2010 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-15-2010

Nino v. Jewelry Exchange Inc

Precedential or Non-Precedential: Precedential

Docket No. 09-1268

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Recommended Citation

"Nino v. Jewelry Exchange Inc" (2010). 2010 Decisions. Paper 1065.

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PRECEDENTIAL

IN THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 09-1268

_____________

RAJAE NINO,

Appellant

v.

THE JEWELRY EXCHANGE, INC.; WENDY TARAPANI

On Appeal from the U.S. District Court 

for the District of the Virgin Islands

(D. V.I. No. 3-06-cv-00039)

District Judge: Honorable Curtis V. Gomez

Argued December 1, 2009

Before: McKEE, Chief Judge, FUENTES and NYGAARD,

Circuit Judges

(Opinion Filed: June 15, 2010)
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Terri L. Griffiths, Esq. [ARGUED]

70C Lindbergh Bay, Suite 134

P.O. Box 307557

Charlotte Amalie, St. Thomas

USVI 00802

Counsel for Appellant

Jessica Chung, Esq. [ARGUED]

Treston E. Moore, Esq.

Moore, Dodson & Russell, P.C.

5035 (14A) Norre Gade, Suite 1

P.O. Box 310

Charlotte Amalie, St. Thomas

USVI 00802

Counsel for Appellees 

Anna N. Occhialino, Esq.

Equal Employment Opportunity Commission

5 Floor th

131 M. Street, N.E.

Washington, DC 20507

Counsel for Amicus Appellant
-3-

OPINION OF THE COURT

FUENTES, Circuit Judge: 

Rajae Nino brought this action against his former

employer, alleging that he was discriminated against on account

of his gender and national origin. After litigating the matter

before the District Court for fifteen months, the employer

invoked an arbitration provision in Nino’s employment contract

and moved the District Court to compel the parties to arbitrate

their dispute. Nino opposed the motion, arguing (1) that the

arbitration agreement was unconscionable and, therefore,

unenforceable, and (2) that by engaging in extensive litigation

of this dispute, the employer had waived its right to compel

arbitration. The District Court concluded that although the

arbitration agreement contained unconscionable terms, those

provisions could be severed from the contract and the remainder

of its terms could be enforced. The Court then concluded that

the employer did not, through its litigation conduct, waive its

right to compel arbitration. We disagree.

In our view, the pervasively one-sided nature of the

arbitration agreement’s terms demonstrates that the employer

did not seek to use arbitration as a legitimate means for dispute

resolution. Instead, the employer created a system that was

designed to give it an unfair advantage through rules that

impermissibly restricted employees’ access to arbitration and
The business entity named as a defendant in this 1

lawsuit is Jewelry Exchange, Inc. Jewelry Exchange does

business as Diamonds International, and we, like the parties,

will refer to it by that name. 

-4-

that gave the employer an undue influence over the selection of

the arbitrator. We hold that it is not appropriate, in the face of

such pervasive one-sidedness, to sever the unconscionable

provisions from the remainder of the arbitration agreement. We

further conclude that the employer, by engaging in protracted

litigation of this matter before belatedly seeking to arbitrate its

dispute, waived its right to compel arbitration. We will thus

reverse the District Court’s order compelling the parties to

arbitrate. 

I.

A.

Diamonds International (“DI”) is one of the world’s

largest jewelry retailers. Nino is a Jordanian national who, in 1

January 2000, agreed to work for DI as a salesperson and

gemologist. Because Nino did not have a United States work

visa when he was hired, he was assigned to DI’s Aruba store,

where he was paid $450 per week, plus commissions and

housing. DI helped Nino obtain a United States work visa, after

which it transferred him to its Alaska store. In September 2000,

DI asked Nino to transfer to its St. Thomas location, and he

agreed.

Upon his arrival at the St. Thomas store, Nino was given

a copy of the company’s standard employment contract. The
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following are some of the procedures and deadlines contained

in the contract that we find most troublesome. Article IV of the

contract sets forth a grievance and arbitration procedure that the

contract describes as “the sole, final, binding and exclusive

remedy for any and all employment[-]related disputes.” (J.A. at

80.) The remedial process outlined in Article IV requires an

aggrieved employee to satisfy a series of requirements before he

is eligible to arbitrate a dispute. First, the employee must file

with his manager a detailed written grievance within five days

of having received notice of the action complained of; the

manager is then required to respond with a decision within two

days. If the employee is unsatisfied with the manager’s

decision, he must re-file the grievance with the managing

director within two days of having received the manager’s

decision; the managing director is then required to respond with

a decision within five days. If the employee is not satisfied with

the managing director’s decision, he must file a written request

for arbitration with the managing director within five days of

having received the decision. 

The contract makes clear that “[t]he time limits provided

for above are binding and may not be waived except by written

agreement of both parties,” (id. at 82), meaning that an

employee who does not file grievances within the applicable

time frame loses the opportunity to arbitrate a dispute altogether.

The contract insulates DI against a comparable risk of

default—it provides that if DI fails to respond to an employee’s

grievance on a timely basis, “the last decision given by [DI]

shall be a final and binding resolution of the grievance.” (Id.)

If an employee satisfies these grievance filing

requirements, DI must submit a request to the American
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Arbitration Association (“AAA”) for a panel of four arbitrators.

The parties then select a single arbitrator from this list according

to the following method:

From the panel the Employer will strike the first

arbitrator for whatever reason is unacceptable to

the Employer. The Employee will then be

allowed to strike one arbitrator from the

remaining names of panel members. This process

will continue until there remains one arbitrator

who will be the arbitrator for this grievance or the

parties can decide on an arbitrator that would be

mutually acceptable. 

(Id. at 81.) Stated more directly, DI is permitted to strike two

members from the list of potential arbitrators, but the employee

is permitted to strike just one. 

The contract provides that the arbitration must take place

at DI’s place of business “at a date and time mutually

convenient to both parties but in no event more than thirty (30)

days after the selection of an arbitrator has been made.” (Id.)

The contract further provides that the parties are entitled to be

represented by counsel at their own expense, that discovery may

be had by either party pursuant to the Federal Rules of Civil

Procedure, and that the fees and expenses of the arbitrator and

stenographer are to be borne equally by the parties. Under the

contract, the arbitrator “may make any award deemed legal and

appropriate,” and in doing so, “must interpret, apply and be

bound by the Employer’s rules, regulations, policies and

procedures as well as applicable federal, state, local and
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common laws.” (Id. at 81-82.) 

On the same day that Nino signed the employment

contract, he signed a separate one-page document entitled

“Diamonds International AGREEMENT,” in which Nino

acknowledged that he had received DI’s employee handbook.

(Id. at 84.) In this one-page agreement, Nino also acknowledged

that DI was authorized “to unilaterally amend its rules,

regulations, policies, and procedures without prior notice to its

employees.” (Id.) Nino further acknowledged “that the

grievance procedure[] set forth in the employee handbook is my

exclusive remedy for my employment-related disputes.” (Id.) 

The employee handbook, in turn, sets forth a process for

dispute resolution that partially resembles, but is not identical to,

the grievance process described in the employment contract.

Specifically, the process described in the handbook differs from

the contract in that it does not mention a right to arbitration, it

requires employees to file the initial grievance within two

(rather than five) days of the complained-of action, and it makes

the decision of the managing director final as to all decisions

except terminations, which may be further appealed to a

management panel for final resolution. The materials that DI

provided to Nino do not purport to reconcile the differences

between the contract and the handbook, nor do they explain

which of these two dispute resolution mechanisms actually

applies to an employee’s grievances. 

B.

While the precise details of Nino’s allegations of

discrimination are not central to the issues presented in this

appeal, we summarize them to provide the basis for his federal
-8-

complaint. Nino, who is a gay man, did not initially disclose his

sexual orientation to his co-workers in St. Thomas. According

to his allegations, Nino’s co-workers began to fixate upon the

issue of his sexual orientation, making increasingly hostile

comments during his employment. Eventually, Nino revealed

to his co-workers that he was gay. According to the complaint,

this revelation served only to intensify the harassment by his coworkers, which escalated to both verbal and physical assaults to

which DI’s management turned a blind eye.

According to Nino’s allegations, on February 2, 2005,

one of Nino’s co-workers,Jason Lettsome, falsely accused Nino

of “coming on” to him. (J.A. at 43.) Nino reported this incident

to the store manager, and Lettsome in turn complained to the

manager that Nino “acted and talked like a female” when he

interacted with Lettsome. (Id.) In response to these complaints,

the manager wrote up both Nino and Lettsome for being

disruptive. Shortly thereafter, Nino was suspended for one week

without pay and was threatened with termination. The rationale

behind Nino’s suspension was that Nino had allegedly used a

profanity when he was informed that he was being written up,

although Nino contends that this was a pretext for

discrimination. Nino did not return to work following his

suspension, and he alleges that he was constructively

discharged, i.e., that he was compelled to resign due to the

hostile working environment. Nino did not file a grievance with

DI related to his suspension and eventual resignation. 

C.

On March 3, 2006, Nino filed a complaint against DI and

Wendy Tarapani, a manager of DI’s St. Thomas store, alleging,
For simplicity, we refer to DI and Tarapani collectively 2

as “DI” or “Defendants,” except where it is necessary to identify

them individually. 

-9-

inter alia, that he had been discriminated against on the basis of

gender and national origin. As the seventh of the ten 2

affirmative defenses asserted in its answer to the complaint, DI

contended that Nino was “contractually barred to any remedy

other than one achieved by arbitration.” (Id. at 54.)

Notwithstanding this invocation of arbitration in its initial

pleading, DI actively litigated this case for fifteen months

between June 2006, when it was served with the complaint, and

September 2007, when it finally filed a motion to dismiss based

upon the arbitration clause. In particular, the parties conferred

and submitted a joint proposed case management order (which

was silent as to the question of arbitration); they attended no

fewer than ten pretrial conferences before the magistrate judge,

throughout which DI was silent as to the matter of arbitration;

and they engaged in extensive discovery, including service and

supplementation of disclosures pursuant to Federal Rule of Civil

Procedure 26, service and supplementation of written discovery,

and attending four depositions.

On September 26, 2007, after litigating this dispute for

fifteen months with no mention of the arbitration clause apart

from the affirmative defense asserted in its answer to the

complaint, DI filed a motion to dismiss Nino’s claims on the

grounds that the parties’ contract made arbitration the sole

method of resolving employment-related disputes. Nino

opposed the motion on the grounds that the one-sided nature of
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the arbitration clause made it unconscionable and that, through

its litigation conduct, DI had waived any right to enforce the

clause. 

The District Court granted DI’s motion to dismiss. The

Court initially noted that aspects of the arbitration clause were

unconscionable. The Court held, however, that the

unconscionable provisions were severable from the remainder

of the arbitration agreement, because they did not constitute an

“essential part of the agreed exchange” between Nino and DI.

Restatement (Second) of Contracts § 184. The Court thus held

that the remainder of the arbitration agreement was enforceable.

Additionally, the Court determined that DI had not waived its

right to enforce the arbitration clause, notwithstanding its

fifteen-month delay in filing the motion to compel arbitration,

because DI had raised arbitrability as an affirmative defense in

its answer to Nino’s complaint, and because DI had not engaged

in dispositive motion practice prior to moving to compel

arbitration. Nino filed this timely appeal of the District Court’s

dismissal order. 

II.

The District Court had jurisdiction over this case under

28 U.S.C. § 1331 and 48 U.S.C. § 1612(a). We have

jurisdiction pursuant to 9 U.S.C. § 16(a)(3). See Green Tree

Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 89 (2000)

(explaining that “where . . . the District Court has ordered the

parties to proceed to arbitration, and dismissed all the claims

before it, that decision is ‘final’ within the meaning of §

16(a)(3), and therefore appealable”). “We exercise plenary

review over questions of law concerning the applicability and
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scope of arbitration agreements.” Zimmer v. CooperNeff

Advisors, Inc., 523 F.3d 224, 228 (3d Cir. 2008) (citation

omitted). We likewise exercise plenary review over the District

Court’s determination of whether DI, through its litigation

conduct, waived its right to compel arbitration. See Ehleiter v.

Grapetree Shores, Inc., 482 F.3d 207, 215 (3d Cir. 2007). We

review the District Court’s factual findings for clear error. See

Zimmer, 523 F.3d at 228. 

III.

A.

We first address the District Court’s decision to sever the

unconscionable aspects of the parties’ arbitration agreement and

enforce the remainder of the agreement. We have repeatedly

recognized that the Federal Arbitration Act (“FAA”) establishes

a “strong federal policy in favor of the resolution of disputes

through arbitration.” Puleo v. Chase Bank USA, N.A, --- F.3d

----, 2010 WL 1838762, at *3 (3d Cir. May 10, 2010) (citation

omitted); see also Spinetti v. Service Corp. Intern., 324 F.3d

212, 213 (3d Cir. 2003). Under the FAA, arbitration agreements

“are enforceable to the same extent as other contracts.”

Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 263 (3d Cir.

2003) (internal quotations and citations omitted). “A party to a

valid and enforceable arbitration agreement is entitled to a stay

of federal court proceedings pending arbitration as well as an

order compelling such arbitration.” Id. (citing, inter alia, 9

U.S.C. §§ 3-4) (emphasis added). 

The preceding qualification that an arbitration agreement

be “valid and enforceable” before arbitration can be compelled,

id., makes clear that when a party to an arbitration agreement
 By contrast, “questions concerning the validity of the 3

entire contract [as opposed to the validity of the arbitration

clause itself] are to be resolved by the arbitrator in the first

instance, not by a federal or state court.” Preston v. Ferrer, 552

U.S. 346, 349 (2008) (citing Buckeye Check Cashing, Inc. v.

Cardegna, 546 U.S. 440, 445-46 (2006)) (emphasis added).

Nino’s challenge is limited to the provisions of the arbitration

clause itself; he does not challenge the validity of the contract as

a whole. 

-12-

challenges the validity of the agreement, a threshold question of

arbitrability is presented for the court to decide. See Howsam 3

v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002); see also

Parilla v. IAP Worldwide Servs., VI, Inc., 368 F.3d 269, 275-76

(3d Cir. 2004) (“It is up to the court, prior to granting such an

order [compelling arbitration], to determine whether the parties

entered a valid agreement to arbitrate.”) (citation omitted).

Nino’s contention that the arbitration agreement at issue in this

case is unconscionable presents such a question of arbitrability.

See, e.g., Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687

(1996) (“[G]enerally applicable contract defenses, such as . . .

unconscionability, may be applied to invalidate arbitration

agreements without contravening § 2 [of the FAA].”); see also

Puleo, 2010 WL 1838762, at *5. In addressing a claim that an

arbitration clause is unconscionable, we apply the “ordinary

state law principles . . . of the involved state or territory,” which,

in this case, is the law of the Virgin Islands. Gay v.

CreditInform, 511 F.3d 369, 388 (3d Cir. 2007) (citations

omitted); see also Spinetti, 324 F.3d at 214.
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We have reviewed Virgin Islands law governing

unconscionability challenges to arbitration agreements on

numerous occasions. See, e.g., Edwards v. HOVENSA, LLC,

497 F.3d 355, 362-63 (3d Cir. 2007); Parilla, 368 F.3d at 275;

Alexander, 341 F.3d at 264. Virgin Islands statutory law

“mandates that we turn to ‘the rules of the common law, as

expressed in the restatements of the law approved by the

American Law Institute’” in evaluating whether the provisions

of an arbitration agreement are unconscionable. Alexander, 341

F.3d at 264 (quoting 1 V.I. Code Ann. § 4). Section 208 of the

Restatement (Second) of Contracts provides that “[i]f a contract

or term thereof is unconscionable at the time the contract is

made a court may refuse to enforce the contract, or may enforce

the remainder of the contract without the unconscionable term,

or may so limit the application of any unconscionable term as to

avoid any unconscionable result.” 

Under Virgin Islands law, “[t]he doctrine of

unconscionability involves both ‘procedural’ and ‘substantive’

elements.” Edwards, 497 F.3d at 362 (citation omitted). The

procedural component of the unconscionability inquiry looks 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.” Alexander, 341 F.3d at 265

(citation omitted). We have consistently found that adhesion

contracts—that is, contracts prepared by the party with greater

bargaining power and presented to the other party “for signature

on a take-it-or-leave-it basis”—satisfy the procedural element of

the unconscionability analysis. Id. (citation omitted); see also

Edwards, 497 F.3d at 362; Parilla, 368 F.3d at 276. “A contract,

however, is ‘not unconscionable merely because the parties to
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it are unequal in bargaining position.’” Alexander, 341 F.3d at

265 (quoting Restatement (Second) of Contracts § 208 cmt. d).

Instead, a party challenging a contract on unconscionability

grounds must also show that the contract is substantively

unconscionable by demonstrating that the contract contains

“terms unreasonably favorable to the stronger party.” Id.

(citation omitted). With these principles in mind, we turn to

Nino’s unconscionability challenge to the arbitration agreement

at issue in this case.

B.

Looking first to the question of procedural

unconscionability, we agree with the District Court that Nino

had no opportunity to negotiate with DI over the contract’s

terms, that DI was the stronger contractual party, and that the

arbitration agreement is thus procedurally unconscionable. First

and most significantly, as the District Court expressly found, DI

presented the arbitration agreement to Nino “for signature on a

take-it-or-leave-it basis.” Id. at 266 (citation omitted). As Nino

explained in his deposition, during his first week at the St.

Thomas store, DI’s human resources manager provided him

with a copy of the company’s employment contract and

instructed him to “read it and sign it,” (S.A. at 18), without

affording him any opportunity to negotiate over its terms. As

the District Court explained, “Nino was given no reasonable

choice in accepting the challenged Arbitration Agreement.”

(J.A. at 13.) 

Moreover, a significant disparity in bargaining power

existed between Nino and DI. As was the case in Alexander, DI

is a large corporation that “conducts business throughout the
 We pause to note an additional concern under the 4

procedural unconscionability analysis. We have recognized that

a party may show that an agreement is procedurally

unconscionable where the agreement is so “convoluted” that the

party could not have known what it was that he was agreeing to.

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nation and the world, [and it] clearly possessed more bargaining

power” than did Nino, a single, retail-level employee.

Alexander, 341 F.3d at 266. DI likens Nino’s case to Zimmer,

in which we held that an employment contract was not

procedurally unconscionable where the employee-plaintiff was

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

Morgan Chase and the Federal Reserve Bank of New York”

who was weighing “multiple offers of employment at the time

he accepted [defendant’s] job offer.” 523 F.3d at 229.

Although Nino, as a college graduate, was better educated than

were the plaintiffs in Alexander, we cannot agree with DI that

Nino’s bargaining leverage was even remotely comparable to

that of the plaintiff in Zimmer. As the District Court

recognized, Nino was dependent upon DI “with respect to his

immigration status at the time he accepted the job offer.” (J.A.

at 13.) Quite unlike the plaintiff in Zimmer, who was fielding

a host of employment offers at the time he negotiated his

contract with the defendant, Nino depended upon DI for his very

capacity to work in St. Thomas, where he had just been

transferred. Given that the contract was presented to Nino on a

take-it-or-leave-it basis, and given the disparity in bargaining

power between the two parties at the time the contract was

signed, we agree with Nino and the District Court that the

arbitration agreement is procedurally unconscionable.4
Zimmer, 523 F.3d at 228. In this case, the contract and DI’s

employee handbook contain disparate dispute resolution

mechanisms with conflicting deadlines and other irreconcilable

differences. We find it hard to imagine that an employee in

Nino’s position reading these contradictory materials could

realistically understand what sort of dispute resolution

mechanism he was agreeing to. However, because the parties

barely address this point—indeed, Nino raises it only in passing

in his reply brief—we do not rest our procedural

unconscionability holding on the convoluted nature of the

agreement. 

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See Alexander, 341 F.3d at 265.

C.

We likewise conclude that the arbitration agreement is

substantively unconscionable because it contains terms

unreasonably favorable to DI, the stronger party. See Zimmer,

523 F.3d at 228 (“Substantive unconscionability looks to

whether the arbitration provision unreasonably favors the party

asserting it.”) (quotation marks and citation omitted). We

address these unreasonable contract terms in turn below. 

First, we agree with Nino and the District Court that the

arbitration agreement’s provision requiring that an employee file

a grievance within five days of the complained-of incident in

order to preserve his or her opportunity to arbitrate the dispute

is substantively unconscionable. We have twice held in no

uncertain terms that a thirty-day filing requirement in an

arbitration agreement is substantively unconscionable.
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See Parilla, 368 F.3d at 277-78; Alexander, 341 F.3d at 266. As

we explained in Alexander and reiterated in Parilla, while “a

provision limiting the time to bring a claim or provide notice of

such a claim to the defendant is not necessarily unfair or

otherwise unconscionable,” the time period designated by the

agreement must still be reasonable. Alexander, 341 F.3d at 266;

accord Parilla, 368 F.3d at 277-78. A thirty-day filing period,

we made clear in both cases, is “clearly unreasonable and unduly

favorable” to the employer. Alexander, 341 F.3d at 266.

If a thirty-day filing window is “clearly unreasonable,”

id., then the five-day filing requirement imposed by the parties’

contract in this case is even more unduly favorable to DI than

were the agreements at issue in Alexander and Parilla. Indeed,

the filing requirement in Nino’s arbitration agreement is

particularly unreasonable because it is both inflexible and onesided. With regard to its inflexibility, the agreement states that

its filing requirements “are binding and may not be waived

except by written agreement of both parties.” (J.A. at 82.) As

we have explained, such a provision enhances the unfairness of

the narrow filing window because it “prevents an employee

from invoking the continuing violation and tolling doctrines.”

Alexander, 341 F.3d at 267 (citing Ingle v. Circuit City Stores,

Inc., 328 F.3d 1165, 1175 (9th Cir. 2003)); see also Parilla, 368

F.3d at 277. The one-sided nature of the five-day filing

requirement exacerbates this unfairness. As in Alexander, DI’s

“unfair advantage is only compounded by the fact that [DI itself]

is apparently not required to provide detailed and written notice

to an employee of any of its own claims within a strictly

enforced [five]-day time period.” Alexander, 341 F.3d at 267.

Indeed, the arbitration agreement in this case imposes no notice
-18-

requirement upon DI whatsoever. Moreover, while an

employee’s failure to adhere to the strict five-day filing

requirement amounts to a default on his claims, the agreement

expressly insulates DI from any risk of default—under the

agreement, if DI fails to process an employee’s grievance in a

timely manner, “the last decision given by [DI] shall be a final

and binding resolution of the grievance.” (J.A. at 82.) The onesided five-day filing requirement is manifestly unreasonable and

is substantively unconscionable under Virgin Islands law.

Parilla, 368 F.3d at 278; Alexander, 341 F.3d at 266.

Nino likewise argues, and the District Court found, that

the arbitration agreement’s requirement that the parties bear

their own attorney’s fees, costs, and expenses is substantively

unconscionable. We agree. As we have explained:

It is well established that arbitration is merely a

choice of dispute resolution and does not infringe

upon statutory protections. Therefore, if

arbitration is to offer claimants the full scope of

remedies available under Title VII, arbitrators in

Title VII cases, just like courts, must be guided by

Christiansburg [Garment Co. v. EEOC, 434 U.S.

412, 417 (1978),] and must ordinarily grant

attorney fees to prevailing claimants rather than

be restricted by private contractual language.

Spinetti, 324 F.3d at 216 (internal quotations and citations

omitted); Parilla, 368 F.3d at 279 (same); Alexander, 341 F.3d

at 267 (same). 

Provisions in arbitration clauses requiring parties to bear

their own attorney’s fees, costs, and expenses work to “the
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disadvantage of an employee needing to obtain legal assistance.”

Alexander, 341 F.3d at 267. Such provisions also undermine the

legislative intent behind fee-shifting statutes like Title VII. Cf.

Hackwell v. United States, 491 F.3d 1229, 1240 (10th Cir. 2007)

(“Title VII’s fee-shifting provision, 42 U.S.C. § 2000e-5(k), was

intended to encourage private citizens to enforce the statute’s

guarantees and [] if successful plaintiffs were forced to bear

their own attorneys’ fees, few aggrieved parties would be in the

position to advance the public interest.”) (citing H.R. Rep.

102-40(I), Civil Rights Act of 1991 (Apr. 24, 1991)). The

arbitration agreement’s restriction on the arbitrator’s ability to

award attorney’s fees, costs, and expenses is substantively

unconscionable, as the District Court correctly concluded. See

Spinetti, 324 F.3d at 216.

Finally, we turn to the arbitration agreement’s provision

governing the selection of an arbitrator, which Nino contends is

substantively unconscionable. Under the arbitration agreement,

if an employee manages to navigate the labyrinth of

requirements for filing and refiling grievances in order to make

a request for arbitration, DI is required to submit a request to the

AAA for a panel of four arbitrators. The parties select a single

arbitrator from this list according to the following process:

From the panel the Employer will strike the first

arbitrator for whatever reason is unacceptable to

the Employer. The Employee will then be

allowed to strike one arbitrator from the

remaining names of panel members. This process

will continue until there remains one arbitrator

who will be the arbitrator for this grievance or the

parties can decide on an arbitrator that would be
-20-

mutually acceptable. 

(J.A. at 81.) Although it is phrased in neutral, procedural terms,

the upshot of this provision is that DI is permitted to strike two

arbitrators from the four-member AAA panel, whereas the

employee is permitted to strike just one. 

This provision is “one-sided in the extreme and

unreasonably favorable to [DI].” Alexander, 341 F.3d at 267.

It confers an advantage upon DI for no discernable purpose

other than to stack the deck in its favor. Courts of Appeals have

not hesitated to conclude that provisions in arbitration

agreements that give the employer an unreasonable advantage

over the employee in the selection of an arbitrator are

unconscionable, see, e.g, Hooters of America, Inc. v. Phillips,

173 F.3d 933, 940 (4th Cir. 1999), and we have consistently

recognized that arbitration provisions that confer an “unfair

advantage” upon the party with greater bargaining power are

substantively unconscionable, Alexander, 341 F.3d at 267. “By

agreeing to arbitration in lieu of litigation, the parties agree to

trade the procedures and opportunity for review of the

courtroom for the simplicity, informality, and expedition of

arbitration,” but they do not accede to procedures “utterly

lacking in the rudiments of even-handedness.” Murray v.

United Food & Commercial Workers Intern., 289 F.3d 297, 303

(4th Cir. 2002) (internal quotations and citations omitted). 

DI advances several arguments in defense of the

arbitrator selection provision, all of which are thoroughly

unconvincing. First, DI contends that because the agreement

provides a secondary method for selecting an arbitrator—it

permits the parties simply to agree upon “an arbitrator that
-21-

would be mutually acceptable,” (J.A. at 81)—the selection

process does not unreasonably favor DI. This argument invites

us to conclude that because the agreement authorizes DI not to

use the advantage it holds in the one-sided arbitrator selection

process, the process cannot be considered unreasonably

favorable to DI. Such reasoning would provide cold comfort to

an employee who is unable to agree with DI upon a “mutually

acceptable” arbitrator, (id.), and it does not diminish the unfair

advantage accorded to DI over the selection of an arbitrator if

the parties do not reach such an agreement. The presence of an

alternative avenue for selecting an arbitrator does not render less

unfair the one-sided mechanism set forth in the arbitration

agreement. 

DI next suggests that because “the panel is comprised of

neutral, impartial arbitrators, as must be presumed, DI will not

gain any benefit by having an additional strike.” (DI Br. 16.)

We cannot agree. DI is of course correct that the panel is to be

comprised of arbitrators with no connection to, or interest in, the

parties or dispute at hand. The AAA’s rules require that

“[n]eutral arbitrators serving under these rules . . . have no

personal or financial interest in the results of the proceeding in

which they are appointed and . . . have no relation to the

underlying dispute or to the parties or their counsel that may

create an appearance of bias.” See American Arbitration

Association, Employment Arbitration Rules and Mediation

P roc e d u r e s , R u l e 12( b )(2),

http://www.adr.org/sp.asp?id=32904#12 (last visited June 14,

2010). But the fact that potential arbitrators are pre-screened for

personal or financial interests in the controversy does not mean

that a party derives no benefit from having a greater influence
-22-

over the arbitrator selection process. The ability to strike

potential arbitrators from the panel is akin to a peremptory

challenge in jury selection—it enables the parties to eliminate an

arbitrator whose “sympathies” appear to align with one side or

another, even if the potential arbitrator is not personally

connected to the controversy or biased against a party. J.E.B. v.

Alabama ex rel. T.B., 511 U.S. 127, 148 (1994) (O’Connor, J.,

concurring). Just as no experienced trial lawyer would dispute

that “[t]he peremptory challenge is ‘an important aspect of trial

by jury,’” the ability to strike potential arbitrators undoubtedly

confers a benefit, even if the arbitration panel is composed of

disinterested and unbiased candidates. Darbin v. Nourse, 664

F.2d 1109, 1113 n.4 (9th Cir. 1981) (quoting Rosales-Lopez v.

United States, 451 U.S. 182, 188 n.6 (1981)). Indeed, it would

be difficult to understand the point of including in the arbitration

agreement a mechanism for striking potential arbitrators if the

parties did not stand to benefit from the exercise. We therefore

reject DI’s suggestion that it would derive no benefit from

exercising its contractual right to strike twice as many potential

arbitrators as Nino.

Finally, DI proposes that, rather than determining that the

arbitrator selection clause is unconscionable, we should simply

“alter[] the terms [of the arbitration agreement] so that the AAA

supplies a panel of five (5) arbitrators instead of four (4).” (DI

Br. 16.) Our precedent forecloses such an approach, and with

good reason:

[Section] 208 of the Restatement (Second) of

Contracts provides the rule of decision here. That

section provides, in relevant part, that “[i]f a

contract or term thereof is unconscionable at the
 Nino further contends that additional provisions of the 5

agreement are likewise unconscionable. We do not find these

additional provisions to be unreasonable, and we therefore

mention them only briefly. First, Nino suggests that the

agreement’s provision requiring that the arbitration take place at

DI’s place of business is substantively unconscionable. Such

provisions are not uncommon in arbitration agreements, see,

e.g., Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174,

1175 (10th Cir. 2007), and we do not agree that this term is

-23-

time the contract is made a court may refuse to

enforce the contract.” Restatement § 208

(emphasis added). Accordingly, we must

determine unconscionability as of the time the

contract was formed, and an after-the-fact offer to

waive certain contract provisions can have no

effect on our analysis.

Parilla, 368 F.3d at 285 (emphasis in original). An arbitration

agreement in an employment contract does not, in the context of

litigation, become the employer’s opening bid in a negotiation

with the employee or the court over the agreement’s

unconscionable terms. As we have explained, “[b]ecause the

employer drafted the arbitration agreement, the employer is

saddled with the consequences of the provision as drafted.”

Spinetti, 324 F.3d at 217-18 n.2 (citation omitted). DI’s efforts

to defend the arbitrator selection clause are unavailing, and we

conclude that the clause, like the five-day filing window and the

provision requiring parties to bear their own fees, costs, and

expenses, is substantively unconscionable.5
unduly unfavorable to DI. Nino likewise argues that a provision

in the agreement requiring the parties to evenly share the

arbitrator’s and stenographer’s fees is unconscionable. In order

to challenge such a provision, a plaintiff must show what the

arbitrator’s fees would likely amount to, and Nino made no such

showing. See Alexander, 341 F.3d at 269. Finally, Nino takes

issue with the agreement’s requirement that “[t]he arbitrator . .

. interpret, apply and be bound by the Employer’s rules,

regulations, policies and procedures as well as applicable

federal, state, local and common law.” (J.A. at 82.) Nino

suggests that this provision requires the arbitrator to enforce

DI’s rules, even if those rules are unlawful. We do not

agree—the agreement does not suggest that the arbitrator would

be bound to enforce an unlawful employment policy. 

-24-

D.

Our final task in addressing Nino’s unconscionability

challenge to the arbitration agreement is to determine whether

the unconscionable terms may be severed from the agreement

such that the remainder of its terms may be enforced. As the

Restatement (Second) of Contracts explains, where aspects of an

agreement are unenforceable, “a court may nevertheless enforce

the rest of the agreement in favor of a party who did not engage

in serious misconduct if the performance as to which the

agreement is unenforceable is not an essential part of the agreed

exchange.” Restatement (Second) of Contracts § 184(1). We

have frequently emphasized that determining whether or not the

unconscionable provisions of an arbitration agreement should be

severed “requires more than a count of the unconscionable
-25-

provisions,” and instead calls for an examination of the specific

“nature of the provisions” themselves. Parilla, 368 F.3d at 286.

As we recognized most recently in Parilla, two lines of

inquiry are relevant to the question of severability. The first of

these is whether the unconscionable aspects “of the employment

arbitration agreement constitute[] ‘an essential part of the agreed

exchange’ of promises” between the parties. Spinetti, 324 F.3d

at 214 (quoting Restatement (Second) of Contracts § 184(1)).

If the unconscionable aspects of the clause do not comprise an

essential aspect of the arbitration agreement as a whole, then the

unconscionable provisions may be severed and the remainder of

the arbitration agreement enforced. See id. “Whether the

performance is an essential part of the agreed exchange depends

on its relative importance in the light of the entire agreement

between the parties.” Restatement (Second) of Contracts § 184,

cmt. a.

The second consideration for the question of severability,

which we discussed in Alexander and elaborated upon in Parilla,

is whether the unconscionability of the arbitration clause

demonstrates “a systematic effort to impose arbitration on an

employee, not simply as an alternative to litigation, but as an

inferior forum that works to the employer’s advantage.” Parilla,

368 F.3d at 288 (quoting Ferguson v. Countrywide Credit

Indus., Inc., 298 F.3d 778, 787-88 (9th Cir. 2002)); see also

Alexander, 341 F.3d at 271. Put differently, “a multitude of

unconscionable provisions in an agreement to arbitrate will

preclude severance and enforcement of arbitration if they

evidence a deliberate attempt by an employer to impose an

arbitration scheme designed to discourage an employee’s resort

to arbitration or to produce results biased in the employer’s
-26-

favor.” Parilla, 368 F.3d at 289; see also, e.g., Nagrampa v.

MailCoups, Inc., 469 F.3d 1257, 1293-94 (9th Cir. 2006) (en

banc); Hooters, 173 F.3d at 939-40; Graham Oil Co. v. ARCO

Products Co., 43 F.3d 1244, 1248-49 (9th Cir. 1994). As we

explained in Parilla, the principle of foreclosing severance

where the contractual terms demonstrate a systematic effort to

create a one-sided, employer-friendly forum is derived from the

“equitable override provision of the Restatement.” 368 F.3d at

288. Under that provision, even if “‘disregard of [illegal

provisions] will not defeat the primary purpose of the bargain,’

enforcement of the bargain will be denied if the person seeking

it has been ‘guilty of serious moral turpitude,’ Restatement

(First) of Contracts § 603, or ‘serious misconduct,’ Restatement

(Second) of Contracts § 184(1).” Id. at 289. 

These two considerations provide separate and

independent bases for declining to sever the unconscionable

provisions from an arbitration agreement. That is, if the

unconscionable provisions comprise essential aspects of the

agreement as a whole, or if the agreement demonstrates that the

employer sought to impose arbitration on the employee as an

inferior, one-sided forum that worked to the employer’s

advantage, then severance of the unconscionable provisions is

not called for, and the court should decline to enforce the

arbitration agreement in its entirety. See id. at 288; Alexander,

341 F.3d at 270-71. 

We need not discuss whether the unconscionable

provisions of the parties’ arbitration agreement comprise an

essential aspect of the agreement as a whole, because we

conclude that the one-sided nature of the arbitration agreement

reveals unmistakably that DI “was not seeking a bona fide
-27-

mechanism for dispute resolution, but rather sought to impose

a scheme that it knew or should have known would provide it

with an impermissible advantage.” Parilla, 368 F.3d at 289.

The provisions in question do not simply accord an advantage

upon DI indirectly or by happenstance. Instead, they are baldly

one-sided, with only one discernable purpose—to create

advantages for the employer that are not afforded to the

employee. Of the four members of the arbitration panel, the

agreement permits DI to strike two and the employee to strike

just one. The employee is required to give notice to DI of the

claims he intends to arbitrate, while DI is under no such

obligation to provide any notice to the employee. The employee

must file a detailed grievance regarding the matter he seeks to

arbitrate within five days of the underlying events or lose the

right to go to arbitration altogether, while DI is insulated against

the risk of default for any failure to adhere to its own filing

deadlines. These procedures provided DI with an

“impermissible advantage,” Parilla, 368 F.3d at 289, because

they “unreasonably favor [DI] to the severe disadvantage of [its

employees].” Alexander, 341 F.3d at 271. When the

unconscionable arbitration provisions “are so one-sided that

their only possible purpose is to undermine the neutrality of the

proceeding,” Hooters, 173 F.3d at 938 (emphasis added),

severance of those provisions and enforcement of the remainder

of the arbitration agreement is not appropriate. See Parilla, 368

F.3d at 289; Alexander, 341 F.3d at 271; Graham Oil, 43 F.3d

at 1248-49. The only conceivable purpose of the arbitration

agreement’s one-sided provisions is to stack the deck in DI’s

favor, making severance of the unconscionable terms
 We are unpersuaded by DI’s argument that the 6

agreement’s unreasonable terms should be severed. DI likens

this case to Parilla, in which we explained that a thirty-day filing

provision and a requirement that arbitrating parties bear their

own fees and costs were unconscionable. 368 F.3d at 277-79.

As DI notes, rather than declining to enforce the agreement in

Parilla, we remanded for further proceedings as to whether

additional terms were unconscionable and whether severance of

the unconscionable provisions was appropriate. Id. at 289.

Here, we not only have a greater number of unconscionable

terms than in Parilla, but, much more significantly, those terms

demonstrate that DI created a one-sided arbitration system that

gave it unfair advantages and that unreasonably restricted

employees’ access to arbitration. As we explained in Alexander,

although “a district court should ordinarily be accorded the

opportunity to rule on the issue of severance based on a

sufficiently developed record,” given the inescapably one-sided

nature of this agreement, “no reasonable finder of fact could

conclude that severance is appropriate.” Alexander, 341 F.3d at

271 n.13.

-28-

inappropriate.6

We conclude, in sum, that the arbitration agreement is

procedurally and substantively unconscionable, and that the

pervasively one-sided nature of the agreement forecloses any

possibility of severing the unfair provisions from the remainder

of the agreement. See Alexander, 341 F.3d at 271 (“[W]e

cannot give effect to an agreement to arbitrate afflicted by so

much fundamental and pervasive unfairness.”) We will thus
 In granting DI’s motion, the District Court dismissed 7

Nino’s claims, rather than staying litigation pending the results

of arbitration. We note that if the unconscionable terms had

been severable from the arbitration agreement, the District Court

should have stayed litigation in this case rather than dismissing

Nino’s claims. See 9 U.S.C. § 3; Lloyd v. HOVENSA, LLC.,

369 F.3d 263, 268-69 (3d Cir. 2004) (explaining that § 3 directs

courts to stay, not dismiss, cases when compelling arbitration).

-29-

reverse the District Court’s decision to sever the unconscionable

clauses from the arbitration agreement and enforce the

remainder of the agreement. 

7

IV.

As we now explain, we further conclude that the District

Court erred in determining that DI did not waive its right to

compel arbitration after litigating this case for fifteen months.

“Consistent with the strong preference for arbitration in federal

courts, waiver is not to be lightly inferred, and 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.” PaineWebber Inc. v. Faragalli,

61 F.3d 1063, 1068-69 (3d Cir. 1995) (internal quotations and

citations omitted). Notwithstanding the preference for

arbitration, however, “a court may refuse to enforce an

arbitration agreement where, for example, ‘the alleged

defaulting party has acted inconsistently with the right to

arbitrate,’” Doctor’s Assocs., Inc. v. Stuart, 85 F.3d 975, 981

(2d Cir. 1996) (quoting St. Mary’s Medical Ctr. v. Disco

Aluminum Prods. Co., 969 F.2d 585, 588 (7th Cir. 1992)), and
-30-

“we will not hesitate to hold that the right to arbitrate has been

waived where a sufficient showing of prejudice has been made

by the party seeking to avoid arbitration.” Ehleiter, 482 F.3d at

223 (internal quotations and citations omitted). 

In Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d

912 (3d Cir. 1992), we set forth “a nonexclusive list of factors

relevant to the prejudice inquiry.” Ehleiter, 482 F.3d at 222.

The Hoxworth factors are:

[1] the timeliness or lack thereof of a motion to

arbitrate . . . [; 2] the degree to which the party

seeking to compel arbitration has contested the

merits of its opponent’s claims; [3] whether that

party has informed its adversary of the intention

to seek arbitration even if it has not yet filed a

motion to stay the district court proceedings; [4]

the extent of its non-merits motion practice; [5] its

assent to the court’s pretrial orders; and [6] the

extent to which both parties have engaged in

discovery.

Hoxworth, 980 F.2d at 926-27 (internal citations omitted). As

is evident by our repeated characterization of these factors as a

nonexclusive list, not all the factors need be present to justify a

finding of waiver, and “[t]he waiver determination must be

based on the circumstances and context of the particular case.”

Doctor’s Assocs., 85 F.3d at 981. 

We have, moreover, consistently emphasized that

“prejudice is the touchstone for determining whether the right to
-31-

arbitrate has been waived by litigation conduct.” Ehleiter, 482

F.3d at 222 (quotations and citations omitted). As the Hoxworth

factors themselves make clear, the concept of prejudice includes

not only “substantive prejudice to the legal position of the party

claiming waiver,” but also extends to “prejudice resulting from

the unnecessary delay and expense incurred by the plaintiffs as

a result of the defendants’ belated invocation of their right to

arbitrate.” Id. at 224. For example, we stated in Hoxworth that:

[W]here a party fails to demand arbitration during

pretrial proceedings, and, in the meantime,

engages in pretrial activity inconsistent with an

intent to arbitrate, the party later opposing

arbitration may more easily show that its position

has been compromised, i.e., prejudiced, because

under these circumstances we can readily infer

that the party claiming waiver has already

invested considerable time and expense in

litigating the case in court, and would be required

to duplicate its efforts, to at least some degree, if

the case were now to proceed in the arbitral

forum. Prejudice of this sort is not mitigated by

the absence of substantive prejudice to the legal

position of the party claiming waiver.

Id. (internal quotations and citations omitted). In other words,

the investment of considerable time and money litigating a case

may amount to sufficient prejudice to bar a later-asserted right

to arbitrate. This recognition that the right to arbitrate may be

waived under such circumstances is consistent with the purpose

behind arbitration itself—arbitration is meant to streamline the

proceedings, lower costs, and conserve private and judicial
-32-

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.

In rejecting Nino’s argument that DI had waived its right

to enforce the arbitration clause, the District Court focused

almost exclusively on two of the six Hoxworth factors: the fact

that, by including mandatory arbitration among the ten

affirmative defenses asserted in the answer, DI had “informed

its adversary of the intention to seek arbitration,” and the fact

that DI had not filed a dispositive motion prior to moving to

enforce the arbitration agreement. Hoxworth, 980 F.2d at 926-

27. As we now explain, in emphasizing these factors, the

District Court gave insufficient consideration to the remaining

Hoxworth factors, and, consequently, to the more practical

question of whether DI has “acted inconsistently with the right

to arbitrate.” St. Mary’s, 969 F.2d at 588. We conclude that DI,

through its litigation conduct, waived its right to compel

arbitration of Nino’s claims. We address the six Hoxworth

factors in turn below. 

A. The Timeliness of DI’s Motion

The first Hoxworth factor requires that we consider

whether DI moved to compel arbitration on a timely basis. 980

F.2d at 926-27. Although “the length of the time period

involved alone is not determinative,” Zimmer, 523 F.3d at 232

(citation omitted), and although we have addressed instances of

more serious untimeliness, see Ehleiter, 482 F.3d at 223

(characterizing a four-year delay as especially “egregious”), DI

manifestly did not move to compel arbitration in a timely
-33-

manner, and this factor weighs firmly in favor of waiver. As in

Ehleiter, the fifteen-month delay in this case substantially

“exceeds the eleven month time lapse at issue in Hoxworth, and

dwarfs the delay involved in cases where we have found no

waiver. See Palcko (38 days); Wood (1 1/2 months); Faragalli,

61 F.3d at 1069 (two months); Gavlik (defendant moved for stay

pending arbitration “immediately” after removing the action to

federal court).” Ehleiter, 482 F.3d at 223. 

Moreover, to the extent that our review of the motion’s

timeliness should consider the movant’s explanation for its

delay, DI’s stated rationale for having waited so long to seek to

enforce the arbitration agreement is utterly unconvincing. DI

explains that it delayed filing a motion to enforce the arbitration

agreement because Nino’s complaint alleged that Nino and DI

had signed a new contract updating the terms of Nino’s

compensation; “DI had difficulty in locating this document”;

and it was not until Nino’s July 25, 2007 deposition that DI

understood that the complaint’s reference to a new contract was,

in fact, a reference to a letter of understanding that amended

Nino’s prior contract. (DI Br. 24.) 

No aspect of this explanation withstands scrutiny. First,

while the complaint indeed refers to a May 22, 2002 agreement

between Nino and DI to modify the terms of his compensation,

the complaint certainly does not suggest that this subsequent

agreement in any way addressed or modified the original

contract’s arbitration agreement. DI’s contention that the

complaint led it to believe that the parties had somehow altered

their arbitration agreement is unconvincing, as nothing in the

complaint’s language supports such an inference. Second, if DI

had in fact experienced difficulty in locating the contract it
 The complaint states that DI refused to provide Nino 8

with a copy of this agreement, and so DI admittedly could not

ask that Nino produce the agreement during discovery. 

-34-

drafted and in assessing its impact upon the parties’ arbitration

agreement, it could (and presumably would) have propounded

interrogatories to Nino to clarify which contract the complaint

referred to and whether that contract had, in fact, affected the

arbitration agreement; DI’s interrogatories do not mention the 8

contract in question, undercutting DI’s explanation for its delay.

Third, on November 20, 2006, as part of its discovery

production in this case, DI produced the very document it now

claims not to have been able to locate. Finally, notwithstanding

its explanation that it was not until Nino’s July 25, 2007

deposition that DI understood which contract the complaint was

referring to, DI still did not move to enforce the arbitration

agreement for another two months after the deposition. In short,

DI’s delay was significant, and its explanations for the delay are

unpersuasive. The first Hoxworth factor thus weighs heavily in

favor of a finding of waiver. 

B. Whether DI Contested the Merits of Nino’s Claims

We next consider “the degree to which the party seeking

to compel arbitration has contested the merits of its opponent’s

claims.” Hoxworth, 980 F.2d at 926. DI is correct that this

factor weighs against a finding of waiver, as it did not engage in

motion practice on the merits prior to moving to compel

arbitration. Although Nino argues that this factor tilts in his

favor because DI filed a motion to dismiss one of his claims at

the same time that it filed its motion to compel arbitration, and
-35-

that Nino’s counsel received the dismissal motion two days

before receiving the motion to compel arbitration, Nino was not

seriously prejudiced by having received the dismissal motion

just two days before the motion to compel arbitration. 

C. Whether DI Informed Nino of its Intent to Seek

Arbitration

The third Hoxworth factor is whether the party seeking

arbitration “has informed its adversary of the intention to seek

arbitration even if it has not yet filed a motion to stay the district

court proceedings.” 980 F.2d at 926-27. The District Court

relied primarily upon this factor in its analysis, reasoning that

because DI included mandatory arbitration among the ten

affirmative defenses asserted in its answer, it had provided Nino

with adequate notice of the fact that it would eventually move

to enforce the arbitration agreement. According to the District

Court, “[a]fter the defendants raised the affirmative defense of

arbitration in their answer, Nino was on notice that arbitration

may be forthcoming and had the opportunity to plan his

litigation strategy accordingly.” (J.A. at 23.)

While DI is correct that this factor weighs in its favor, the

District Court’s analysis overstates its significance in this case.

It is undoubtedly true that DI’s answer disclosed the possibility

that it would seek to compel arbitration, and that this disclosure

is an important consideration, although it is by no means a

dispositive one, for the waiver analysis. Hoxworth, 980 F.2d at

926-27.

However, the significance, for purposes of the waiver

analysis, of DI’s invocation of arbitration in its answer

decreased the longer DI participated in this litigation without
It is well recognized that “discovery generally is more 9

limited in arbitration than in litigation,” In re Cotton Yarn

Antitrust Litig., 505 F.3d 274, 286 (4th Cir. 2007), and that, as

an “important counterweight[,] . . . arbitrators are not bound by

the rules of evidence,” Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20, 31 (1991). Consequently, a party’s evidentiary and

discovery needs will be substantially different depending upon

whether a case is to be litigated or arbitrated. 

-36-

further invoking or even mentioning the prospect of arbitration.

Contrary to the District Court’s reasoning that Nino could

strategize around the initially disclosed prospect of arbitration,

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 further indication that a motion to compel

arbitration is forthcoming. Cf. Thyssen, Inc. v. Calypso

Shipping Corp., S.A., 310 F.3d 102, 105 (2d Cir. 2002)

(“[W]aiver is more likely to be found the longer the litigation

goes on, the more a party avails itself of the opportunity to

litigate, and the more that party’s litigation results in prejudice

to the opposing party[.]”). A party’s approach to discovery, for

instance, will differ based upon whether the case is to be

litigated or arbitrated. Likewise, although we have concluded 9

the arbitration clause’s ban on attorney’s fees is unconscionable,

Nino could not have known that outcome as the case was being

litigated, and his litigation strategy was thus almost certain to

differ based upon whether the case was being litigated in court

(where an award of attorney’s fees was available) or arbitrated

(where, on paper at least, such an award was unavailable). In

the waiver context, where prejudice to the non-movant is the
Put more succinctly, at some point a party seeking to 10

enforce an arbitration agreement must use it or lose it.

-37-

key, an initial invocation of the defense of arbitration becomes

less significant the longer and more actively a party litigates

after having made that initial invocation without making any

further mention of arbitration. In short, the affirmative defense 10

contained in DI’s answer to the complaint “informed [Nino] of

the intention to seek arbitration,” Hoxworth, 980 F.2d at 926-27,

but the significance of this notice diminished the longer DI

delayed in moving to compel arbitration. 

D. Extent of Non-Merits Motion Practice

Under Hoxworth, we also consider the non-merits motion

practice that transpired in this case during the fifteen-month

period between when DI was served with the complaint and

when it filed its motion to compel arbitration. Id. Significantly,

here the non-merits motion practice is equivalent to that in

Hoxworth, in which the defendant was found to have waived its

right to compel arbitration—as in Hoxworth, DI “inadequately

answered [Nino’s] discovery requests,” requiring Nino to file

three detailed motions to compel, which DI opposed. Id. at 925.

And as in Hoxworth, the consequence of the parties’ motion

practice over these discovery disputes was to require Nino to

“devote[] substantial amounts of time, effort, and money in

prosecuting the action.” Id. at 926 This factor weighs strongly

in favor of a finding of waiver.

E. DI’s Assent to the Court’s Pretrial Orders

Also significant is the fact that DI “assent[ed] to the
-38-

[trial] court’s pretrial orders,” id. at 926-27, an important

consideration that the District Court failed to address in its

resolution of the waiver issue. In the fifteen months between

June 2006 and September 2007, the magistrate judge convened

no fewer than ten pretrial conferences. DI does not dispute

Nino’s contention that it did not even mention the prospect of

arbitration at any of these conferences, nor did it object to any

of the magistrate judge’s pretrial orders based upon its intent to

compel arbitration. While the case-specific waiver analysis is

not susceptible to precise line-drawing, certainly DI’s

participation in ten pretrial conferences over the course of

fifteen months shows unmistakably that it “acted inconsistently

with the right to arbitrate.” St. Mary’s, 969 F.2d at 588; see

Restoration Preservation Masonry, Inc. v. Grove Europe Ltd.,

325 F.3d 54, 61 (1st Cir. 2003) (noting, inter alia, the expense

plaintiffs incurred in participating in thirteen pretrial

conferences in concluding that defendant waived right to compel

arbitration).

The authorities upon which DI relies do not compel a

contrary conclusion. DI draws our attention to Maxum Found.,

Inc. v. Salus Corp., 779 F.2d 974, 983 (4th Cir. 1985), and, in

particular, to that court’s observation that “the party seeking

arbitration does not lose its contractual right by prudently

pursuing discovery in the face of a court-ordered deadline.” DI

appears to overlook the context in which the court made the

cited statement. In Maxum, the plaintiff argued that the

defendant waived its right to seek arbitration because the

defendant participated in discovery and pretrial conferences

after it had filed its motion to compel arbitration, but before the

trial court ruled on the motion. Id. at 982-83. There was no
 American Recovery Corp. v. Computerized Thermal 11

Imaging, Inc., 96 F.3d 88 (4th Cir. 1996), also cited by DI, is

likewise readily distinguishable from the facts of our case. In

that case, the defendant invoking arbitration participated in

discovery during the two-month period between the

commencement of the lawsuit and the filing of the defendant’s

motion to compel arbitration. DI litigated this case and assented

to the trial court’s pretrial orders for thirteen months longer than

did the defendant in American Recovery.

-39-

inconsistency between the defendant’s litigation conduct and its

intent to arbitrate in that case, because the litigation conduct in

question transpired after the defendant had demanded

arbitration. In our case, by contrast, DI participated actively in

the litigation for well over a year before moving to compel

arbitration, meaning that its pursuit of discovery and its assent

to pretrial orders is not remotely comparable to the conduct at

issue in Maxum. DI’s long-term assent to the magistrate 11

judge’s pretrial orders weighs heavily in favor of a finding of

waiver. 

F. Extent to Which Both Parties Engaged in Discovery

Finally, the parties engaged in significant discovery

during the fifteen-month period before DI filed its motion to

compel arbitration. During this time the parties conferred and

prepared a proposed case management order which contained no

mention of arbitration, propounded interrogatories, served and

supplemented disclosures, exchanged requests for document

production, and attended the depositions of four witnesses.

Additionally, as was noted supra, Nino expended additional
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resources on discovery-related matters as a result of DI’s

inadequate responses to his discovery requests, which resulted

in significant discovery-related motion practice. While the

scope of the parties’ discovery during the fifteen-month period

at issue in this case was not as extensive as the discovery at

issue in Hoxworth and Ehleiter, the discovery in this case was

by no means de minimis.

DI, in arguing that the parties’ discovery-related activities

do not demonstrate that it engaged in pretrial activity

inconsistent with an intent to arbitrate, notes that the parties’

arbitration agreement authorizes the parties to conduct discovery

“pursuant to the Federal Rules of Civil Procedure.” (J.A. at 81.)

In light of Hoxworth’s finding that the plaintiffs in that case had

been prejudiced by the fact that, in litigating the case in court,

the “defendants were able to use the Federal Rules to conduct

discovery not available in the arbitration forum,” Hoxworth, 980

F.2d at 926, DI contends that there could be no prejudice in this

case, since discovery would have been available in the arbitral

forum. 

The force of this argument is undermined, however, by

the arbitration agreement’s firm requirement that the arbitration

take place “in no event more than thirty (30) days after the

selection of an arbitrator has been made.” (J.A. at 81.) That is,

while the parties would undoubtedly have had some opportunity

for discovery had the arbitration clause been invoked on a timely

basis, the time constraints placed upon such discovery would

have been much more restrictive, and, by consequence, the

resources expended on discovery would have been much more

limited. See Restoration Preservation Masonry, 325 F.3d at 61.

The mere fact that some discovery would have been available in
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arbitration does not mean that Nino was not prejudiced by

having to participate in fifteen months’ worth of discovery in

federal court before DI elected to move to compel arbitration.

The extent of the parties’ discovery between June 2006 and

September 2007 weighs firmly in favor of a finding of waiver.

G. Summary

In summary, four of the Hoxworth factors—the

untimeliness of DI’s motion, the extent of non-merits motion

practice, DI’s assent to the magistrate judge’s pretrial orders,

and the extent of the parties’ discovery—weigh firmly in favor

of a finding of waiver. Of the two factors that do not tip

decisively against DI’s right to belatedly invoke the arbitration

clause—the fact that DI did not engage in merits-based motion

practice and the fact that DI listed arbitration as an affirmative

defense—the District Court relied most heavily upon DI’s

inclusion of arbitration in its answer to the complaint. As we

have explained, however, the significance of this factor

diminished the longer DI litigated this case without raising the

prospect of arbitration. 

The fifteen-month delay between the service of the

complaint and DI’s invocation of arbitration was significant, see

Ehleiter, 482 F.3d at 223, and DI’s delay “caused [Nino] the

expense of litigating in court, as well as . . . making [Nino]

endure [fifteen months] of what would have been (had [DI]

succeeded) wasted litigation.” St. Mary’s, 969 F.2d at 591; see

also Ehleiter, 482 F.3d at 222 (such expense and delay constitute

prejudice). While we are mindful of the fact that “waiver is not

to be lightly inferred,” it is not appropriate to compel arbitration

where, as here, “the demand for arbitration came long after the
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suit commenced and when both parties had engaged in extensive

discovery.” PaineWebber Inc., 61 F.3d at 1068-69 (internal

quotations and citations omitted). 

V.

For the foregoing reasons, we will reverse the District

Court’s order compelling arbitration and remand for further

proceedings.