Court Opinion

ID: 54571
Source: CourtListenerOpinion
Date Created: 2010-04-26 01:31:06+00
Date Added: 2024-06-11T17:19:25.657410
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT United States Court of Appeals
                                                   Fifth Circuit

                                                                            FILED
                                                                         December 3, 2007

                                       No. 06-60692                   Charles R. Fulbruge III
                                                                              Clerk

UNITY COMMUNICATIONS CORPORATION

                                                  Plaintiff-Appellee
v.

CINGULAR WIRELESS

                                                  Defendant-Appellant

                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                             USDC No. 2:03-CV-115

Before DENNIS, CLEMENT, and PRADO, Circuit Judges.
PER CURIAM:*
       Unity Communications Corporation (“Unity”) brought suit against
Cingular Wireless’s (“Cingular”) predecessor company, alleging breach of
contract. The parties engaged in extensive pretrial activity, including a motion
for summary judgment which was appealed to this Court. Cingular moved to
compel arbitration three years after the suit was commenced and the district
court denied its motion. Cingular appeals and we affirm the finding of the
district court for the reasons stated below.

       *
         Pursuant to 5TH CIR. R. 47.5, this Court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
                                    No. 06-60692

                       I. FACTS AND PROCEEDINGS
      This case is about whether Cingular waived its right to compel arbitration
by not making a demand for arbitration until three years into the current
lawsuit. Unity resold wireless phone services provided by Cingular and its
predecessor companies to businesses in Mississippi under a reseller agreement
which included an arbitration clause. The parties had a dispute in 2001 and
entered into a letter agreement which did not include an arbitration clause.
Unity subsequently sued Cingular, alleging that Cingular had breached the
original reseller agreement. Cingular moved for summary judgment on the
ground that the 2001 letter agreement constituted “mutual accord, satisfaction
and release” of all claims arising under the original reseller agreement. The
district court denied Cingular’s motion and certified it for interlocutory appeal
because it raised “close . . . and controlling questions of law.” The Fifth Circuit
summarily affirmed the district court’s decision. Unity Commc’ns Corp. v.
BellSouth Cellular, No. 04-61132, 2006 U.S. App. LEXIS 5193, at *2 (5th Cir.
Mar. 1, 2006) (per curiam).
      On remand before the district court, Cingular moved to bifurcate the trial
on the threshold issue of whether the reseller agreement was still in force, or in
the alternative to compel arbitration under the reseller agreement. The district
court denied Cingular’s motions to bifurcate the trial or in the alternative to
compel arbitration. The court found that Cingular had waived its right to
arbitration by raising it for the first time three years after the start of litigation.
Cingular now appeals the district court’s decision not to compel arbitration. The
appeal is properly before this Court under 9 U.S.C. § 16(a)(1)(A).
                         II. STANDARD OF REVIEW
      This Court reviews the question of “whether a party’s conduct amounts to
a waiver of arbitration de novo.” Republic Ins. Co. v. PAICO Receivables, LLC,
383 F.3d 341, 344 (5th Cir. 2004). This Court “review[s] any factual findings

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                                   No. 06-60692

underlying the district court’s waiver determination for clear error.” Id. Findings
of prejudice are considered factual and are reviewed by this Court for clear error.
Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1163 (5th Cir. 1986)
(“[W]e hold that a determination that a party has waived its right to compel
arbitration is a legal conclusion[;] . . . however, a finding of prejudice in support
of that conclusion is a question of fact subject to the clearly erroneous standard
of review.”).
                               III. DISCUSSION
      Cingular argues that the district court erred in finding that it waived its
right to arbitrate. “There is a strong presumption against finding a waiver of
arbitration, and the party claiming that the right to arbitrate has been waived
bears a heavy burden.” Republic Ins. Co., 383 F.3d at 344.
       There are two prongs to a waiver analysis: whether the defendant
substantially invoked the legal process, and whether this prejudiced the
plaintiff. Id. “Waiver will be found when the party seeking arbitration
substantially invokes the judicial process to the detriment or prejudice of the
other party.” Id. (internal quotation omitted). However, “a party only invokes the
judicial process to the extent it litigates a specific claim it subsequently seeks to
arbitrate.” Id. (internal quotation omitted). Prejudice to the other party can arise
from three factors:
      First, while discovery relating to non-arbitrable claims is not
      prejudicial, where the pretrial activity was related to all of the
      parties’ claims, including those that were conceded to be arbitrable,
      arbitration would result in prejudice. Second, the time and expense
      incurred in defending against a motion for summary judgment could
      prejudice the party opposing arbitration. Third, a party’s failure to
      timely assert its right to arbitrate a dispute is also relevant to the
      prejudice determination.
Id. at 346 (internal citations omitted). Failure to timely raise a claim for
arbitration does not automatically result in waiver, but “‘where a party fails to

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                                       No. 06-60692

demand arbitration . . ., and, in the meantime engages in pretrial activity
inconsistent with an intent to arbitrate, the party later opposing a motion to
compel arbitration may more easily show that its position has been
compromised, i.e., prejudiced.’” Id. at 347 (quoting Price, 791 F.2d at 1161).
       Although there is a heavy presumption against waiver, here it has been
overcome by Cingular’s full participation in this lawsuit. Cingular and its
predecessor companies filed several motions to extend the time to respond to
Unity’s original complaint. Cingular participated in discovery and moved to
dismiss the suit. Cingular also moved for summary judgment and took an
interlocutory appeal of that motion to this Court. In Price, this Court held that
the defendant who engaged in extensive discovery and filed a motion for
summary judgment waived its right to arbitration by substantially invoking the
judicial process and that it was not clear error to find that the delay and expense
caused by the motion for summary judgment prejudiced the plaintiff. Price, 791
F.2d at 1157–58, 1163. The Price court distinguished other cases in which there
had been extensive pre-trial activity by noting that in those cases the defendant
had given notice of its intent to pursue arbitration in its initial answer. Id. at
1161. We hold that Cingular substantially invoked the judicial process by
engaging in discovery, moving to dismiss, moving for summary judgment and
taking an appeal to this Circuit before it gave Unity notice of its intent to seek
arbitration.1
       With regard to the second prong of the waiver analysis, we hold that the
district court did not clearly err when it found that the time and expense
required to respond to Cingular’s motion for summary judgment prejudiced

       1
          We note in passing that the district court erred when it found that Cingular’s legal
position (that the reseller agreement which contained the arbitration agreement was no longer
in force) was inconsistent with a demand for arbitration. This is incorrect in light of General
Guaranty Insurance Co. v. New Orleans General Agency, Inc., in which this Court held that
litigating the existence of an arbitration agreement before demanding arbitration is both
“prop[er] and desirab[le].” 427 F.2d 924, 928 (5th Cir. 1970).

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                                   No. 06-60692

Unity. The district court’s finding is consistent with this Court’s holding in Price.
791 F.2d at 1161–62. Cingular argues that the motion for summary judgment
could not result in prejudice to Unity because it was part of Cingular’s ongoing
attempt to ascertain whether the arbitration agreement was still in force. While
Cingular’s attempt to litigate the validity of the reseller agreement does not by
itself create prejudice, it was prejudicial for Cingular to litigate the validity of
the agreement without putting Unity on notice that it would seek arbitration on
the merits if the agreement was found to be still in force. See Gen. Guaranty Ins.
Co. v. New Orleans Gen. Agency, Inc., 427 F.2d 924, 929 & n.6 (5th Cir. 1970)
(characterizing cases in which the defendant filed a counterclaim before raising
the demand for arbitration “as defendant’s ‘[i]rrevocably [locking] litigious horns
by filing a counterclaim’”) (quoting Hilti, Inc. v. Oldach, 392 F.2d 368, 371 (1st
Cir. 1968)).
      Cingular points out that the majority of the three-year delay here was
created by factors beyond its control, including the effect of Hurricane Katrina
on the Southern District of Mississippi. However, it is the content of the delay,
not its length, which is dispositive. This Court has held that delays as long as
eight years did not create prejudice when an arbitration claim was raised early
in the suit and the delay was attributable to claims by parties not subject to the
arbitration agreement. See Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324,
327–28 (5th Cir. 1999). On the other hand, in Price this Court found that a delay
of about fifteen months created prejudice because the defendants moved for
summary judgment and engaged in extensive discovery before demanding
arbitration. Price, 791 F.2d at 1157, 1162. In light of Cingular’s extensive pre-
demand litigation activity, which included a motion for summary judgment and
an appeal to this Circuit, the district court did not clearly err in finding that
Cingular’s delay in demanding arbitration prejudiced Unity.

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                              No. 06-60692

                          IV. CONCLUSION
     We AFFIRM the judgment of the district court and REMAND this case for
proceedings below.

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