Opinion ID: 531286
Heading Depth: 2
Heading Rank: 4

Heading: Waiver of Right to Arbitration

Text: 27 Investors next assert that by attempting to resolve the dispute prior to suit, and by not demanding arbitration prior to suit, Merrill Lynch waived its right to arbitration. They further argue that by filing a counterclaim, engaging in discovery, and participating in the litigation by filing motions, Merrill Lynch waived its right to arbitration. We are unpersuaded by this argument. 28 Parties seeking to prove waiver of arbitration obligations bear a heavy burden; they must show substantial prejudice. Sweater Bee by Banff, Ltd. v. Manhattan Indus., Inc., 754 F.2d 457, 463, 466 (2d Cir.), cert. denied, 474 U.S. 819, 106 S.Ct. 68, 88 L.Ed.2d 55 (1985); Martin Marietta Aluminum, Inc. v. General Elec. Co., 586 F.2d 143, 146 (9th Cir.1978). There is no set rule as to what constitutes a waiver or abandonment of the arbitration agreement; the question depends upon the facts of each case and usually calls for a finding by the trier of the facts. Reid Burton Constr., Inc. v. Carpenters Dist. Council of S. Colorado, 614 F.2d 698, 702 (10th Cir.), cert. denied, 449 U.S. 824, 101 S.Ct. 85, 66 L.Ed.2d 27 (1980); Burton-Dixie Corp. v. Timothy McCarthy Constr. Co., 436 F.2d 405, 408 (5th Cir.1971). Under the federal policy favoring arbitration, a party does not waive arbitration merely by engaging in action inconsistent with an arbitration provision. Moreover, inconsistent behavior alone is not sufficient; the party opposing a motion to compel arbitration must have suffered prejudice. ATSA of California, Inc. v. Continental Ins. Co., 702 F.2d 172, 175 (9th Cir.1983) (citation omitted). 29 The key question is whether Investors suffered substantial prejudice by the delay in seeking arbitration. In their brief they argue that because there was a delay of almost a year in seeking arbitration the parties engaged in expensive and time-consuming discovery, they retained counsel and dissipated their resources, and Merrill Lynch realized significant savings by delaying and protracting the resolution of these matters. Merrill Lynch responds by stating they filed their motion to compel arbitration at the earliest opportunity, simultaneously with their answer and counterclaim. They further state the motion was not filed until the Supreme Court decided Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), and only then were they entitled to arbitration; Investors initiated the discovery and Merrill Lynch has borne the time and expense of discovery; and Investors would have retained counsel to represent them in arbitration proceedings. Although the district court failed to make specific findings concerning this issue, we are not persuaded that Investors suffered substantial prejudice. Investors have failed to meet their burden. 30 Investors' final contention is that their litigation concerning violations of federal securities law should proceed. In light of our resolution of the issues remaining in the two consolidated appeals, we need not address this contention.