Court Opinion

ID: 3191393
Source: CourtListenerOpinion
Date Created: 2016-04-05 15:06:06.341511+00
Date Added: 2024-06-11T14:35:33.171262
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF NEVADA

                THE MIRAGE CASINO-HOTEL, A                              No. 64535
                NEVADA CORPORATION,
                Appellant,
                vs.                                                           FILED
                BEALE STREET BLUES COMPANY
                LAS VEGAS, LLC, A NEVADA                                      APR 0 I 2016
                LIMITED LIABILITY COMPANY,                               ci.e FRACIE   K. LINDEMAN
                                                                              , K OF 81,1F*RE- ME COURT
                Respondent.                                              By   S •   Y
                                                                               DEPU FY CLERK

                                ORDER OF AFFIRMANCE AND REMAND

                            This is an appeal from a district court order denying a motion
                to compel arbitration. Eighth Judicial District Court, Clark County;
                Susan Scann, Judge.
                            Appellant Mirage Casino-Hotel moved to compel arbitration
                under an arbitration clause in its lease agreement with respondent Beale
                Street Blues Company, a blues club and restaurant. The district court
                determined that the arbitration clause was unenforceable because Mirage
                waived arbitration when it refused to arbitrate an earlier lawsuit. The
                district court also determined that Beale Street suffered prejudice
                sufficient to avoid enforcement of the arbitration clause in the bankruptcy
                court adversarial proceedings against Mirage. Mirage argues that the
                arbitration enforcement clause in the parties' lease is enforceable,
                notwithstanding its participation in proceedings before the bankruptcy
                court. Mirage claims that Beale Street voluntarily dismissed the earlier
                suit, so its participation there cannot be used to establish a waiver. It also
                argues that Beale Street failed to prove prejudice sufficient to waive
                arbitration. We disagree.
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                Standard of review
                            An order denying a motion to compel arbitration is directly
                appealable. NRS 38.247(1)(a). These orders typically involve mixed
                questions of fact and law. Gonski v. Second Judicial Dist. Court, 126 Nev.
                551, 557, 245 P.3d 1164, 1168 (2010). Consequently, this court defers to
                the district court's factual findings, but it reviews pure questions of law de
                novo. Id.
                            "The party moving to enforce an arbitration clause has the
                burden . . [to show] that the clause is valid." D.R. Horton, Inc. v. Green,
                120 Nev. 549, 553, 96 P.3d 1159, 1162 (2004). But the party opposing
                enforcement of a valid arbitration clause must establish its defense to
                enforcement. Gonski, 126 Nev. at 557, 245 P.3d at 1169.
                Waiver of right to compel arbitration
                            Following a hearing with oral argument, the district court
                denied Mirage's motion to compel arbitration. The district court found
                that Beale Street satisfied this court's test in Nevada Gold & Casinos, Inc.
                v. American Heritage, Inc., 121 Nev. 84, 90, 110 P.3d 481, 485 (2005)
                because Beale Street proved that (1) Mirage knew of its right to arbitrate,
                (2) it proceeded incompatibly with its right, and (3) its involvement in the
                adversary proceedings before the bankruptcy court caused actual prejudice
                to Beale Street.
                            Mirage claims that because voluntarily dismissed cases are
                legal nullities, its participation in the bankruptcy case—that Beale Street
                voluntarily dismissed—cannot establish a waiver of arbitration in the
                instant case. Mirage additionally asserts that the district court also erred
                because Beale Street did not prove that it suffered actual prejudice from
                Mirage's participation in the bankruptcy proceedings.

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                               Beale Street asserts that Mirage incorrectly argues that Beale
                Street voluntarily dismissed the adversary proceedings before the district
                court. As a result, Beale Street contends that Mirage's participation in the
                bankruptcy litigation absolutely establishes a waiver. Beale Street also
                argues that it proved it was prejudiced by delays, legal expenses, harm to
                its legal stance, and being forced out of business while litigating in
                bankruptcy court.
                               The issue before us is whether the district court correctly
                determined that Mirage waived the right to compel arbitration when it
                litigated in the adversary proceedings without compelling arbitration. We
                conclude that the district court correctly found that Mirage waived its
                right.
                               Like any other contractual right, a party can waive its right to
                arbitration.    United States v. Park Place Assocs., Ltd., 563 F.3d 907, 921
                (9th Cir. 2009). However, waiver is not a favored finding and should not
                be inferred lightly. Clark Cty. v. Blanchard Const. Co., 98 Nev. 488, 491,
                653 P.2d 1217, 1219 (1982). A party waives the right to demand
                arbitration when it (1) knows of its right to arbitration, (2) acts
                inconsistently with an intent to arbitrate, and (3) prejudices the opposing
                party by actively litigating the dispute in another forum.        Nev. Gold &
                Casinos, 121 Nev. at 90, 110 P.3d at 485.
                               Federal courts have found that a party may waive the right to
                arbitrate when it participates in litigation in a manner that is inconsistent
                with an intent to arbitrate its legal dispute.          Hoxworth v. Blinder,
                Robinson & Co., Inc., 980 F.2d 912, 926 (3d Cir. 1992). For example, the
                Third Circuit determined that parties waived their right to arbitration "by
                actively litigating this case for almost a year prior to filing their motion to

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                compel arbitration." Id. at 925. The D.C. Circuit held that a party "had
                'invoked the litigation machinery' by, inter alia, filing an answer without
                asserting arbitration as an affirmative defense, requesting documents and
                deposing plaintiffs witnesses, opposing plaintiffs motion to amend its
                complaint, and moving for summary judgment." Id. at 926 (quoting Nat'l
                Found. for Cancer Research v. A.G. Edwards & Sons, 821 F.2d 772, 775
                (1987)). The Fifth Circuit also affirmed a district court's denial of a
                motion to compel arbitration "where the defendant, during the seventeen
                months after the complaint was filed, initiated extensive discovery,
                answered twice, filed motions to dismiss and for summary judgment, filed
                and obtained two extensions of pretrial deadlines, all without demanding
                arbitration." Id. (internal quotations omitted) (referencing Price v. Drexel
                Burnham Lambert, Inc., 791 F.2d 1156 (5th Cir. 1986)). And the Ninth
                Circuit similarly found a "waiver where defendant chose 'to litigate
                actively the entire matter—including pleadings, motions, and approving a
                pretrial conference order—and did not move to compel arbitration until
                more than two years after [plaintiffs] brought the action." Id. (alteration
                in original) (quoting Van Ness Townhouses v. Mar Indus. Corp., 862 F.2d
                754, 759 (1988)).
                             "Waiver is generally a question of fact." Nev. Gold & Casinos,
                121 Nev. at 89, 110 P.3d at 484. But waiver may be determined as a
                matter of law when the issue rests upon the legal implications of
                uncontested facts. Id.
                            Knowledge of the right to arbitration
                            First, the record reflects, and Mirage does not dispute, that it
                was aware of its right and obligation to arbitrate all disputes associated
                with the lease.

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                               Actions inconsistent with the right to arbitration
                               Second, Mirage acted inconsistently with its right to arbitrate
                in the proceedings before the bankruptcy court. Mirage incorrectly argues
                that Beale Street voluntarily dismissed the adversary proceedings before
                the bankruptcy court. Beale Street did not move the bankruptcy court to
                dismiss its adversary complaint against Mirage and a bankruptcy court
                may retain jurisdiction of related cases even when the underlying petition
                is dismissed. See In re Kieslich, 258 F.3d 968, 970-71 (9th Cir. 2001); In re
                Carraher, 971 F.2d 327, 328 (9th Cir 1992) (explaining that "[s]ection 349
                of the Bankruptcy Code lists the various effects of dismissal of the
                underlying bankruptcy case; conspicuously absent from that list is
                automatic termination of jurisdiction over related cases"). The bankruptcy
                court "consider[s] economy, convenience, fairness, and comity in deciding
                whether to retain jurisdiction over pendent state claims."          Carraher, 971
                F.2d at 328.
                               Here, the bankruptcy court dismissed Beale Street's adversary
                complaint sua sponte; Beale Street moved to dismiss its bankruptcy                  •

                petition but did not move to dismiss the adversary proceedings. Because
                Beale Street did not voluntarily dismiss its adversary complaint against
                Mirage, the bankruptcy proceedings are not a legal nullity. Mirage's
                actions in the bankruptcy proceedings are therefore relevant to whether
                Mirage acted inconsistently with an intent to arbitrate.
                               The record before us reflects that before Beale Street filed its
                petition and adversary complaint in the bankruptcy court, it informed
                Mirage that it intended to invoke its right to arbitrate. Mirage responded
                to Beale Street by agreeing to arbitrate a discrete portion of the dispute so
                long as Beale Street agreed to pay any amount awarded to Mirage within

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                ten days of the American Arbitration Association's (AAA's) decision. Thus,
                Mirage conditionally agreed to arbitration, and its conditional agreement
                is insufficient to establish an intent to arbitrate.
                             Moreover, Mirage did not raise its right to arbitrate all
                disputes related to the lease as an affirmative defense in its answer to the
                adversarial complaint or the amended adversarial complaint. Mirage also
                did not raise arbitration as an affirmative defense in the answering
                documents it filed with the state district court. And for approximately two
                years Mirage actively litigated in the bankruptcy court the same basic
                claims as those it now seeks to arbitrate. Even further, Mirage filed a
                counterclaim seeking declaratory relief along with its answer. It also
                opposed Beale Street's motion for partial summary judgment and counter-
                moved for partial summary judgment. Mirage additionally filed an
                application for an order shortening time and an emergency motion to
                convert Beale Street's petition from chapter 11 to chapter 7 or, in the
                alternative, for relief from the automatic stay to proceed with termination
                remedies. Mirage even filed a motion for sanctions and to disqualify Beale
                Street's attorney due to alleged discovery misconduct, which motion the
                bankruptcy court ultimately denied. The parties dispute whether Mirage
                conducted discovery during the bankruptcy proceedings.
                             Regardless of whether Mirage propounded discovery, we
                conclude that Mirage's actions were inconsistent with an intent to
                arbitrate. More than two years after litigation commenced in the
                bankruptcy court, Mirage finally asserted that the parties' dispute was
                subject to binding arbitration despite filing a counterclaim and several
                motions before the bankruptcy court. This is inconsistent with its right to
                arbitrate.

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                            Prejudice from litigating the dispute in another forum
                            Third, we conclude that Beale Street suffered prejudice
                sufficient to avoid arbitration. We have held that prejudice may be shown
                "(1) when the parties use discovery not available in arbitration, (2) when
                they litigate substantial issues on the merits, or (3) when compelling
                arbitration would require a duplication of efforts."      Nev. Gold & Casinos,

                121 Nev. at 90-91, 110 P.3d at 485.
                            Use of discovery not available in arbitration
                            Beale Street fails to present any AAA rule or precedent which
                will impact its ability to use its discovery from the bankruptcy
                proceedings. Beale Street also fails to direct this court to any discovery
                that it believes would be excluded in arbitration or how exclusion would
                impact its ability to prove its case. It simply argues that a possibility
                exists that its evidence could be excluded, without explaining how remote
                the possibility may be. Accordingly, we conclude that Beale Street has not
                proven that it would suffer prejudice because the evidence obtained in the
                prior proceedings will not be available in arbitration.
                            Litigation of substantial issues on the merits
                            The parties extensively litigated the merits of this case in the
                proceedings before the bankruptcy court. Both parties filed motions for
                partial summary judgment and Mirage filed a motion to convert Beale
                Street's chapter 11 petition to chapter 7 in order to negotiate with the
                trustee and secure a resolution to the adversarial complaint. Had Mirage
                agreed to arbitrate the parties' entire dispute—instead of a single, discrete
                aspect—or had Mirage sought to compel arbitration at the inception of the
                bankruptcy proceedings, the parties could have avoided two years of
                litigation, along with its associated costs and delays.

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                               Mirage charges that Beale Street's sole assertion of prejudice
                is its desire to avoid arbitration costs, which does not constitute prejudice.
                However, prior to commencing bankruptcy proceedings, Beale Street
                reminded Mirage of the arbitration clause in their contract. Mirage
                responded by agreeing to arbitrate only a portion of the parties' dispute
                and by requiring Beale Street to agree to additional terms. Based on
                Mirage's rigid stance, Beale Street promptly filed for bankruptcy
                protection.
                               Accordingly, we conclude that Beale Street has proved that it
                suffered prejudice because the parties previously litigated substantial
                issues on the merits.
                                     Duplication of efforts
                               Neither the record on appeal nor the parties' arguments
                clearly explain what previous litigation would be duplicated through
                arbitration but not duplicated in proceedings before the district court.
                               As indicated, Mirage never sought an order compelling
                arbitration from the bankruptcy court and instead litigated the adversary
                complaint against it for approximately two years. Because Beale Street
                expended hefty sums during the prior litigation and has gone out of
                business, it no longer has either the assets or the cash flow to fund
                proceedings that it estimates will cost $50,000 to $60,000. Therefore,
                Mirage caused Beale Street to suffer actual prejudice sufficient to avoid
                arbitration.
                               We take this opportunity to distinguish the instant case from
                MB America v. Alaska Pacific Leasing, 132 Nev., Adv. Op. 8,           P.3d
                (2016). In MB America, we held that a prelitigation mediation provision
                established a condition precedent to litigation.    Id. at     . We also held

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                that because MB America failed to initiate mediation proceedings
                pursuant to its contract with Alaska Pacific, the district court was correct
                to grant Alaska Pacific's motion for summary judgment, which argued
                that the complaint was premature because MB America had not complied
                with the mediation requirement.       Id. at . There, the parties had not
                engaged in extended litigation before Alaska Pacific sought to enforce the
                mediation provision in the parties' contract.      Id. at . Alaska Pacific
                promptly sought to enforce the mediation provision in the contract.      Id. at
                     . Alaska Pacific did not submit to years of litigation before it sought to
                enforce mediation as a condition precedent.        Id. at . Although MB
                America asserted that Alaska Pacific had entirely refused to mediate,
                Alaska Pacific did not postpone enforcing the contractual right to mediate
                once MB America filed its complaint in the district court.          Id. at .
                Instead, MB America sought summary judgment early in the proceedings.
                Id. at .
                              Here, Mirage's request to compel arbitration is several years
                too late and comes after Mirage indicated that it would not arbitrate all of
                the parties' disputes, despite the clear language in the contract that says
                "All disputes, controversies or claims. . . shall be subject to binding
                arbitration. . . in accordance with the rules American Arbitration
                Association." (Emphasis added). Had Mirage sought to compel arbitration
                early in the bankruptcy proceedings, we would not be able to reach the
                same decision.
                              Moreover, MB America was not in a situation where it needed
                to seek immediate protection. MB America, 132 Nev., Adv. Op. 8,            P.3d
                at      . When Beale Street informed Mirage that the parties needed to
                arbitrate a resolution to their conflict, Mirage indicated that it would

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                arbitrate the stewarding charges but it would continue with proceedings to
                evict Beale Street, thereby rejecting Beale Street's request for arbitration.
                Thus, Beale Street needed immediate protection to prevent its eviction.
                Although the AAA may have been able to provide Beale Street with
                immediate protection,      see American Arbitration Association's (AAA)
                "Commercial Arbitration Rules and Mediation Procedures," titled "Interim
                Measures," para. R-37(a), Beale Street cannot be faulted for seeking
                protection through the bankruptcy court.          See Id. at para. R-37(c) ("A
                request for interim measures addressed by a party to a judicial authority
                shall not be deemed incompatible with the agreement to arbitrate or a
                waiver of the right to arbitrate."). If Mirage wanted to preserve its right to
                arbitrate, it needed to take the necessary steps to do so at the
                commencement of litigation before the bankruptcy court. Asserting its
                right at this point in the litigation between the parties is too little too late.
                             We acknowledge that Beale Street did not initiate mediation
                "in accordance with the rules of the American Arbitration Association," as
                the parties' contract requires. In MB America, MB America's failure to
                initiate mediation pursuant to AAA rules was a significant factor that
                compelled this court to affirm the district court's decision to enforce the
                mediation provision. 132 Nev., Adv. Op. 8, P.3d at . However, in
                the instant case, we conclude that Beale Street's failure to follow the
                provision in the contract requiring arbitration under AAA rules is
                significantly outweighed by Mirage's failure to assert its right to compel
                arbitration at an earlier time. Alaska Pacific did not postpone asserting
                its right after years of litigation.   Id. at . Mirage did and, therefore,
                waived its right to compel arbitration.

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                           Accordingly, the district court did not abuse its discretion in
                finding that Beale Street was prejudiced and did not err in denying
                Mirage's motion to compel arbitration. We therefore
                           ORDER the judgment of the district court AFFIRMED AND
                REMAND this matter to the district court for further proceedings.

                                                    1 CCA-it                  ,
                                                  Parra uirre

                                                                                    J.
                                                  Douglas

                                                     aki2dift
                                                  Cherry

                cc: Hon. Susan Scann, District Judge
                     Ara H. Shirinian, Settlement Judge
                     Pisanelli Bice, PLLC
                     Sean Claggett & Associates, Inc.
                     Eighth District Court Clerk

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