Opinion ID: 758731
Heading Depth: 2
Heading Rank: 2

Heading: Finding of Waiver

Text: 16 Petitioners next contend that the district court erred in finding that they had waived their right to arbitrate. We review the district court's determination that a party has waived arbitration de novo, although the factual findings upon which it bases its determination are reviewed for clear error. See Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir.1995). A party is deemed to have waived its right to arbitration if it engages in protracted litigation that results in prejudice to the opposing party. Cotton v. Slone, 4 F.3d 176, 179 (2d Cir.1993); see also Distajo, 66 F.3d at 457 (requiring litigation on substantial issues going to the merits and demonstrated prejudice); Rush v. Oppenheimer & Co., 779 F.2d 885, 886-87 (2d Cir.1985). While waiver of arbitration is not to be lightly inferred, the issue is fact-specific and there are no bright-line rules. See Leadertex, 67 F.3d at 25. Factors to consider include (1) the time elapsed from the commencement of litigation to the request for arbitration; (2) the amount of litigation (including exchanges of pleadings, any substantive motions, and discovery); and (3) proof of prejudice, including taking advantage of pre-trial discovery not available in arbitration, delay, and expense. See PPG Indus., 128 F.3d at 107-09. The district court found that petitioners had waived arbitration on the grounds that (1) they failed to plead the defense of arbitration and award, despite asserting other defenses and S & R's assertion of a counterclaim; (2) they actively participated in the litigation for 15 months before seeking to invoke their right to arbitrate on the eve of trial; (3) they participated in two settlement conferences, and they prejudiced Latona by (4) engaging in extensive discovery--thereby obtaining information that would not have been available in arbitration--and (5) imposing on Latona undue delay and expense. See 984 F.Supp. at 103. We agree with the district court's analysis. 17 Petitioners argue that these findings were insufficient to support a finding of waiver because Latona has not demonstrated prejudice. Prejudice results when a party seeking to compel arbitration engages in discovery procedures not available in arbitration, makes motions going to the merits of an adversary's claims, or delays invoking arbitration rights while the adversary incurs unnecessary delay or expense. Cotton, 4 F.3d at 179 (internal citations omitted); see also PPG Indus., 128 F.3d at 109. Petitioners argue that prejudice is absent here because it was Latona that engaged in the bulk of discovery. This argument, however, ignores the fact that S & R itself sought, inter alia, 3 depositions, 19 detailed interrogatories, and the production of more than 2100 pages in documents. 18 Petitioners also contend that all of their discovery requests were necessarily relevant to Latona's claim for attorney's fees, which all parties seem to concede is non-arbitrable. See Rush, 779 F.2d at 888 (no prejudice where party opposing arbitration could point to no specific discovery that was not relevant to non-arbitrable claims). Like the district court, we reject this argument, which is based on the fact that Latona's complaint incorporated by reference all of the allegations concerning the arbitrable claims in its pleading on the non-arbitrable claim for attorney's fees. This pleading technique adds nothing to petitioners' case. In Rush, a securities case, the non-arbitrable and arbitrable claims clearly overlapped. See id. Here, however, the non-arbitrable claim, which seeks attorney's fees for Hartford's failure to comply with the statutory obligation to file a copy of its bond with the County Clerk, is distinguishable from Latona's claim for non-payment for work performed. Moreover, petitioners' discovery requests largely pertained not to the non-arbitrable claims, but to Latona's arbitrable claim for payments on the bond and S & R's counterclaim for breach of contract. In short, petitioners have not shown that the district court was clearly erroneous in finding that they benefitted by obtaining discovery on the arbitrable claims that would not have been available in arbitration. 19 Petitioners also argue that none of their litigation constituted substantial litigation on the merits. However, this is not the standard, rather it is whether there was litigation pertaining to substantial issues going to the merits. Distajo, 66 F.3d at 457. We find that S & R's filing of a counterclaim against Latona for breach of contract, the extensive discovery requests, the two settlement conferences, and petitioners' attempt to move to dismiss the action based on the forum-selection clause and to stay proceedings because Latona was not authorized to do business in New York certainly pertained to substantial issues going to the merits. Petitioners seem to imply, however, that a party must have made dispositive motions on the merits in order to be deemed to have waived arbitration, citing several cases in which such motions were made, see, e.g., PPG Indus., 128 F.3d at 107-09; Kramer v. Hammond, 943 F.2d 176 (2d Cir.1991); Com-Tech Assocs. v. Computer Assocs. Int'l, Inc., 938 F.2d 1574 (2d Cir.1991); Dempsey & Assocs., Inc. v. S.S. Sea Star, 461 F.2d 1009, 1018 (2d Cir.1972). We have found no case that supports the argument that such motions are required before waiver can be found. In Leadertex, for example, we stated that the relevant factors to consider were the amount of litigation (usually exchanges of pleadings and discovery), the time elapsed from the commencement of litigation to the request for arbitration, and the proof of prejudice.... The proximity of a trial date when arbitration is sought is also relevant. 67 F.3d at 25. Notably absent from this list is whether the party seeking litigation made any dispositive motions on the merits. See also Zwitserse Maatschappij Van Levensverzekering En Lijfrente v. ABN Int'l Capital Mkts. Corp., 996 F.2d 1478, 1479 (2d Cir.1993) (per curiam ) (waiver found where party engaged in discovery not available in arbitration); Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 n. 7 (2d Cir.1968) (noting that taking advantage of discovery would be sufficient prejudice to warrant finding waiver). 20 We find that the district court's factual findings are not clearly erroneous. Moreover, its finding of waiver based on these facts is consistent with other cases. See, e.g., Leadertex, 67 F.3d at 25-26 (finding waiver based on undue delay, failure to raise arbitration defense in numerous pleadings and counterclaims, taking advantage of discovery, and economic prejudice to other party); Zwitserse, 996 F.2d at 1480 (waiver found where party engaged in discovery not available in arbitration); see also Com-Tech, 938 F.2d at 1577-78 (motion to compel denied where party failed to raise arbitration as defense, participated in 18 months of litigation including extensive discovery, and only raised arbitration in motion for judgment on pleadings four months before trial). Accordingly, we affirm the district court's determination that petitioners waived their right to arbitration.