UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

HASCO, INCORPORATED; HAROLD A.

SNEDDON,

Plaintiffs-Appellees,

v.

No. 97-2618

SCHUYLER, ROCHE & ZWIRNER, a

professional corporation;

MICHAEL B. ROCHE; L. ANDREW

BREHM,

Defendants-Appellants.

Appeal from the United States District Court

for the Southern District of West Virginia, at Charleston.

Charles H. Haden II, Chief District Judge.

(CA-97-625)

Argued: June 4, 1998

Decided: September 22, 1998

Before WILKINSON, Chief Judge, MURNAGHAN, Circuit Judge,

and SMITH, United States District Judge

for the Eastern District of Virginia,

sitting by designation.

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Reversed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Peter Bedford King, HENDRICKSON & LONG,

P.L.L.C., Charleston, West Virginia, for Appellants. Robert A. Gold-
berg, KING, ALLEN, GUTHRIE & MCHUGH, Charleston, West

Virginia, for Appellees. ON BRIEF: Jeffry H. Hall, HENDRICKSON & LONG, P.L.L.C., Charleston, West Virginia; Michael F.

Bruan, SCHUYLER, ROCHE & SWIRNER, Chicago, Illinois; Ancil

G. Ramey, Daniel R. Schuda, STEPTOE & JOHNSON, Charleston,

West Virginia, for Appellants. Blake O. Brewer, KING, ALLEN,

GUTHRIE & MCHUGH, Charleston, West Virginia, for Appellees.

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Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

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OPINION

PER CURIAM:

Here we face a case in which the appellants, the law firm of Schuyler, Roche, & Zwirner, and two attorneys associated with that firm

(collectively, "SRZ"), seek to enforce an arbitration clause contained

in a retention agreement executed by Hasco, Inc. ("Hasco"). After

Hasco and Harold A. Sneddon filed suit against SRZ, SRZ moved to

stay or dismiss the action pending arbitration. The district court

denied SRZ's motion, holding that SRZ had waived its right to arbitration by pursuing a fee collection suit against Sneddon in Illinois

state court.

We have jurisdiction of SRZ's appeal from that order under

9 U.S.C. § 16(a)(1) and 28 U.S.C. § 1291. The district court's conclusions regarding arbitrability, including the question whether SRZ has

waived the right to compel arbitration, are reviewed de novo.

American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96

F.3d 88, 91, 95 n.2 (4th Cir. 1996); Fraser v. Merrill Lynch Pierce,

Fenner & Smith, Inc., 817 F.2d 250, 251 (4th Cir. 1987). Because we

conclude that Hasco and Sneddon have failed to demonstrate prejudice as a consequence of SRZ's pursuit of the fee collection suit, we

reverse. Finding no merit to Hasco and Sneddon's other objections to

arbitration, we remand the case to the district court with instructions

that it be stayed pending arbitration.

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I

In the fall of 1994, SRZ agreed to represent Hasco and several individuals in a lawsuit filed against First Options of Chicago, Inc., in

West Virginia state court. In connection with that representation,

Hasco executed a retention agreement with SRZ which contained the

following arbitration clause:

It is SRZ's policy to discuss and to attempt to resolve fairly

any concerns its clients may have concerning the billings

provided to them, or regarding any other aspect of the

attorney-client relationship. However, if a dispute should

develop which is not promptly resolved in a mutually satisfactory manner, any such dispute will be subject to arbitration in Chicago, Illinois, pursuant to the Commercial

Arbitration Rules of the American Arbitration Association

then in effect.

Dissatisfied with SRZ's advocacy, Hasco and Sneddon filed suit on

June 12, 1997, in the United States District Court for the Southern

District of West Virginia. In the four-count complaint, Hasco and

Sneddon asserted claims against SRZ for breach of fiduciary duties,

professional negligence, breach of contract, and negligent and intentional infliction of emotional distress. Invoking the arbitration clause

in the retention agreement, SRZ moved the district court to stay or

dismiss the instant action pending arbitration. 1

The district court denied SRZ's motion to stay or dismiss on October 21, 1997, holding that SRZ had waived its right to arbitration by

suing Sneddon to recover fees for legal services associated with the

organization of a limited partnership. SRZ's motion for reconsideration was denied on November 4, 1997, and SRZ timely appealed.

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1 SRZ also filed a petition to compel arbitration in the United States

District Court for the Northern District of Illinois. That court dismissed

SRZ's petition on November 18, 1997, with prejudice but with leave to

reinstate the petition within one year.

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II

The Federal Arbitration Act ("FAA"), 9 U.S.C.§§ 1-16, commands

the federal courts to stay judicial proceedings upon application of a

party to a valid arbitration agreement, unless the applicant is in "default." 9 U.S.C. § 3. Emphasizing the existence of "a liberal federal

policy favoring arbitration agreements," Moses H. Cone Mem'l Hosp.

v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), we have explained

that "[a]lthough this principle of `default' is akin to waiver, the circumstances giving rise to a statutory default are limited, and . . . are

not to be lightly inferred." Maxum Founds., Inc. v. Salus Corp., 779

F.2d 974, 981 (4th Cir. 1985). As a consequence, the party opposing

arbitration bears a heavy burden of proving waiver. American Recovery Corp., 96 F.3d at 95; Britton v. Co-op Banking Group, 916 F.2d

1405, 1412 (9th Cir. 1990).

Waiver of the right to compel arbitration may occur when a litigant

"so substantially utiliz[es] the litigation machinery that to subsequently permit arbitration would prejudice the party opposing the

stay." Maxum Founds., 779 F.2d at 981. The dispositive inquiry is

whether the party resisting arbitration has suffered actual prejudice.

American Recovery Corp., 96 F.3d at 95; Fraser, 817 F.2d at 252.

The actual prejudice required to support a finding of waiver "can be

substantive prejudice to the legal position of the party opposing arbitration, . . . or the unnecessary delay or expense that results when an

opponent delays invocation of its contractual right to arbitrate."

Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 131 (2d Cir.) (internal

quotation marks and citations omitted), cert. denied sub nom. Distajo

v. Doctor's Assocs., Inc., 118 S. Ct. 365 (1997). We determine prejudice "contextually, by examining the extent of the delay, the degree

of litigation that has preceded the invocation of arbitration, the resulting burdens and expenses, and the other surrounding circumstances."

Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991).

At the threshold, Hasco and Sneddon argue that we are precluded

from considering SRZ's challenge to the district court's finding of

waiver because its arguments were not timely presented to the district

court. SRZ first addressed the question of waiver in connection with

the fee suit in its motion for reconsideration. Although the district

court commented upon SRZ's late presentation, it considered and

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rejected SRZ's arguments on their merits. SRZ is not precluded,

therefore, from raising those arguments here.

We conclude that Hasco and Sneddon have not suffered actual

prejudice as a consequence of the fee litigation. The case at bar and

the fee suit present different legal issues arising out of SRZ's representation of Hasco and Sneddon in discrete legal matters, and have

only a tenuous and immaterial factual connection. See Doctor's

Assocs., 107 F.3d at 133 (holding that "only prior litigation of the

same legal and factual issues as those the party now wants to arbitrate

results in a waiver of the right to arbitrate."); Gingiss Int'l, Inc. v.

Bormet, 58 F.3d 328, 330-32 (7th Cir. 1995) (finding no waiver

where disputes "involved different issues"). Hasco and Sneddon have

not suffered any delay or duplicative expense in the instant suit as a

consequence of SRZ's decision to litigate its claim for attorneys' fees.

Although litigation of the fee suit may be more expensive than arbitration, the choice of forum in that case has no effect on the costs

incurred by Hasco and Sneddon in pursuing their claims against SRZ.2

Furthermore, there is no evidence that SRZ's litigation of the

legally distinct fee claim has prejudicially affected Hasco and Sneddon's legal position in the current action. We find no merit to the contention that Hasco and Sneddon have been prejudiced by SRZ's active

participation in discovery in the fee litigation. Although the use of

discovery devices not available in arbitration may result in prejudice

where a party obtains through discovery a benefit not available in

arbitration, see Maxum Founds., 779 F.2d at 982-83, Hasco and Sneddon have failed to show that SRZ's allegedly aggressive discovery

tactics in the fee suit have accrued to its benefit in the case at bar.

There is no evidence that SRZ has obtained information relevant to

the current dispute but unobtainable in arbitration. We hold, therefore,

that Hasco and Sneddon have failed to sustain their heavy burden of

proving waiver.

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2 Both parties, however, have been forced to endure significant expense

and delay in the instant case because of Hasco's vehement opposition to

arbitration. To the extent Hasco and Sneddon complain of expenses

caused by SRZ's vigorous pursuit of the fee litigation, we note the

absence of evidence that Sneddon has ever sought to arbitrate that dispute.

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III

Because the district court held that SRZ had waived its right to

arbitration by initiating the fee collection suit, it did not expressly rule

on Hasco and Sneddon's other objections to arbitration. The district

court did remark, however, that several of the arguments in opposition

to arbitration "appear[ed] meritorious," and later asserted that the

"waiver argument was but one of th[e] grounds justifying a refusal to

compel arbitration." In the interests of efficiency and economy, therefore, we have considered each of Hasco and Sneddon's objections to

arbitration, see American Recovery Corp., 96 F.3d at 95 n.2 (holding

that district court's failure to rule on legal issue of waiver was no bar

to consideration of the question by this court), and conclude that they

are without merit. Accordingly, we reverse the judgment of the district court and remand with instructions that Hasco and Sneddon's

action against SRZ be stayed pending arbitration. 3

REVERSED

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3 Also outstanding is SRZ's motion for permission to correct several

factual inaccuracies in its opening brief. Although we agree with SRZ

that the errors are not material to the issues presented on appeal, we

hereby grant the unopposed motion, and deem SRZ's brief corrected as

set forth in the motion.

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