Opinion ID: 615757
Heading Depth: 2
Heading Rank: 1

Heading: BRP's Waiver of Right to Arbitrate

Text: The arbitration clause at issue covers [a]ny claim, dispute or controversy between the parties arising out of or relating to [the] Settlement Agreement. Thus, there is no question that the arbitration clause in the Settlement Agreement is broad enough to cover each of Kawasaki's claims against BRP. [4] The only question, then, is whether BRP waived its right to arbitrate the claims brought against it. The district court held that BRP's actions throughout its dispute with Kawasaki were inconsistent with the intent to arbitrate, and thus BRP waived its arbitration right. The court found that BRP's intent to litigate rather than arbitrate was evident from its participation in the Texarkana litigation, the appeal that followed, and the mandatory mediation. The district court further reasoned that BRP exhibited undue delay in seeking arbitration, which is contrary to an intent to arbitrate. While the factual findings that led to the district court's conclusion of waiver are reviewed for clear error, the question of whether [BRP's] conduct amounts to waiver is reviewed de novo. Ernst & Young LLP v. Baker O'Neal Holdings, Inc., 304 F.3d 753, 756 (7th Cir.2002). The Federal Arbitration Act (FAA) was originally enacted to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). In furtherance of this goal, the FAA provides for stays of proceedings in federal district courts when an issue in the proceeding is referable to arbitration, § 3, and for orders compelling arbitration when one party has failed, neglected, or refused to comply with an arbitration agreement, § 4. Id. at 25, 111 S.Ct. 1647; 9 U.S.C. §§ 3-4. Despite the federal policy favoring arbitration, a contractual right to arbitration can be waived. St. Mary's Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., Inc., 969 F.2d 585, 587 (7th Cir.1992). That waiver can be either explicit or inferred from a party's actions. Id. The parties agree that BRP did not explicitly waive its right to arbitrate, so the question to be answered is whether a waiver of its right to arbitrate can be inferred from BRP's actions. For waiver of the right to arbitrate to be inferred, we must determine that, considering the totality of the circumstances, a party acted inconsistently with the right to arbitrate. Sharif v. Wellness Int'l Network, Ltd., 376 F.3d 720, 726 (7th Cir.2004). While several factors are considered in the waiver analysis, diligence or the lack thereof should weigh heavily in the decision. Cabinetree of Wisconsin v. Kraftmaid Cabinetry, 50 F.3d 388, 391 (7th Cir.1995). Other factors that we consider include whether the allegedly defaulting party participated in litigation, substantially delayed its request for arbitration, or participated in discovery. St. Mary's, 969 F.2d at 589-91. Some circuits require a showing that the non-waiving party was prejudiced by its reliance on the litigious behavior of the waiving party in order to find waiver. See, e.g., J & S Const. Co., Inc. v. Travelers Indem. Co., 520 F.2d 809, 809-10 (1st Cir.1975). Though we do not require a showing of prejudice to find waiver, it is a relevant factor in the totality-of-the-circumstances analysis. St. Mary's, 969 F.2d at 590. Kawasaki first argues that BRP's participation in the Texarkana litigation illustrated BRP's desire to present the dispute to a judicial decision maker, thus contributing to a finding of waiver. Participation in litigation is considered in the waiver determination in order to ensure that the proper forum for a dispute is established as early as possible. This policy prevents parties from waiting to see how they fare in a judicial forum before choosing arbitration, prevents the duplicative adjudication of disputes, and prevents the undue prejudice that results from a party spending time and money on litigation that will not ultimately resolve a case. The key determination when considering this factor, therefore, is whether a party manifested an intent to proceed with litigation. Cabinetree, 50 F.3d at 390. We have held that when a party chooses to proceed in a judicial forum, there is a rebuttable presumption that the party has waived its right to arbitrate. Id. Kawasaki argues that BRP chose to proceed in a nonarbitral forum by submitting briefs in the Texarkana litigation, participating in court-mandated mediation, and participating in the appeal to the Federal Circuit, and thus BRP presumptively waived its right to arbitrate under Cabinetree. In Cabinetree, a defendant had a case removed to federal court and upon removal, participated in extensive discovery. Cabinetree, 50 F.3d at 389. We held that the defendant's choice to remove the case to federal court and participate in discovery was a choice to proceed before a non-arbitral tribunal, triggering a presumption of waiver. Id. at 390-91. Since the defendant did not overcome this presumption, it was deemed to have waived its right to arbitrate. Id. Contrary to the defendant in Cabinetree, BRP did not commit to a non-arbitral resolution of its dispute with Kawasaki, and thus did not trigger the presumption of waiver. First, BRP did not file a claim or motion innor remove a case tothe Texarkana Court. BRP merely responded to Kawasaki's motion to reopen litigation, which cannot be characterized as a choice for judicial resolution of the dispute. Second, BRP did nothing to suggest that it was willing to have the Texarkana Court decide the merits of its dispute with Kawasaki. Neither the district court's opinion nor Kawasaki's brief suggest that BRP even made mention of the merits in its briefing to the Texarkana Court; BRP simply challenged the court's jurisdictional ability to hear Kawasaki's claim. In fact, one of BRP's arguments against the Texarkana Court's jurisdiction was that the case belonged in arbitration instead of the courts. It is evident, therefore, that BRP did not proceed with litigation, and thus no presumption of waiver should be applied. Kawasaki also attempts to analogize this case to St. Mary's, where we held that the defendant's filing of a motion to dismiss or for summary judgment which was based on a contractual limitation period barring recoveryconstituted a decision to proceed with litigation. 969 F.2d at 589. We reasoned that, regardless of whether a motion based on a contractual limitation period is a motion on the merits, a party that makes such a motion is [s]ubmitting [the] case to the district court for decision, which is inconsistent with the desire to arbitrate. Id. We further discussed the important difference between a mere motion to dismiss and a motion for summary judgment, the resolution of which would end[] the case just as surely as a judgment entered after a trial. Id. Unlike the motion submitted by the defendant in St. Mary's, BRP's brief arguing against Texarkana's jurisdiction can in no way be construed as submitting the case to the court for a decision that resolves the dispute. Nor did BRP's argument infringe on Kawasaki's right to continue to pursue its claims in a proper forum. Despite Kawasaki's arguments to the contrary, the lines drawn by St. Mary's suggest that BRP's actions fall short of any meaningful participation in litigation for the purposes of waiver analysis. This conclusion is bolstered by our more recent case law, where we have held that a party does not waive its right to arbitrate by filing a motion to dismiss. [5] Faulkenberg v. CB Tax Franchise Systems, 637 F.3d 801, 807 (7th Cir.2011); see also Sharif v. Wellness Int'l Network, Ltd., 376 F.3d 720, 726 (7th Cir.2004) ([I]t is well-established that a party does not waive its right to arbitrate merely by filing a motion to dismiss.). Thus, unlike the defendants in Cabinetree and St. Mary's, BRP did not proceed with litigation in a manner inconsistent with the intent to arbitrate. As for BRP's participation in Kawasaki's appeal to the Federal Circuit and the accompanying mandated mediation, they cannot add any weight to the allegation that BRP waived its right to arbitrate. BRP's failure to participate in either the appeal or the mediation would have resulted in a default judgment in favor of Kawasaki. If BRP could challenge the Texarkana Court's jurisdiction without waiving its right to arbitrateas we have said it canit would be backwards to then hold that defending the Texarkana Court's dismissal on appeal is inconsistent with the intent to arbitrate. Regarding the mediation, not only does the same argument apply, but the arbitration clause in the Settlement Agreement actually calls for mediation before arbitration takes place, making mediation clearly consistent with the parties' arbitration agreement. Thus, BRP's participation in the appeal and mediation that followed the Texarkana litigation does not serve to waive BRP's right to arbitrate. Kawasaki next argues that BRP waited two years before it requested arbitration, and that this undue delay further counsels in favor of a finding of waiver. As Kawasaki rightly points out, we stated in Cabinetree that a party must do all that it can reasonably be expected to do to determine as early as possible whether to proceed through arbitration or the courts. Cabinetree, 50 F.3d at 391. But in Cabinetree, the defendant dropped a bombshell by invoking its right to arbitration after significant delay, Cabinetree, 50 F.3d at 389, for which the defendant had no explanation. Id. at 391. Similarly, we found in St. Mary's that the defendant's ten-month delay between the plaintiff's filing of a claim and the defendant's motion to stay for arbitration was inconsistent with the intent to arbitrate, especially since the defendant never even mention[ed] arbitration until after it lost its motion [to dismiss or for summary judgment]. St. Mary's, 969 F.2d at 589. BRP's delay in asserting its right to arbitration differs drastically from the delay exhibited by the defendants in Cabinetree and St. Mary's in two important respects. First, the defendants in Cabinetree and St. Mary's failed to assert their right to arbitrate for extended periods of time all during the same pieces of litigation. Conversely, BRP's delay in the current litigation was nil. The alleged delay is the result of time spent arguing in Texarkana, not this court. Second, BRP's assertion of its right to arbitrate was not out of the blue. Unlike the defendants in St. Mary's and Cabinetree, BRP mentioned its desire to arbitrate at every turn. Beyond simply informing Kawasaki that it wanted any claims settled in arbitration, BRP actually argued, in open court, that the dispute belonged in arbitration. Given this candidness, it is hard to see how Kawasaki could have believed that BRP did not desire arbitration. Kawasaki concedes that BRP mentioned the possibility of arbitration early in the dispute. But Kawasaki argues that BRP should have filed a motion to stay pending arbitration or to compel arbitration with the Texarkana Court if it truly intended to arbitrate. [6] Both of these motions, however, were not only unnecessary to retain the right to arbitratethey would have been impossible for the Texarkana Court to grant. With regard to a motion to compel, the Texarkana Court did not have the authority to compel arbitration under the FAA. Section 4 of the FAA provides parties with the right to compel arbitration, 9 U.S.C. § 4, but if an arbitration clause contains a choice of venue provision, only a court within the same district of that venue can enter an order compelling arbitration. Haber v. Biomet, Inc., 578 F.3d 553, 558 (7th Cir.2009), citing Merrill Lynch, Pierce, Fenner & Smith v. Lauer, 49 F.3d 323, 327 (7th Cir.1995). If the Texarkana Court did not have the power to grant a certain motion, BRP could not have been required to submit that motion to prevent waiver. While courts cannot grant a § 4 order to compel arbitration unless they sit in the same district as the arbitration venue, a § 3 order to stay pending arbitration has no such requirement. Nonetheless, the Texarkana Court could not have issued a § 3 order, nor should BRP have been required to submit such a motion to prevent the waiver of its right to arbitrate. First, as the Texarkana Court indicated in its ruling, it did not have jurisdiction over claims about the Settlement Agreement between Kawasaki and BRP. [7] When a court grants a § 3 stay pending arbitration, it retains jurisdiction over a matter so that it can effectuate the decision of an arbitrator or handle additional matters or claims that were not subject to arbitration. Therefore, the Texarkana Court would still need jurisdiction over a Settlement Agreement claim to order a stay. Since the FAA itself does not provide a jurisdictional basis, Vaden v. Discover Bank, 556 U.S. 49, ___, 129 S.Ct. 1262, 1271, 173 L.Ed.2d 206 (2009), and the Texarkana Court did not have an independent jurisdictional basis, the court did not have the power to grant a stay pending arbitration under the FAA. Thus, BRP could not have been granted a motion to stay. But even if, arguendo, the Texarkana Court did have the power to grant a motion to stay, BRP should not have been required to file that motion in order to prevent the waiver of its arbitration right. We stated in Cabinetree, A defendant who wants arbitration is often content with a stay, since that will stymie the plaintiff's effort to obtain relief unless he agrees to arbitrate. 50 F.3d at 389. Similarly, an appropriate motion to dismiss (or an argument against jurisdiction, as the case may be) stymies a plaintiff's attempt at judicial relief and is consistent with the intent to arbitrate, especially when that motion includes an argument that the case belongs in arbitration. The waiver determination is not based on whether a party has jumped through the proper technical hoops, but rather is a totality-of-the-circumstances analysis that aims to ascertain whether a party intended to abandon the right to arbitrate by submitting a dispute to the courts, or at least acted in such a way. Even if a motion to stay pending arbitration in the Texarkana Court would have been the most expeditious path to arbitration, a declaration that the case should be dismissed and sent to arbitration is just as effective in signaling BRP's desire to arbitrate rather than litigate. BRP's failure to file a § 3 motion to stay pending arbitration or a § 4 motion to compel arbitration does not constitute undue delay. BRP has consistently stated that it is prepared to arbitrate Kawasaki's claims. BRP does not itself have any claims to settle, and if Kawasaki wants to take issue with BRP's performance, it is enough for BRP to avoid substantive litigation activity and indicate that it is not forgoing its right to arbitrate. Finally, Kawasaki correctly asserts that in this Circuit, waiver may be found absent a showing of prejudice, though prejudice is a relevant consideration. St. Mary's, 969 F.2d at 590, quoting Nat'l Found. for Cancer Research v. A.G. Edwards & Sons, 821 F.2d 772, 777 (D.C.Cir.1987). Prejudice is only considered, however, when it results from the conduct allegedly constituting waiver. Dickinson v. Heinold Securities, Inc., 661 F.2d 638, 641 n. 5 (7th Cir.1981); see also Cabinetree, 50 F.3d at 391 (explaining that prejudice should weigh heavily in the decision when an allegedly defaulting party proceeds in a judicial forum but the circumstances may nonetheless counsel against a finding of waiver). Here, BRP's actions were wholly consistent with the intent to arbitrate. There was therefore no conduct constituting waiver which could have prejudiced Kawasaki, so prejudice is a non-factor in this case. As evidenced in the above analysis, BRP has not only acted consistently with an intent to arbitrate Kawasaki's claims, but BRP has continually voiced its desire to arbitrate. Accordingly, we reverse the district court's denial of BRP's motion to stay the proceedings pending arbitration as it applies to the claims against BRP.