Court Opinion

ID: 8313725
Source: CourtListenerOpinion
Date Created: 2022-10-17 17:25:33.934615+00
Date Added: 2024-06-11T16:44:51.463472
License: Public Domain

Robinson, J.,
¶ 32. concurring in part, dissenting in part. I have no particular objection to an ultimate outcome that keeps the trial court’s default judgment in place, but I believe the path the majority takes to that result widens a narrow exception to the enforceability of mandatory arbitration clauses, undermining this Court’s express preference for enforcing arbitration clauses; strays from our general approach to waiver; undoes the requirement that a court at least consider the merits of a defendant’s defenses as one of a number of factors to be considered in *558connection with a motion to set aside a default judgment; and extends the concept of waiver to a factual setting where it does not readily apply. For these reasons, I respectfully dissent from section II.B. of the majority’s opinion, relating to the question of whether we should remand this case to the trial court for consideration of the requisite factors, in.1uding the prejudice to plaintiff of setting aside the default judgment, the nature of defendant’s neglect, and the strength of defendant’s defense based on the mandatory mediation and arbitration clauses in the contract between the parties.5
¶ 33. I note at the outset that the majority’s opinion cannot be described in terms of deference to the trial court’s wide discretion in connection with motions to set aside judgments. See ante, ¶ 23. As the majority rightly concludes as a matter of law, the trial court applied the wrong test in this case, using the general standard we have applied in most Rule 60(b) cases, and failing to consider the various specific factors applicable when a party seeks to set aside a default judgment. See ante, ¶ 14. The trial court decided this case, understandably but incorrectly, on the narrow ground that failure to open a critical email by counsel is not the sort of conduct that ordinarily amounts to “excusable neglect.” It did not purport to analyze the prejudice to plaintiff that would arise from setting aside its judgment, and did not con.1ude that defendant had waived its defenses of mandatory mediation or arbitration by virtue of the passage of time since it was served, or since the default judgment. The majority’s ration.1e for affirming the trial court’s ultimate decision on defendant’s motion originated in this Court, and does not reflect any deference at all to a particular finding of fact or exercise of discretion by the trial court.
¶ 34. This Court has previously emphasized that “Vermont law and public policy strongly favor arbitration as an alternative to litigation for the efficient resolution of disputes.” Lamell Lumber Corp. v. Newstress Int’l, Inc., 2007 VT 83, ¶ 9, 182 Vt. 282, 938 A.2d 1215 (quotation omitted). In Lamell, a lumber wholesaler and retailer sued the manufacturer of a kiln for breach of contract. The defendant listed the arbitration agreement as an affirmative defense in its answer, but then proceeded to actively litigate the case over the next two years, participating in extensive discovery *559and filing motions with the court. Id. ¶ 4. One month before trial, the defendant filed a summary judgment motion seeking dismissal of the case on the ground that an arbitration agreement deprived the court of jurisdiction to hear the case. Id. The trial court concluded that the defendant had waived the arbitration agreement, and this Court affirmed. On appeal, this Court rejected the defendant’s argument that an arbitration agreement is jurisdictional and therefore cannot be waived. This Court explained:
The waiver issue is generally held to be a question of fact to be resolved under the circumstances of each case, considering such factors as the timing of the request for arbitration, the extent to which the party seeking arbitration has participated in the judicial process, and whether the party opposing arbitration has suffered prejudice through the incursion of litigation time, costs, and expenses.
Id. ¶ 11. Although the Court did not consider whether the trial court abused its discretion in making the waiver determination, as the issue had not been raised, the above factors all supported the trial court’s waiver determination. The defendant had actively participated in the judicial process for over two years, the parties had conducted extensive discovery including depositions, and the defendant had invoked the arbitration agreement at the eleventh hour, on the eve of trial. In Lamell, the factfinder concluded that the defendant had waived the agreement after two years of active participation in the judicial process.
¶ 35. Two significant factors distinguish this case from Lamell and the others relied upon by the majority in support of its waiver argument. First, as in Lamell, in the cases cited by the majority, the party deemed to have waived an arbitration agreement undertook some choice or act or course of conduct that reflected a rejection of arbitration or acquiescence to and acceptance of litigation in court as the means to resolve their dispute. For example, in Menorah Insurance Co. v. INX Reinsurance Corp., 72 F.3d 218, 221 (1st Cir. 1995), a party expressly declined a request to arbitrate an internation.1 contract dispute. Subsequently, that party was served and chose not to appear in a court proceeding concerning that dispute. Id. at 221-22. It did not invoke the arbitration agreement (the very agreement it had expressly declined to honor) until the plaintiff had gone through *560all the necessary steps to secure a judgment in court and then sought to enforce its default judgment in that lawsuit — more than a year after the party was served in that case. Given this course of conduct, as well as the trial court’s express finding of prejudice to the plaintiff, the U.S. Court of Appeals for the First Circuit affirmed the trial court’s con.1usion that the party had waived the arbitration agreement. Id. Significan.1y, the First Circuit declined to adopt a per se rule that a one-year delay is or is not sufficient to support waiver, noting that delay alone is not automatically a source of prejudice. Id.6
¶ 36. Likewise, in Austin Energy, LLC v. Ecolumens, LLC, a defendant demanded arbitration and then, after appearing before the American Arbitration Association, did not participate in further arbitration proceedings. No. CV 11-5749, 2012 WL 3929956, at *1 (E.D.N.Y. Aug. 13, 2012). When the arbitration was suspended and the plaintiff filed suit in court for damages, the defendant did not raise the arbitration agreement but instead opted to default. Id. On these facts, the court concluded that the defendant had waived the arbitration agreement. Id.; see also Gen. Star Nat’l Ins., 289 F.3d at 438 (involving defendant who waited for seventeen months after actual notice of the lawsuit, while the plaintiff pursued remedy in court and incurred associated costs, before invoking arbitration agreement after entry of default judgment against defendant). In none of the cases cited by the majority was there any indication that a defendant’s default resulted from neglect rather than a conscious decision to allow a default judgment, and in most of the cases, the defendant actively participated in court proceedings or affirmatively declined to participate in arbitration.
¶ 37. The second major difference between this case and those cited by the majority is that this is the only case in which an appeals court seeks to make a finding of prejudice and a conclusion of waiver in the first instance. See, e.g., Menorah, 72 F.3d at 221 (expressly relying on trial court’s finding of prejudice).
*561¶ 38. Not only is the majority’s opinion out of step with case law concerning waivers of arbitration agreements, but it is not consistent with our case law concerning waiver more generally. We have held that waiver of a contract right is “‘the intentional relinquishment or abandonment of a known right,’ ” and have recognized that “ ‘the act of waiver may be evidenced by express words as well as by conduct.’ ” Toys, Inc. v. F.M. Burlington Co., 155 Vt. 44, 51, 582 A.2d 123, 127 (1990) (quoting Lynda Lee Fashions, Inc. v. Sharp Offset Printing, Inc., 134 Vt. 167, 170, 352 A.2d 676, 677 (1976)). Waiver “involves both knowledge and intent on the part of the waiving party.” Id. We have also recognized that the question of waiver is generally one for a factfinder. See, e.g., id. at 52, 582 A.2d at 127 (“[T]he basic facts are clear but the inferences to be drawn from the facts and the intentions and purposes of the plaintiff are not clear. A factfinder could find a waiver based on this record, but that conclusion is not commanded as a matter of law.”); see also Lamell, 2007 VT 83, ¶ 11 (waiver usually a question of fact to be resolved considering a list of factors). In this case, the majority essentially holds that an eight-and-one-half-month delay in invoking an arbitration agreement amounts to a waiver of that agreement, as a matter of law, without the need for evidence or factfinding concerning prejudice, without consideration of the reason for the failure to invoke the arbitration agreement, and without regard to a party’s knowledge or intent in connection with the purported waiver. I respectfully suggest that in so holding, the majority has established a new test for waiver that is disconnected from the factors normally defining waiver, has stepped into the trial court’s role as factfinder, and has done so in a context — enforcement of arbitration agreements — in which we should be particularly wary of expanding the concept of waiver beyond its tradition.1 contours.
¶ 39. The majority’s invocation of waiver here is particularly puzzling because the majority explicitly holds that in reviewing a motion to set aside a default judgment, a trial court should consider, among other things, whether a party has meritorious defenses. See ante, ¶ 14. By definition, a party who has been subjected to a default judgment has not raised his or her defenses; that is the essence of a default judgment. But if the failure to enter an appearance and raise one’s defenses, including mandatory arbitration and mediation, amounts to a waiver of those defenses, then what sense does it make to say that a court *562reviewing a motion to set aside a default judgment should consider whether the movant has meritorious defenses? The Court’s holding seems to be that a court considering a motion to set aside a default judgment should consider, among other factors, defendant’s meritorious defenses, except that if defendant has failed to enter an appearance and suffers a default judgment without raising those defenses, they are waived. The majority’s analysis in section II.B. swallows up its holding in section I.
¶ 40. Moreover, in this particular case, even if there had been evidence that defendant had knowin.1y and intention.1ly avoided the trial court’s proceedings after plaintiff served defendant, it would be difficult to infer waiver of the mediation and arbitration agreements as a matter of law. The documents served upon defendant, though not read by it due to neglect, in.1uded a motion to stay in which the plaintiff expressly acknowledged the existence of the mediation and arbitration agreements and requested a stay to allow the parties to mediate or arbitrate. The plaintiff explained that the court was authorized to take only the limited action of approving an attachment to secure a potential judgment in plaintiffs favor, but recognized that the court’s authority to act in the case was limited to the attachment. On the eve of the attachment hearing, without any acknowledgment to the court of its prior motion for a stay, without any acknowledgment to the court of the mediation and arbitration agreements, and without notice to defendant, which had no legally-protected right to notice because it had not entered an appearance, plaintiff asked the court to go ahead and enter a judgment for damages. On these facts, an appellate finding of waiver as a matter of law is especially troubling. The notice provided to defendant made it clear that the only relief plaintiff was seeking was an attachment, and that plaintiff itself recognized the limits of the court’s authority to act beyond that on account of the mediation and arbitration agreements. Even a conscious decision not to participate in the litigation so defined would be a difficult foundation upon which to rest a con.1usion that defendant waived the mediation and arbitration agreements.
¶ 41. The majority’s real concern here — and it is a legitimate one — is the potential prejudice to plaintiff that would result if the trial court set aside the default judgment in this case. Given its concerns, the majority essentially makes findings about the prejudice to plaintiff without any evidence of the extent of the *563fees and costs plaintiff incurred, of a change in plaintiffs position in reliance on the court’s default judgment, of potential collateral consequences to the plaintiff of setting aside the judgment, or of the impact of the passage of five months between the default judgment and defendant’s motion to reopen. The majority’s concerns about fin.1ity and prejudice are well-founded, but for all the reasons noted above, its undertaking a waiver an.1ysis not grounded in any trial court findings or exercise of discretion is not the best way to address its concerns. As the majority recognized in section I., in considering defendant’s motion to set aside the default judgment, the trial court should have considered not only the nature of the defendant’s neglect, but also the degree of prejudice suffered by the plaintiff, the presence of factual issues and evidence of meritorious defenses, the significance of the interests at stake, and the degree of defendant’s culpability. Ante, ¶ 14. The degree of prejudice to the plaintiff is the first factor on this list.
¶42. On remand, the trial court could well conclude, based on competent evidence, that setting aside the default judgment would cause so much prejudice to plaintiff that the court will not set aside the judgment even if defendant’s defenses based on the mediation and arbitration clauses are meritorious. As long as sufficient evidence and reasonable an.1ysis supported the trial court’s decision, I would affirm that ruling.
¶ 43. But the trial court could also con.1ude that the prejudice to plaintiff has been quite modest, or that it can be mitigated by sanctions against defendant in the form of fees; that defendant itself, rather than its counsel, has not been “culpably negligent” as we have described that concept in our cases; that the interests at stake are substantial; that having requested a stay on account of the mediation and arbitration agreements, plaintiff was estopped from abrogating its position on that point without addition.1 notice to defendant; and that defendant’s defenses are, in fact, meritorious. If those con.1usions, or some combination of them, and a decision to set aside the default judgment were based on competent evidence and thoughtful an.1ysis, I would affirm that ruling. My concern is that in an effort to save the trial court time and effort in the face of a record that the majority believes will necessarily lead to a decision to deny defendant’s motion, the majority has muddled our law concerning waiver, enforcement of arbitration agreements, and the standards for setting aside a *564default judgment. Because I do not believe that the outcome of a full an.1ysis of the relevant factors, and the evidence supporting them, is a foregone con.1usion on the basis of the record — or lack thereof — before us, and because I believe that the factors set forth by the majority in ¶ 14 of its opinion are sufficien.1y sensitive to guard against an unjust and inequitably prejudicial decision to set aside a default judgment, I would remand this case to the trial court for a decision on defendant’s motion to set aside the default judgment that takes into account defendant’s claimed defenses based on the mediation and arbitration agreement, the prejudice to plaintiff, and the various other factors identified in the majority’s opinion.

 I concur in the majority’s analysis in sections I. and II.A.

 The periods during which the parties seeking to set aside default judgments failed to invoke arbitration clauses in the eases cited by the majority were longer than the eight-and-one-half-month period in question here. See Lamell, 2007 VT 83, ¶ 4 (two years); Menorah, 72 F.3d at 220 (one year from filing of suit, longer from refusal of arbitration); see also Gen. Star Nat’l Ins. Co. v. Administratia Asigurarilor de Stat, 289 F.3d 434, 438 (6th Cir. 2002) (seventeen months).