Opinion ID: 223418
Heading Depth: 2
Heading Rank: 3

Heading: Gray's contesting of Cassady's claims

Text: The second Hoxworth factor is the degree to which the party seeking to compel arbitration has contested the merits of its opponent's claims. The wording of this factor as usually set forth suggests that the factor is immaterial in this case because Cassady has not filed any counterclaims against Gray and thus there was no litigation in which Gray would have had reason to contest any claim against it. In Hoxworth we formulated this factor in the way we did because in Hoxworth, as in most cases in which there is an arbitration demand after the initiation of litigation, the defendant invokes an arbitration provision after the plaintiff files the court action. See, e.g., Gavlik, 526 F.2d at 780. But this case is unusual because Gray both initiated this litigation and, more than ten months later, invoked the right to arbitrate the claims it already had advanced judicially. Nevertheless, we agree with the District Court that a literal reading of this factor would support Gray's attempt to avoid scrutiny of its litigation activity in a Hoxworth analysis. Accordingly, to make the factor germane here, we, like the District Court, will apply this factor by examining the degree to which Gray participated in substantive legal proceedings and has pursued or challenged the legal positions and arguments advanced by the respective parties [in this litigation]. Gray II, 2010 WL 4687744, at . The District Court held that this factor weighed strongly in favor of waiver inasmuch as Gray participated in considerable legal action, no matter its context, related to the substantive merits of the underlying lawsuit. Id. Specifically, the Court pointed to the fact that in pursuit of a preliminary injunction motion Gray called four witnesses, cross-examined five witnesses, and introduced numerous exhibits into evidence. Moreover, the Court noted that Gray filed briefs opposing Cassady's and RWLS's motions to dismiss. [10] Gray argues that the District Court erred because it considered Gray's conduct during the preliminary injunction proceedings, and because it erroneously considered its defense against Cassady's motion to dismiss Gray's allegations. Gray first argues that the District Court's consideration of its pursuit of a preliminary injunction will eviscerate our holding in Ortho Pharmaceutical because every preliminary injunction proceeding necessarily entails an inquiry into whether a movant has shown a reasonable probability of success on the merits. Appellant's br. at 25 (citing Am. Civil Liberties Union v. Ashcroft, 322 F.3d 240, 247 (3d Cir.2003) (identifying probability of success on merits as requirement to obtaining preliminary injunction)). This argument is without force for in a preliminary injunction proceeding a district court analyzes a movant's likelihood of success on the merits of its claims without affecting the movant's ability later to arbitrate those claims if the movant files its motion for a preliminary injunction when it already has sought to arbitrate the dispute. Indeed, this was the exact scenario we addressed in Ortho Pharmaceutical, 882 F.2d at 809. Even where the party moving for a preliminary injunction does so before filing for arbitration, it can avoid waiving its right to arbitrate by notifying the opposing party of its intent to invoke arbitration in the future. Here, Gray did neither, and thus the District Court did not err in considering Gray's conduct during the proceedings on its preliminary injunction application in analyzing the second Hoxworth factor. The District Court also properly considered Gray's opposition to Cassady's motion to dismiss in the waiver analysis. Gray argues that this Hoxworth factor should not apply to a moving party's defense against a motion to dismiss because it is intended to prevent a movant from getting a second bite at the apple by filing a motion to dismiss and then filing a motion to compel arbitration if the motion to dismiss is not successful. Of course, it is ironical that Gray makes this two-bite argument because here it is Gray that is seeking a second bite by seeking arbitration after it failed in its attempt to secure a preliminary injunction. In that regard, we note that when it sought arbitration Gray knew that the District Court already had held as a matter of law, that the agreement entered into between Cassady and the plaintiff is not enforceable. Gray I, 2010 WL 235106, at . Thus it is not difficult to find prejudice where a party, such as Gray, is allowed to test out the merits of its case in a preliminary injunction application but then resorts to arbitration when it becomes apparent that the court regards its case as standing on weak footing. In any event, as we stated in Nino, the focus of this factor is whether a party engaged in motion practice on the merits prior to moving to compel arbitration. Nino, 609 F.3d at 210-11. By responding to Cassady's motion to dismiss, Gray undoubtedly engaged in motion practice on the merits of the dispute. [11] Therefore, like the District Court, we find that this factor weighs in favor of finding waiver.