Opinion ID: 2995953
Heading Depth: 2
Heading Rank: 2

Heading: Waiver of Rights of Arbitration

Text: Regardless of how we interpret the term “adjudication” in the plan, Ernst & Young waived any right to arbitrate. The 6 No. 01-3862 factual determinations that a district court predicates a finding of waiver upon are reviewed for clear error, while the legal question of whether the conduct amounts to waiver is reviewed de novo. See Iowa Grain Co. v. Brown, 171 F.3d 504, 509 (7th Cir. 1999 ). Reviewing for “clear error” means that the Court of Appeals will reverse only if it reaches a firm and definite conviction that the district court made a mistake. See St. Mary’s Medical Center of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 589 (7th Cir. 1992). A contractual right to arbitrate may be waived expressly or implicitly, and a party that chooses a judicial forum for the resolution of a dispute is presumed to have waived its right to arbitrate. See Cabinetree, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995). Courts must examine the totality of the circumstances and “determine whether based on all the circumstances, the [party against whom the waiver is to be enforced] has acted inconsistently with the right to arbitrate.” Grumhaus v. Comerica Securities, Inc., 223 F.3d 648, 650-51 (7th Cir. 2000) (quotation omitted); see also Iowa Grain Co., 171 F.3d at 510. Although several factors may be considered in determining waiver, diligence or the lack thereof should weigh heavily in the decision—“did that party do all it could reasonably have been expected to do to make the earliest feasible determination of whether to proceed judicially or by arbitration?” Cabinetree, 50 F.3d at 391 (emphasis added). In Cabinetree, the plaintiffs filed a breach of contract suit, which was removed to federal court by the defendant due to diversity of citizenship. See id. at 389. Six months later, the defendant moved to stay the action pending arbitration. See id. On appeal, we noted that the defendant had participated in pretrial activities without challenging the forum or moving for arbitration. See id. at 390-91. Under these circumstances, we held that the defendant’s No. 01-3862 7 actions were sufficient to demonstrate the party’s selection of a forum and established a presumption of waiver of the right to arbitrate. See id. Similarly, the plaintiffs filed a complaint against Ernst & Young on December 7, 1999. In the months following, Ernst & Young’s actions indicated an intention to proceed with the adversary proceeding in litigation, not in arbitration. As the district court highlighted below, Ernst & Young did not pursue arbitration until after its objection to the plaintiffs’ plan was resolved. At this point, the bankruptcy court had already evaluated all claims with respect to the confirmation of the reorganization plan. Further, Ernst & Young’s objection to the plaintiffs’ plan emphasized its concern about its rights as against the Bakers in the adversary proceeding. Because the Bakers were not bound by the arbitration provisions in the Engagement Letters, Ernst & Young’s concern with respect to the Bakers implied that Ernst & Young was intending to proceed judicially. Moreover, as we have already discussed, the plan included terms that called for the bankruptcy court “to adjudicate” any pending adversary proceedings, and Ernst & Young did not raise any concerns about either the adjudication provision in the plan or the plan’s effect, if any, on their right to arbitrate. Ernst & Young argues that we should follow the Delaware Bankruptcy Court in In re Charter Behavioral Health Sys., LLC, 277 B.R. 54 (Bankr. D. Del. 2002). In this case, the debtor filed for Chapter 11 relief in February 2000 and commenced an adversary proceeding against a creditor in June 2001. See id. at 56. The creditor-defendant filed its Answer in August but did not mention its contractual right to compel arbitration. See id. The creditordefendant then participated in limited scheduling and discovery actions until December 2001, when it filed its motion to dismiss the adversary proceeding in favor of arbitration. See id. The bankruptcy court dismissed the 8 No. 01-3862 adversary proceeding in favor of arbitration, finding that the creditor-defendant’s actions were not sufficient to waive its right to arbitrate. See id. at 58-59. We find the case at bar to be distinguishable from Charter. Specifically, in Charter the creditor-defendant seeking to proceed in arbitration did not actively participate in the process of confirming the debtor’s plan of reorganization. In contrast to the passive creditor-defendant in Charter, Ernst & Young had actively participated in the plan confirmation process prior to seeking arbitration. We believe that Ernst & Young’s particular acts of participation were sufficient to waive its right to arbitrate. Neither the bankruptcy court nor the district court found any reason why Ernst & Young might not have asserted its desire to arbitrate at an earlier date. We agree, and because we find no error in the lower court’s assessment of the situation, we are similarly unable to excuse Ernst & Young’s delay. Ernst & Young’s failure to assert its desire to preserve its rights to arbitrate claims—while having already filed an objection, which revealed an intent to pursue litigation—cannot amount to “all it could reasonably have been expected to do to make the earliest feasible determination of whether to proceed judicially or by arbitration.” Cabinetree, 50 F.3d at 391. Because Ernst & Young’s actions were inconsistent with its claimed right to arbitrate and because Ernst & Young’s actions were not exercised in a diligent manner, we find any right to compel such a proceeding waived.