Court Opinion

ID: 2756276
Source: CourtListenerOpinion
Date Created: 2014-12-01 20:00:30.597314+00
Date Added: 2024-06-11T10:30:49.370883
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 14-1353

                   JOCA-ROCA REAL ESTATE, LLC,

                      Plaintiff, Appellant,

                               v.

                     ROBERT T. BRENNAN, JR.,

                      Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT

                    FOR THE DISTRICT OF MAINE

        [Hon. John A. Woodcock, Jr., U.S. District Judge]
         [Hon. John H. Rich, III, U.S. Magistrate Judge]

                             Before

                       Lynch, Chief Judge,
               Selya and Kayatta, Circuit Judges.

     Jeffrey T. Piampiano, with whom Reade E. Wilson and Drummond
Woodsum & MacMahon were on brief, for appellant.
     Matthew J. Williams, with whom Stephen Y. Hodsdon and Hodsdon
& Ayer were on brief, for appellee.

                        December 1, 2014
             SELYA, Circuit Judge.       Federal law favors agreements to

arbitrate.     Thus, when contracting parties provide that disputes

arising under a contract will be resolved by arbitration, federal

courts ordinarily will honor that choice.         But arbitration clauses

are not set in cement: such clauses can be waived, either expressly

or through conduct.        The court below found such a conduct-based

waiver and denied the plaintiff's motion to stay court proceedings

in order to clear the way for arbitration.           The plaintiff appeals.

We affirm.

             The   stage   is   easily   set.   On    September   18,   2005,

plaintiff-appellant Joca-Roca Real Estate, LLC and defendant-

appellee Robert T. Brennan, Jr., entered into an asset purchase

agreement (the Agreement).         The Agreement paved the way for the

transfer of title to certain real property that served as the site

of an intermodal vehicle dealership in South Lebanon, Maine.1             The

Agreement contained a broad provision requiring submission of all

disputes "concerning the validity, interpretation and enforcement"

of the Agreement to an arbitrator for final and binding resolution.

             The plaintiff came to believe that the defendant had

misled it concerning certain attributes of the purchased property.

Acting on this belief, the plaintiff sued the defendant in the

     1
       Although other firms were parties to the Agreement, none of
them is involved in this litigation. Consequently, we treat the
Agreement as if the plaintiff and the defendant were the only
signatories.

                                     -2-
United States District Court for the District of Maine on March 4,

2013.    Invoking diversity jurisdiction, see 28 U.S.C. § 1332(a),

the plaintiff's complaint asserted claims for fraud and breach of

contract arising out of the Agreement.            Notably, the plaintiff

commenced this civil action without making the slightest effort to

pursue arbitration.

            The defendant answered the complaint, raising as an

affirmative defense (which it subsequently never pressed) the

plaintiff's "fail[ure] to seek relief in the manner required under"

the Agreement.      A magistrate judge promptly entered a scheduling

order closing discovery in August of 2013 and setting the case for

trial in January of 2014.         The parties began discovery and, at

their joint behest, the magistrate judge granted several extensions

of the discovery deadline.        That deadline was eventually enlarged

to December 16, 2013; the trial date was moved back to February 3,

2014; and the parties were directed to notify the court of their

intent to file summary judgment motions by December 23, 2013.

            During the course of pretrial proceedings, the parties

conducted     sixteen    depositions,       propounded        and   answered

interrogatories, and produced and exchanged thousands of pages of

documents. In the process, the magistrate judge held no fewer than

four    telephone   conferences    to   resolve   discovery    disputes   and

scheduling conflicts.

                                     -3-
            On   December   6,   2013,    the   plaintiff    moved   to   stay

proceedings pending arbitration. The motion offered no explanation

for   the   plaintiff's     cunctation    in    invoking    the   Agreement's

arbitration provision.       The defendant objected and notified the

court of his intent to move for summary judgment.            The magistrate

judge then denied the motion to stay on the ground that the

plaintiff had waived its arbitral rights.            The plaintiff took a

first tier appeal of this ruling to the district judge, see Fed. R.

Civ. P. 72(a), who summarily affirmed the denial of the stay.

            This timely appeal followed.           Even though the order

appealed from is interlocutory, we have jurisdiction to hear and

determine the appeal.        See 9 U.S.C. § 16(a)(1)(A) (authorizing

immediate appeals from denials of motions to stay court proceedings

pending arbitration).

            We review decisions regarding whether waivers of arbitral

rights have occurred de novo.       See Menorah Ins. Co. v. INX Reins.

Corp., 72 F.3d 218, 220 (1st Cir. 1995).             Embedded within this

standard, we review subsidiary findings of fact for clear error.

See id.

            Generally speaking, what contracting parties take they

can give away — and parties to a contract normally are free to

waive the right to arbitration.           See Restoration Pres. Masonry,

Inc. v. Grove Eur. Ltd., 325 F.3d 54, 60 (1st Cir. 2003).              Such a

                                    -4-
waiver may be either express or implied.          See id. at 61.    This case

deals only with implied waiver.

              In considering whether a waiver can be implied, we start

with the strong federal policy favoring arbitration agreements.

See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745, 1749

(2011); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460

U.S. 1, 24-25 (1983).       Given the strength of this policy, "mere

delay in seeking [arbitration] without some resultant prejudice" is

insufficient to ground a finding of conduct-based waiver. Creative

Solutions Grp., Inc. v. Pentzer Corp., 252 F.3d 28, 32 (1st Cir.

2001) (alteration in original) (internal quotation marks omitted).

The   party    advocating   waiver   has   the    burden   of   demonstrating

prejudice.      See Sevinor v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., 807 F.2d 16, 19 (1st Cir. 1986).

              In   determining   whether   a     conduct-based    waiver   has

occurred, we ask whether there has been an undue delay in the

assertion of arbitral rights and whether, if arbitration supplanted

litigation, the other party would suffer unfair prejudice.                  See

Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 15 (1st Cir. 2005);

Rankin v. Allstate Ins. Co., 336 F.3d 8, 12 (1st Cir. 2003).               That

determination is informed by a salmagundi of factors, including:

the length of the delay, the extent to which the party seeking to

invoke arbitration has participated in the litigation, the quantum

of discovery and other litigation-related activities that have

                                     -5-
already taken place, the proximity of the arbitration demand to an

anticipated trial date, and the extent to which the party opposing

arbitration would be prejudiced.         See, e.g., Lomas v. Travelers

Prop. Cas. Corp. (In re Citigroup, Inc.), 376 F.3d 23, 26 (1st Cir.

2004); Restoration Pres. Masonry, 325 F.3d at 61.

             In the case at hand, the plaintiff asseverates that the

district court applied the wrong legal standard because it found a

waiver of arbitral rights without requiring a showing of prejudice

to the defendant.2    This is pie in the sky: even a cursory reading

of the district court's decision reveals that the court applied the

correct legal standard.      The court noted that the party urging

waiver (here, the defendant) must demonstrate prejudice and then

considered whether the delay in this case resulted in any such

prejudice.      Thus, the issue before us reduces to whether the

court's   waiver   determination   was   correct.    We   turn   to   that

question.

             It is common ground that a party must invoke its right to

arbitration in a timeous manner or else risk forfeiting that right.

See Rankin, 336 F.3d at 12.     Here, the plaintiff commenced a civil

action, vigorously prosecuted it, and then — after many months of

     2
      The plaintiff's asseveration focuses on the rescript written
by the magistrate judge.     This is understandable because the
district judge's affirmance of the magistrate judge's order was
entered without an accompanying opinion. We take an institutional
view and refer throughout to the magistrate judge's analysis as
that of the district court.

                                   -6-
active litigation — tried to switch horses midstream to pursue an

arbitral remedy. To make matters worse, it made this abrupt about-

face in the absence of any material change in circumstances.3

               Seen in this light, the plaintiff's belated resort to

arbitration was anything but timely. The plaintiff chose to eschew

an available arbitral forum and, instead, brought suit in the

federal district court.         The defendant then reminded the plaintiff

of the availability of arbitration through an affirmative defense.

The plaintiff turned a blind eye to this reminder and waited more

than       eight   months   before   seeking   a   stay   in   order   to   pursue

arbitration.         By that time, the close of discovery was hard at

hand, a summary judgment motion was in the offing, and trial was

less than two months away.           Undue delay is manifest.

               Here, moreover, the delay is more troubling because the

plaintiff never offered any explanation for it.                   When directly

questioned about the plaintiff's lack of any explanation for its

belated decision to abandon the courtroom in favor of an arbitral

forum, appellate counsel was wholly uninformative.               We are left to

infer that the change in direction may well reflect the plaintiff's

dissatisfaction with the way the court case was proceeding — and we

       3
       This is not, for example, a case in which an amendment to
the pleadings or a later-filed counterclaim raises an arbitrable
issue for the first time. See, e.g., Comm'l Union Ins. Co. v.
Gilbane Bldg. Co., 992 F.2d 386, 387 & n.1 (1st Cir. 1993).

                                        -7-
do not condone the use of an arbitration clause as a parachute when

judicial winds blow unfavorably.

          To be sure, prejudice is essential for a waiver — but the

required showing is "tame at best."     Id. at 14.    Some degree of

prejudice ordinarily may be inferred from a protracted delay in the

assertion of arbitral rights when that delay is accompanied by

sufficient litigation activity.    See, e.g., id.; Restoration Pres.

Masonry, 325 F.3d at 61; Navieros Inter-Americanos, S.A. v. M/V

Vasilia Express, 120 F.3d 304, 316 (1st Cir. 1997); Menorah, 72

F.3d at 222. That inference makes good sense: during such a period

of delay, the opposing party usually will incur cost, measured in

both out-of-pocket expense and the value of time.

          So it is here: the plaintiff's conduct evinced a clear

intent to forgo arbitration and resolve the disputed matter through

litigation.   In response, the defendant undertook the discovery

that he believed necessary to mount a defense.       Over a period of

more than eight months, the parties engaged actively in discovery;

and the defendant incurred what must have been substantial costs

associated with more than a dozen depositions, interrogatories,

document production, and conferences with the magistrate judge and

opposing counsel.   With trial looming, an eleventh-hour stay in

favor of arbitration would have forced the defendant into a new

forum and, in the bargain, postponed resolution of the underlying

                                  -8-
controversy. That would cause the defendant further prejudice4 and

nullify one of the primary benefits of arbitration: its use as a

cost-effective and expedient alternative to litigation.            See Com-

Tech Assocs. v. Computer Assocs. Int'l, Inc., 938 F.2d 1574, 1576-

77 (2d Cir. 1991).

          The plaintiff resists the conclusion that the defendant

would be prejudiced by a stay.       It insists that delay, by itself,

cannot constitute the requisite prejudice.              This overly broad

argument fails to account for the myriad forms of prejudice that

may result from a belated invocation of rights.

          We   agree   that   mere    delay   in   asserting   a   right   to

arbitrate, without more, does not require a finding of waiver.

See, e.g., Restoration Pres. Masonry, 325 F.3d at 61; Creative

Solutions, 252 F.3d at 32; Comm'l Union Ins. Co. v. Gilbane Bldg.

Co., 992 F.2d 386, 390 (1st Cir. 1993).            Here, however, there is

more: this is not a case in which no significant activity occurred

during the period of delay.      We evaluate whether any particular

period of delay supports a finding of prejudice based largely on

what did (or did not) take place during that period.

     4
       This prejudice is magnified because the district court
proceedings have been held in abeyance since May of 2014, despite
the absence of a formal stay. Without the plaintiff's change of
heart, this matter likely would have been concluded, by summary
judgment or by trial, before now.      Instead, the parties have
remained locked in litigation and face the certain prospect of
further proceedings at the conclusion of this appeal.

                                     -9-
            This appraisal is accomplished by assaying, among other

things, the "litigation activities engaged in during that time."

Restoration Pres. Masonry, 325 F.3d at 61.              Where those activities

are extensive, prejudice may be "inferred from the necessary

expenditures over that period."           Id.; accord Rankin, 336 F.3d at

14; Menorah, 72 F.3d at 222.

            The   longer   the    delay     and   the    more   extensive   the

litigation-related activities that have taken place, the stronger

the inference of prejudice becomes. Here, the delay was protracted

and the litigation-related activities were copious.              These are the

very elements that the district court weighed in finding a waiver.

            Endeavoring to undermine this finding, the plaintiff

argues that money and time spent in discovery should not be deemed

prejudicial where the same discovery would have been pursued in

arbitration.5     In support, the plaintiff cites our decision in

Sevinor,6   in    which    we    concluded    that      the   party   resisting

     5
       As an offshoot of this argument, the plaintiff posits that
much of the discovery undertaken in this matter was relevant only
to its fraud claim, the arbitrability of which is disputed. It
speculates that if the fraud claim is not arbitrable, discovery
anent that claim would have been necessary regardless of what might
have transpired in arbitration.     But the plaintiff has made no
effort in this court either to explain why the fraud claim might
not be arbitrable or to identify what discovery was peculiarly
related to that claim. This line of argument is, therefore, not
properly before us. See United States v. Zannino, 895 F.2d 1, 17
(1st Cir. 1990).
     6
       The plaintiff also relies on Page v. Moseley, Hallgarten,
Estabrook & Weeden, Inc., 806 F.2d 291 (1st Cir. 1986), abrogated
on other grounds by Shearson/Am. Express, Inc. v. McMahon, 482 U.S.

                                     -10-
arbitration had not demonstrated prejudice though answering over

300 interrogatories and responding to a dozen requests for document

production.     See 807 F.2d at 19.      But our decision in Sevinor was

case-specific: the party invoking arbitration had put its opponent

on notice of its preference for arbitration before any discovery,

thus ameliorating any potential prejudice.          See id.; accord Hilti,

Inc. v. Oldach, 392 F.2d 368, 371 (1st Cir. 1968).         Early notice of

intent   to    pursue   arbitration    tends   to   mitigate   prejudice    by

allowing the opposing party to seek prompt resolution of the

arbitrability question or consider circumscribed discovery.                See

Nino v. Jewelry Exch., Inc., 609 F.3d 191, 211 (3d Cir. 2010).             The

plaintiff gave no such early notice here, and its unremitting

pursuit of litigation deprived the defendant of any opportunity to

mitigate prejudice.

              Nor does the district court's professed inability to

determine which discovery procedures undertaken in this litigation

would have been available in arbitration tip the decisional scales.

The defendant could have offered evidence on this point, but was

not required to do so; after all, arbitration is not an exotic

dispute-resolution mechanism.          See Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20, 31 (1991) (noting "the simplicity,

informality, and expedition of arbitration" (internal quotation

220 (1987).  This reliance is misplaced.  In Page, the party
opposing arbitration stipulated that discovery had not been
prejudicial. See id. at 294.

                                      -11-
marks omitted)).    Given the streamlined nature of arbitration and

the   limited   type,   kind,   and    quantum   of   discovery   generally

available in that forum, we think it highly improbable that the

discovery undertaken here would have occurred in arbitration.          And

at any rate, the plaintiff's belated about-face deprived the

defendant of any opportunity to tailor his discovery strategy to

the much different demands of arbitral proceedings.7

            We need go no further.       "[T]here is no bright-line rule

for a waiver of arbitral rights, and each case is to be judged on

its particular facts." Tyco Int'l Ltd. v. Swartz (In re Tyco Int'l

Ltd. Sec. Litig.), 422 F.3d 41, 46 (1st Cir. 2005).         According due

weight to the chronology and circumstances recounted above, we

think it is nose-on-the-face plain that the defendant demonstrated

that granting a stay would cause him prejudice.              We think it

equally plain that the district court did not err in concluding

that the plaintiff has, through its conduct, waived its right to

demand arbitration.

Affirmed.

      7
       We add a coda. Even if the discovery taken in the lawsuit
could have been conducted in arbitration, the fact remains that the
defendant had to respond to a lawsuit, litigate it over a nine-
month period, prepare for trial, and then — shortly before trial
was to begin — respond to a belated attempt to move the case to an
arbitral forum. The time spent and expenses incurred in taking
these steps would support a finding of prejudice, whether or not
the scope of discovery was the same in arbitration as in federal
court.

                                      -12-