Opinion ID: 2139849
Heading Depth: 1
Heading Rank: 7

Heading: LaRue Waived Its Right to Arbitrate.

Text: Having determined that it is for a court to decide whether LaRue waived its right to arbitration based on its active participation in the present litigation, we next address whether the district court erred in finding that LaRue waived its right to arbitrate. The legal determination of waiver of arbitration is reviewed de novo, and the factual findings underlying that ruling are reviewed for clear error. [38] There is a liberal federal policy favoring arbitration, grounded in the FAA, which provides that contract provisions directing arbitration shall be enforceable in all but limited circumstances. [39] Despite this strong federal policy favoring arbitration, the right to arbitration may be waived. [40] A party seeking arbitration may be found to have waived its right to arbitration if it `(1) knew of an existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by these inconsistent acts.' [41] Each of these factors strongly weighs in favor of a finding that LaRue has waived its right to arbitration in this case. LaRue does not contend, nor is there any evidence in the record to suggest, that LaRue was unaware of its right to arbitrate this dispute; indeed, LaRue now seeks to invoke that right. Nor is there any evidentiary basis explaining why LaRue failed to assert its right to arbitrate when it filed its answer in 2004 and amended answer in 2006. Accordingly, absent any evidence to the contrary, we cannot say that LaRue was unaware of its right to arbitrate. LaRue argues, however, that there is insufficient evidence in the record to indicate that it acted inconsistently with its right to arbitrate and no evidence that Good Samaritan was prejudiced. A party, however, acts inconsistently with its right to arbitrate if the party `[s]ubstantially invoke[s] the litigation machinery before asserting its arbitration right' by failing to request a stay and fully adjudicating its rights. [42] A party is considered to have substantially invoked the litigation machinery when, for example, it files a lawsuit on arbitrable claims, engages in extensive discovery, or fails to move to compel arbitration and stay litigation in a timely manner. [43] The district court, in finding that LaRue acted inconsistently with its right to arbitrate, observed that over the course of this litigation, LaRue served three sets of written discovery on Good Samaritan, exchanged pleadings, filed a counterclaim, and filed and received an unfavorable ruling on a motion for partial summary judgment. LaRue does not deny that it engaged in the discovery process as set forth in the district court's order or that it filed and received an unfavorable judgment on its motion for partial summary judgment. LaRue contends, however, that the record on appeal does not contain any evidence relating to the parties' discovery activities or certain pretrial motions and that therefore, the evidence is insufficient to support Good Samaritan's allegation of waiver. LaRue is partially correct that the record on appeal does not include evidence addressing the parties' discovery activities. But, contrary to LaRue's assertion, the record does show from the judge's own comments that a motion for partial summary judgment was filed by LaRue and overruled by the court. Notwithstanding the lack of evidence relating to the parties' discovery activities, there is nonetheless sufficient evidence in the record to find that LaRue acted inconsistently with its right to arbitrate. Over 3 years passed between the time Good Samaritan filed its initial complaint and the time LaRue, at last, raised its motion to stay trial and compel arbitration. During this 3-year period, the record indicates that LaRue actively participated in the litigation. LaRue filed a counterclaim against Good Samaritan seeking to recover funds that Good Samaritan allegedly owed LaRue. Moreover, LaRue acted inconsistently with its right to arbitrate by filing a motion for partial summary judgment requiring Good Samaritan to defend its claims on the merits and requesting resolution of the matter in a judicial forum. And it was not until after the court ruled against LaRue on its motion for partial summary judgment that LaRue ultimately filed its motion to compel arbitration. This conduct by LaRue evidences a clear intent to assent to the judicial resolution of the dispute and is entirely inconsistent with its right to arbitrate. The record also supports a finding that Good Samaritan was prejudiced by LaRue's inconsistent acts. Prejudice can be substantive, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration, or [prejudice] can be found when a party too long postpones ... invocation of [its] contractual right to arbitration, and thereby causes [its] adversary to incur unnecessary delay or expense. [44] Here, as already noted, LaRue did not file its motion to compel arbitration until after it had received an unfavorable ruling on its motion for partial summary judgment. Moreover, LaRue's conduct had the inevitable effect of causing Good Samaritan to expend substantial time and resources in connection with this case. And to allow LaRue to now invoke its right to arbitration after such an extensive delay would undercut the very rationale  speed and efficiency  that supports the strong presumption in favor of arbitration in the first place. [45] The evidence in this record demonstrates the prejudice necessary to support the district court's ruling that LaRue has waived its right to arbitration. LaRue claims, however, that Good Samaritan was not prejudiced in this case because Good Samaritan allegedly did not have a right to initiate litigation in the first place. LaRue's argument is based on the language in the contract discussing the time limits for initiating an arbitration claim. This provision provides, in relevant part, that [a]ll technical arbitrations must be filed within one (1) year of the date that the controversy arose. LaRue claims that because Good Samaritan filed its complaint more than 1 year after the controversy arose Good Samaritan would not be prejudiced by referring this matter to an arbitrator, because Good Samaritan failed to comply with this time limit and, therefore, did not have the right to initiate litigation in the first place. LaRue's argument, however, assumes an incorrect premise. In order for LaRue's argument to be valid, the assumption must be made that LaRue has not waived its right to arbitration. However, as discussed above, LaRue has waived its right to arbitrate Good Samaritan's claims. Therefore, the contractual provision requiring that technical arbitrations be filed within 1 year is irrelevant to our analysis. We conclude that LaRue has waived its right to arbitrate Good Samaritan's claim because LaRue knew of its right to arbitrate and acted inconsistently with that right and because as a result, Good Samaritan was prejudiced.