Nonetheless, while it appears that Zimmer expressed considerable

concern about the intellectual property clause in paragraph 6 of the

agreement, Zimmer does not assert that he challenged the

arbitration clause in paragraph 8.

9

leave-it” ultimatum was issued. Zimmer was employed by

Vanguard when he accepted CooperNeff’s offer of employment,

and accepted that offer with full knowledge that an employment

agreement had not yet been reached. He does not allege that he

was denied an opportunity to negotiate the contract before

accepting CooperNeff’s offer of employment; rather, he alleges

that the company forced him to sign the agreement after he had

already been on CooperNeff’s payroll for over a month.4

In summary, Zimmer was a highly-educated party with

various employment opportunities who accepted an employment

offer without first examining the terms of that employment and

who now seeks to nullify the contract that he ultimately signed.

Under these circumstances, considering the entire context of

Zimmer’s dealings with CooperNeff and his employment

opportunities at the time he accepted CooperNeff’s job offer, we

conclude that Zimmer did not lack a meaningful choice in

accepting the challenged arbitration provision. Therefore, we

reverse the District Court’s holding that the arbitration clause

was unenforceable by reason of unconscionability.

B.

In considering substantive unconscionability, the District

Court noted that this court and the Pennsylvania Superior Court

disagreed whether there was a presumption of unconscionability

under Pennsylvania law when an arbitration contract limits one

party to arbitration but permits the other to reserve access to the

courts. Specifically, in Harris, this court stated that “[a]s long as

the requirement of consideration is met, mutuality of obligation

is present, even if one party is more obligated than the other.”

183 F.3d at 181 (citing Greene v. Oliver Realty, Inc., 526 A.2d

1192, 1195 (Pa. Super. Ct. 1987)). Three years after our
10

decision in Harris, the Pennsylvania Superior Court stated that

“under Pennsylvania law, the reservation by [one party] of

access to the courts for itself to the exclusion of [another] creates

a presumption of unconscionability, which in the absence of

‘business realities’ that compel inclusion of such a provision in

an arbitration provision, renders the arbitration provision

unconscionable and unenforceable under Pennsylvania law.”

Lytle v. Citifinancial Servs., Inc., 810 A.2d 643, 665 (Pa. Super.

Ct. 2002) (emphasis in original). Based on Lytle, the District

Court held that CooperNeff had not shown any business realities

justifying its exclusive right of access to the courts, and

concluded that the arbitration clause was substantively

unconscionable.

Lytle was not reviewed by the Pennsylvania Supreme

Court. However, that court recently undertook an examination

of the unconscionability issue in the context of an arbitration

clause, confirming that the party challenging an arbitration

agreement has the burden to demonstrate that the agreement is

both procedurally and substantively unconscionable. Salley, 925

A.2d at 119-20. Because we have concluded that the arbitration

agreement here was not procedurally unconscionable and reverse

on that basis, we need not decide whether the District Court’s

decision as to substantive unconscionability was correct. 

Nonetheless, we take this occasion to note our concern about the

District Court’s holding on substantive unconscionability as

well.

We deem it significant that the Salley decision rejected

the presumption relied upon by the District Court in finding

substantive unconscionability. The arbitration clause at issue in

Salley reserved judicial remedies for lenders in the sub-prime

lending industry. Id. at 127. In expressly abrogating Lytle, the

Pennsylvania Supreme Court concluded that “the burden of

establishing unconscionability lies with the party seeking to

invalidate a contract, including an arbitration agreement, and

there is no presumption of unconscionability associated with an

arbitration agreement merely on the basis that the agreement

reserves judicial remedies associated with foreclosure” for

lenders, to the exclusion of borrowers. Id. at 129. Salley did not

hold that an arbitration clause reserving remedies could never be
11

unconscionable; rather, it held that there “is a facially apparent

business justification for such an exception [in the context of

mortgage lending], as the safeguards thereby preserved assure

regularity and consistency for the benefit of both lender and

borrower, and accordingly, there are sound pragmatic and policy

reasons why foreclosure proceedings should be pursued in a

court of law.” Id. at 128.

In this case as well, CooperNeff asserted that there are

plausible reasons why it needed to reserve for itself the option

for access to the courts. Nonetheless, because the District Court

relied on Lytle’s discredited presumption of unconscionability

and did not place the burden to demonstrate substantive

unconscionability on Zimmer, it is questionable whether the

District Court’s conclusion could be upheld. We do not hold,

and we believe the Pennsylvania Supreme Court did not hold,

that unequal access to the courts can never be the basis for

finding an arbitration agreement unconscionable. The

conclusion in each case will depend on the circumstances. We

proceed to consider waiver, the final basis for the District

Court’s order.

IV.

In considering the District Court’s alternate ground for

denying CooperNeff’s motion to compel, i.e., its holding that

CooperNeff had waived its right to compel arbitration, we

recognize at the outset that the prevailing mood is to favor

arbitration as an effective method of dispute resolution. 

Nonetheless, not every motion to compel arbitration must be

granted. One of the accepted defenses to such a motion is that

the party has waived its right to compel arbitration.

The District Court framed its holding as recognizing a

“non-traditional” form of waiver. Zimmer, 2004 WL 2933979,

at *8. It held that CooperNeff had waived its right to compel

arbitration by initiating litigation against Zimmer in state court

and then continuing to litigate its rights to the disputed trading

model in that court. The Court concluded that because

CooperNeff sought judicial enforcement of its purported

intellectual property rights rather than arbitration, “Zimmer
12

should be allowed to seek judicial action as well in his attempt to

enforce the intellectual property rights that CooperNeff alleges

are its own.” Id.

On its appeal to this court, CooperNeff raised two distinct

challenges to the District Court’s decision: (1) that the District

Court should have left the issue of waiver for an arbitrator, rather

than deciding that issue; and (2) that the District Court erred in

finding waiver under the circumstances of this case. While this

appeal was pending, another panel of this court filed its opinion

in Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 221 (3d Cir.

2007), holding that “waiver of the right to arbitrate based on

litigation conduct remains presumptively an issue for the court to

decide . . . .” In light of that opinion, CooperNeff conceded that

the issue of waiver is properly addressed by the court where, as

here, waiver is based on litigation conduct. Therefore, we need

only address whether the District Court erred in holding that

CooperNeff waived its right to compel arbitration by virtue of its

litigation conduct.

In Ehleiter we noted that “‘prejudice is the touchstone for

determining whether the right to arbitrate has been waived’ by

litigation conduct.” Id. at 222 (quoting Hoxworth v. Blinder,

Robinson & Co., Inc., 980 F.2d 912, 925 (3d Cir. 1992)). We

stated that the “nonexclusive list of factors relevant to the

prejudice inquiry” includes the timeliness of the motion to

compel arbitration, the degree to which the merits of the nonmovant’s claims have been contested by the party moving for

arbitration, whether the non-movant is otherwise aware of the

movant’s intention to seek arbitration, the extent of non-merits

motion practice that has transpired, the movant’s assent to the

trial court’s pretrial orders, and the degree to which the parties

have engaged in discovery. Id. (citing Hoxworth, 980 F.2d at

926-27). Although we have stated that “waiver will normally be

found only where the demand for arbitration came long after the

suit commenced and when both parties had engaged in extensive

discovery,” id. at 222-23 (citations, alterations and internal

quotation marks omitted), we have also held that “the length of

the time period involved alone is not determinative,” Palcko v.

Airborne Express, Inc., 372 F.3d 588, 598 (3d Cir. 2004).
5

 The parties did not meaningfully address whether state or

federal law controls the waiver analysis. Because both

Pennsylvania and federal courts have long emphasized the

importance of prejudice to that analysis, see, e.g., Hoxworth, 980

F.2d at 925; Kwalick v. Bosacco, 478 A.2d 50, 52 (Pa. Super. Ct.

1984), we need not decide the broader question of which law

governs in this case. But see Sovak v. Chugai Pharm. Co., 280

F.3d 1266, 1270 (9th Cir. 2002) (holding that the FAA, and not

state law, supplies the standard for waiver because “the question of

whether a party has waived its right to compel arbitration directly

concerns the allocation of power between courts and arbitrators”).

Instead, we focus on the factors informing the prejudice analysis

and the importance of a party’s initiation of suit to that analysis.

13

As we noted above, the District Court’s conclusion that

CooperNeff had waived its right to compel arbitration was based

solely on CooperNeff’s initiation and pursuit of litigation in the

state court. The District Court did not discuss whether Zimmer

was prejudiced by CooperNeff’s state court litigation. Just as

“the length of the time period involved alone is not

determinative,” id., our precedents do not support the notion that

the single consideration relied upon by the District Court is

sufficient to find prejudice, and therefore waiver.

That is not to say that CooperNeff’s role in affirmatively

initiating litigation to resolve its dispute with Zimmer is

immaterial. We recently reiterated that the list of factors set

forth in Hoxworth is “nonexclusive,” and that we looked to the

case law of our court and others in compiling that list. Ehleiter,

482 F.3d at 222. Although we have not had occasion to consider

the prejudicial effect that follows from the initiation of litigation

by the party seeking to compel arbitration, other courts have

factored a party’s affirmative litigation conduct into their

consideration of prejudice and waiver. See, e.g., Zwitserse

Maatschappij van Levensverzekering en Lijfrente v. ABN Int'l

Capital Mkts. Corp., 996 F.2d 1478, 1479-80 (2d Cir. 1993); S

& H Contractors, Inc. v. A.J. Taft Coal Co., Inc., 906 F.2d 1507,

1514 (11th Cir. 1990). Because the parties rely, at least in part,

on Pennsylvania law,5

 it is particularly significant that the

Pennsylvania Superior Court recently found waiver where the
14

parties seeking to compel arbitration filed a complaint, “sought

and won injunctive relief from the . . . court . . . and continued to

pursue their claims” in court, resulting in exceeding unfairness to

the opposing party. Stanley-Laman Group, Ltd. v. Hyldahl, 939

A.2d 378, 387-88 (Pa. Super. Ct. 2007).

That court stated that “the mere filing of a complaint does

not demonstrate waiver of the right to arbitration.” Id. at 387

(citing Keystone Tech. Group, Inc. v. Kerr Group, Inc., 824 A.2d

1223, 1226 (Pa. Super. Ct. 2003)). However, the court did note

the “atypical[ity]” of the events in that case, as the parties

seeking to compel arbitration consisted of the company that had

initiated litigation, a sister company, and their shared owners, all

of whom were named in a counterclaim filed by the party

defending that litigation. Id. The court considered that the basis

of the complaint and counterclaims were identical, that the

parties had engaged in limited discovery, and that the parties

seeking to compel arbitration had obtained an injunction in

court. Id. Because those parties “sought relief from the judicial

process” when they “could have compelled arbitration,” the

court found that they had waived their right to compel

arbitration. Id. at 388.

In Zwitserse, the Court of Appeals for the Second Circuit

found that the initiation of judicial proceedings may lead to

waiver “when a party has unfairly used litigation prior to

commencing arbitration in a way that might prejudice the

opposing party.” 996 F.2d at 1479 (citing Rush v. Oppenheimer

& Co., 779 F.2d 885, 887 (2d Cir. 1985)). In that case, the party

seeking to compel arbitration had initiated litigation by

submitting a request for a preliminary witness hearing in a Dutch

court, id., and then “unfairly profit[ed] from the benefits of

discovery that it most likely would not otherwise have been

entitled to in arbitration,” id. at 1480. Therefore, the court

concluded that the defending party had suffered prejudice and

that waiver was appropriate.

Finally, in S & H Contractors, the Court of Appeals for

the Eleventh Circuit noted that the party seeking to compel

arbitration, S & H, had “acted inconsistently with its arbitration

right” by initiating litigation and substantially invoking the
15

judicial process before seeking to compel arbitration. 906 F.2d

at 1514. Again, however, initiation of litigation did not by itself

justify a denial of the motion to compel on the basis of waiver.

Rather, the court considered that “S & H waited eight months

from the time it filed its complaint to the time it demanded

arbitration,” that the defending party had filed two motions

during that time period, and that S & H had taken five

depositions prior to demanding arbitration. Id. Accordingly, the

court found sufficient prejudice to justify a holding of waiver.

It is evident from these decisions that whereas one party’s

initiation of litigation may play a role in the waiver analysis, that

consideration alone is insufficient to find prejudice. The courts

referred to above looked beyond the mere initiation of litigation

to consider the extent to which the party seeking to compel

arbitration took unfair advantage of the litigation process to the

detriment of the other party. In the absence of the District

Court’s finding whether Zimmer suffered the requisite prejudice,

we do not undertake that determination but merely refer to some

relevant factors on the record to be considered.

For example, there may well have been some prejudice to

Zimmer who was required to hire (and pay) an attorney to

defend the state suit. Zimmer emphasizes that the

commencement of discovery and taking of depositions are all

relevant to this inquiry. At oral argument, CooperNeff’s counsel

confirmed that the state court action required limited discovery

and the taking of three depositions, two by Zimmer and one by

CooperNeff. We also note that the combined proceedings in the

state and federal court included two successful motions for

TROs and a preliminary injunction hearing that lasted at least

two days. There was also a suggestion at the oral argument that

CooperNeff has still not withdrawn its state court complaint, a

fact that neither counsel who argued before us could confirm.

CooperNeff responds that it needed to have access to a

forum that could act promptly to protect its trade secrets by

enjoining Zimmer from providing those secrets to his new

employer, a competitor of CooperNeff. CooperNeff argued

before us that it could not have waived its right to compel

arbitration by initiating the state court action because it had a
6

 CooperNeff also argues that its complaint is not identical

to Zimmer’s, and therefore it is entitled to litigate its claims while

forcing Zimmer to arbitrate the claims that he has asserted. We

leave to the District Court the issue whether CooperNeff’s state

court complaint and its federal court counterclaim exceed the scope

of the clause reserving its judicial remedies.

16

contractual right to bring that action under the carve-outs from

the requirement to arbitrate in the Employment Agreement.

Assuming the validity of CooperNeff’s argument that it required

immediate access to state court for a temporary restraining order

and/or preliminary injunction, we note that CooperNeff’s state

court action was not limited to that claim. CooperNeff’s state

court complaint asserted six different counts: the need for

injunctive relief, breach of contract, misappropriation of trade

secrets, breach of fiduciary duty, conversion, and unfair

competition. Paragraph 6 covers exclusivity of services, nonsolicitation, confidentiality, intellectual property, and the return

of documents and property upon termination. By asserting

claims such as breach of fiduciary duty and unfair competition,

CooperNeff seeks to enforce rights plainly beyond those that

were necessary for immediate judicial action. The breadth of the

state court complaint may be one of the factors that the District

Court will take into consideration in making its finding of

prejudice, vel non.6

In light of the absence of findings as to prejudice, we

think it prudent to remand to the District Court so that it may

consider and make findings as to all relevant factors

demonstrating prejudice, including CooperNeff’s initiation of

the state court litigation, its failure to withdraw its claims after it

had been granted the requested preliminary relief, and its

interposition of counterclaims in federal court which appear, at

least facially, to raise as defenses the same claims it presses in

state court. The District Court may decide that CooperNeff has

elected to pursue judicial action as its remedy and should not be

entitled to proceed with arbitration. Or, we hasten to add, it may

decide the contrary.
17

V.

For the above-stated reasons, we will vacate the judgment

of the District Court and remand for proceedings consistent with

this opinion.