Opinion ID: 773499
Heading Depth: 1
Heading Rank: 2

Heading: was arbitration waived?

Text: 19 In considering whether a party has waived its arbitration right, courts are consistently mindful of the strong federal policy favoring arbitration. The Supreme Court has stated that any doubt concerning arbitrability should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). Waiver is not to be lightly inferred, and mere delay in seeking [arbitration] without some resultant prejudice to a party cannot carry the day. Page v. Moseley, Hallgarten, Estabrook & Weeden, Inc., 806 F.2d 291, 293 (1st Cir. 1986) (quoting Rush v. Oppenheimer & Co., 779 F.2d 885 (2d Cir. 1985)), abrogated on other grounds, Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 96 L. Ed. 2d 185, 107 S. Ct. 2332 (1987). We have repeatedly held that a party may, by engaging in litigation, implicitly waive its contractual right to arbitrate. Navieros Inter-Americanos v. M/V VASILIA EXPRESS, 120 F.3d 304, 316 (1st Cir. 1997). But in order for plaintiffs to prevail on their claim of waiver, they must show prejudice. Menorah Ins. Co., Ltd. v. INX Reinsurance Corp., 72 F.3d 218, 221 (1st Cir. 1995) (quoting Sevinor v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 807 F.2d 16, 18 (1st Cir. 1986)). This Circuit has laid down a set of factors to guide the determination of whether a waiver has occurred: 20 In determining whether a party to an arbitration agreement, usually a defendant, has waived its arbitration right, federal courts typically have looked to whether the party has actually participated in the lawsuit or has taken other action inconsistent with his right, . . . whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit by the time an intention to arbitrate was communicated by the defendant to the plaintiff, . . . whether there has been a long delay in seeking the stay or whether the enforcement of arbitration was brought up when trial was near at hand. . . . 21 Other relevant factors are whether the defendants have invoked the jurisdiction of the court by filing a counterclaim without asking for a stay of the proceedings, . . . whether important intervening steps (e.g., taking advantage of judicial discovery procedures not available in arbitration . . .) had taken place, . . . and whether the other party was affected, misled, or prejudiced by the delay. . . . Jones Motor Co., Inc. v. Chauffeurs, Teamsters, and Helpers Local Union No. 633, 671 F.2d 38, 44 (1st Cir. 1982) (quoting Reid Burton Constr. Inc. v. Carpenters Dist. Council, 614 F.2d 698, 702 (10th Cir. 1980)). Review of a district court's determination of waiver of arbitration is plenary. Navieros Inter-Americanos, 120 F.3d at 316. 22 Pentzer filed its motion to compel arbitration on September 11, 2000, two months after it was required to plead to the complaint (and five months after plaintiffs filed the action). In pleading to the complaint, Pentzer moved to dismiss, an appropriate responsive pleading. It initiated no formal discovery; in response to plaintiffs' voluntary initial disclosure, it requested (but apparently did not receive) the damage calculations omitted from the disclosure. See Fed. R. Civ. P. 26(a)(1)(C). No other activity had occurred in the lawsuit other than plaintiffs' filing of a request for production. It could hardly be said that the litigation machinery had been substantially invoked and the parties were well into preparation of a lawsuit by the time an intention to arbitrate was communicated, Jones Motor Co., Inc., 671 F.2d at 44, or that Pentzer had taken other steps inconsistent with its right to arbitration. See Williams v. CIGNA Fin. Advisors, Inc., 56 F.3d 656, 661-62 (5th Cir. 1995) (holding that removal to federal court, filing motion to dismiss and to stay discovery and answer to complaint including compulsory counterclaim, and exchanging Rule 26 discovery did not substantially invoke judicial process). 23 In its January 5, 2001, order, the district court found, however, that plaintiffs had shown prejudice. It relied principally on the failure of Deloitte & Touche to turn over on plaintiffs' request the accounting records and work papers as required by Article 1.6 of the Agreement. Instead of a timely arbitration, the court found, plaintiffs were forced to incur legal expense to compel production of the records and work papers and commence this litigation. While it appears that Deloitte-and, by extension, Pentzer-did not comply with their obligation under the Agreement, there is no basis whatever for inferring that as a result plaintiffs were forced into litigation instead of going to arbitration. Plaintiffs have never made such an argument, and the district court itself appropriately rejected the argument that the failure to turn over these documents was sufficient to support a finding of waiver, their production not being a condition precedent to the arbitration agreement. There does not appear to be any logical connection between the failure to produce these documents and Pentzer's right to arbitration. Moreover, the legal expense to compel their production would have been incurred in any event because plaintiffs presumably would need them to support their NWO claim regardless of whether this claim is arbitrated or litigated. Prejudice is relevant to waiver when it is the product of a defendant's failure to timely invoke the arbitration procedure. If there was prejudice here, it was not because of a failure timely to request arbitration. Cf. Navieros Inter-Americanos, 120 F.3d at 316. 24 Similarly unpersuasive is the district court's finding waiver because of the legal expense incurred by plaintiffs in responding to Pentzer's discovery request and litigating Pentzer's refusal to return settlement documents. As noted above, Pentzer did not invoke formal discovery and only requested plaintiffs to complete the initial disclosure they had voluntarily initiated by providing damage calculations. As for the failure to return the settlement documents, plaintiffs have offered no argument in this court that the legal expense of compelling their return resulted in prejudice supporting a finding of waiver and we are unable to discern any basis for one.