Court Opinion

ID: 2968012
Source: CourtListenerOpinion
Date Created: 2015-09-22 03:58:26.916239+00
Date Added: 2024-06-11T09:18:26.264691
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

PATTEN GRADING & PAVING,               
INCORPORATED,
                Plaintiff-Appellee,
                 v.
SKANSKA USA BUILDING,
INCORPORATED, formerly known as                 No. 03-2247
Beers Skanska, Incorporated,
formerly known as Beers York
Construction Company,
Incorporated; AMERICAN HOME
ASSURANCE COMPANY,
              Defendants-Appellants.
                                       
           Appeal from the United States District Court
          for the District of South Carolina, at Anderson.
               Henry M. Herlong, Jr., District Judge.
                          (CA-03-189-8-20)

                        Argued: June 3, 2004

                      Decided: August 18, 2004

       Before WIDENER and DUNCAN, Circuit Judges,
    and Louise W. FLANAGAN, United States District Judge
           for the Eastern District of North Carolina,
                     sitting by designation.

Reversed and remanded by published opinion. Judge Duncan wrote
the majority opinion, in which Judge Flanagan joined. Judge Widener
wrote a dissenting opinion.
2       PATTEN GRADING & PAVING v. SKANSKA USA BUILDING
                             COUNSEL

ARGUED: Jonathan D. Crumly, Sr., ALSTON & BIRD, Atlanta,
Georgia, for Appellants. Theodore Sanders Stern, Jr., COVINGTON,
PATRICK, HAGINS, STERN & LEWIS, P.A., Greenville, South
Carolina, for Appellee. ON BRIEF: J. Andrew Howard, ALSTON &
BIRD, Atlanta, Georgia, for Appellants.

                             OPINION

DUNCAN, Circuit Judge:

   Skanska USA Building, Inc. and American Home Assurance Co.,
Inc. (collectively "Skanska") appeal the district court’s order denying
Skanska’s motion to compel arbitration in a civil action filed by Pat-
ten Grading & Paving, Inc. ("Patten"). In its complaint, Patten alleged
that Skanska breached their subcontract agreement by failing to pay
Patten for grading work on a construction project Skanska managed.
Skanska sought to compel arbitration based on a clause in the agree-
ment that required Patten to submit any claims arising thereunder to
arbitration. The district court denied Skanska’s motion, finding that
Skanska’s participation in the action up to that point constituted a
waiver of the arbitration provision. Because we conclude the record
here does not support such a finding, we reverse and remand.

                                  I.

   The underlying facts are not in dispute. Skanska is the successor-
in-interest to the original contractor for a renovation project at the
Blue Ridge Middle School in Greer, South Carolina, that began in
June 2000. The original contractor retained Patten to perform the
grading and site utility work specified in the renovation plans.
Although Patten’s work was to be completed by August 1, 2001, Pat-
ten asserted that project delays attributable to the general contractor
both prevented it from meeting this deadline and resulted in additional
expenses for Patten. When the renovation was completed in early
2002, Skanska refused to pay Patten additional amounts Patten
claimed were due. Patten mailed a demand letter to Skanska in Octo-
          PATTEN GRADING & PAVING v. SKANSKA USA BUILDING                    3
ber 2002 and filed the underlying complaint in South Carolina state
court on December 18, 2002.

   Invoking 28 U.S.C. § 1441, Skanska removed Patten’s action to
federal court the following month and filed its answer. The parties
thereafter exchanged written discovery, including interrogatories and
requests for production of documents. In July 2003, Patten acknowl-
edged during discovery that a rider to the subcontract agreement it
entered into with Beers York Construction Co., Skanska’s
predecessor-in-interest, required that any claims arising under the
subcontract be submitted to arbitration. The parties also participated
in court-ordered mediation, which ended unsuccessfully in August
2003. Although the district court had directed that discovery end on
August 17, 2003, Patten sought and received permission to file an
amended complaint adding an additional claim, prompting the district
court to reopen discovery and extend the discovery period to mid-
September.

   By motion on August 19, 2003, Skanska requested a stay of pro-
ceedings and an order compelling Patten to submit its claims to arbi-
tration. In support, Skanska noted Patten’s acknowledgment of the
rider requiring Patten to submit any claims arising under the contract
to arbitration.1 The district court denied Skanska’s motion, finding
  1
   The General Conditions to Subcontract Agreement rider to Patten’s
subcontract agreement with Skanska stated that
      any controversy or claim . . . between [Skanska] and [Patten]
      with respect to any matter or thing related to the Contract . . .
      shall be decided as follows:
          (i) [Patten] shall be bound conclusively by and abide by
          [Skanska’s] decision, unless [Patten] shall commence arbi-
          tration proceedings as hereinafter provided.
          (ii) If [Patten] decides to appeal from the decision of [Skan-
          ska], then this controversy shall be decided by arbitration
          . . . ; provided, however, that arbitration proceedings shall be
          commenced by [Patten] not later than 30 days following
          receipt of notice of [Skanska’s] decision, otherwise . . . [Pat-
          ten] shall be deemed to have waived its rights to have the
          controversy or claims decided by arbitration (as provided
4        PATTEN GRADING & PAVING v. SKANSKA USA BUILDING
that Skanska’s participation in litigation amounted to a waiver of its
contractual right to have Patten’s claims submitted to arbitration. Spe-
cifically, the court noted that the action had been proceeding for over
eight months and that the parties had "engaged in discovery, partici-
pated in mediation, and had a motion decided before the court." J.A.
239. The district court further noted that "because Patten ha[d] . . .
expended [$5862.52] to prosecute its case, compelling arbitration
would result in actual prejudice to Patten," a conclusion it found to
be reinforced by the fact that Patten would have to pay "a substantial
initial fee to engage the American Arbitration Association" if Skan-
ska’s motion were granted. Id. Skanska appeals the district court’s
order, which we have jurisdiction to consider pursuant to 9 U.S.C.
§ 16(a). See Stedor Enters., Ltd. v. Armtex, Inc., 947 F.2d 727, 730
(4th Cir. 1991).

                                    II.

  Although the underlying factual findings of the district court are
entitled to deference, the decision to deny Skanska’s motion for stay
and to compel arbitration is reviewed de novo. MicroStrategy, Inc. v.
Lauricia, 268 F.3d 244, 250 (4th Cir. 2001).

   The rights and responsibilities of the parties with respect to the
arbitration agreement are governed by the Federal Arbitration Act,
codified at 9 U.S.C. §§ 1-16 ("FAA").2 Moses H. Cone Mem’l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). The primary sub-
stantive provision of the FAA, § 2, declares that a written agreement
to arbitrate "shall be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of any

        herein), to have waived any right that it may have to institute
        an action or proceeding in any state or federal court or tribu-
        nal, and to have waived its right to recovery for any claim
        associated with the particular controversy.
J.A. 197.
  2
    The district court specifically found, and the parties acknowledge in
their arguments on appeal, that the FAA applies to the contract in this
case, and that the contract contains a valid and binding arbitration agree-
ment.
        PATTEN GRADING & PAVING v. SKANSKA USA BUILDING                 5
contract." 9 U.S.C. § 2. As a result of this federal policy favoring
arbitration, "any doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration, whether the problem at
hand is the construction of the contract language itself or an allega-
tion of waiver, delay, or a like defense to arbitrability." Moses H.
Cone Mem’l Hosp., 460 U.S. at 24-25 (emphasis added).

   To further facilitate arbitration, the FAA authorizes a party to an
arbitration agreement to demand a stay of proceedings in order to pur-
sue arbitration, "provid[ed] the applicant for the stay is not in default"
of that right. 9 U.S.C. § 3. Such default or waiver arises when the
party seeking arbitration "so substantially utiliz[ed] the litigation
machinery that to subsequently permit arbitration would prejudice the
party opposing the stay." Maxum Founds., Inc. v. Salus Corp., 779
F.2d 974, 981 (4th Cir. 1985). However, in concert with other cir-
cuits, we have consistently held that because of the strong federal pol-
icy favoring arbitration "we will not lightly infer the circumstances
constituting waiver." Am. Recovery Corp. v. Computerized Thermal
Imaging, Inc., 96 F.3d 88, 95 (4th Cir. 1996). The party opposing
arbitration on the basis of waiver thus bears a "heavy burden." Micro-
Strategy, 268 F.3d at 251 (internal quotations omitted); Am. Recovery
Corp., 96 F.3d at 95. With the framework of the FAA and applicable
case law in mind, we turn to an analysis of the facts presented here.

   Patten argues on appeal that the district court properly found that
Skanska waived its right to invoke arbitration, as Skanska’s substan-
tial utilization of the litigation machinery would prejudice Patten. In
support of this general position, Patten points to (1) Skanska’s failure
to raise the arbitration clause as an affirmative defense in its answer
and the resulting delay in seeking arbitration, (2) the extent of Skan-
ska’s participation in pre-trial activity during that delay, (3) the immi-
nence of trial at the time Skanska filed its motion to compel
arbitration, (4) Skanska’s participation in court-ordered mediation,
and (5) the fact that Patten had incurred $5948.06 in litigation-related
expenses and would allegedly face approximately $8500.00 in arbitra-
tion fees if compelled to arbitrate. We address each contention in turn.
6        PATTEN GRADING & PAVING v. SKANSKA USA BUILDING
                                    A.

   Patten first argues that the delay of almost eight months between
the filing of Patten’s complaint and Skanska’s motion to compel arbi-
tration — including Skanska’s failure to assert the right to compel
arbitration as an affirmative defense in its answer — constitutes a
default under § 3 of the FAA.3 We disagree.

   Preliminarily, we question Patten’s assertion that eight months is
the appropriate time frame to consider in making a determination of
waiver here. Throughout these proceedings, Skanska has explained its
delay by noting that it was the successor-in-interest to the original
contractor for the Blue Ridge Middle School project, and that due to
the manner in which it succeeded the original general contractor, it
only learned of the precise terms of Patten’s subcontract agreement
(including the arbitration provision) as discovery unfolded. Signifi-
cantly, Patten does not contest Skanska’s proffered explanation.
Indeed, rather than attempting to demonstrate that Skanska was actu-
ally or constructively aware of the rider ab initio,4 Patten argues only
    3
     Although Patten does not formally make the following distinction,
under Federal Rule of Civil Procedure 8(c), Skanska’s failure to invoke
the arbitration clause in its answer to Patten’s complaint arguably consti-
tutes a waiver of that right, and thus an issue that is seemingly distinct
from whether Skanska’s participation in the litigation during the result-
ing delay in asserting that right amounts to a default under the FAA.
However, it is well established that an affirmative defense is not waived
absent unfair surprise or prejudice. See, e.g., S. Wallace Edwards &
Sons, Inc. v. Cincinnati Ins. Co., 353 F.3d 367, 373-74 (4th Cir. 2003).
Because both rules require a showing of prejudice, we do not consider
these to be distinct issues. Cf. MicroStrategy, 268 F.3d at 249 (noting
"this principle of ‘default’ [in the FAA] is akin to waiver" (internal quo-
tations omitted)).
   4
     Toward that end, Patten cites Breckenridge v. Farber, 640 So. 2d 208
(Fla. Dist. Ct. App. 1994), and Marthame Sanders & Co. v. 400 West
Madison Corp., 401 So. 2d 1145 (Fla. Dist. Ct. App. 1981), for the prop-
osition that a party to a contract is charged with an awareness of its
terms. However, neither case relies on South Carolina contract law, and
neither applies that rule to a successor-in-interest. 640 So. 2d at 211; 401
So. 2d at 1145-46. Accordingly, we decline to charge Skanska with con-
structive knowledge of Patten’s subcontract agreement.
        PATTEN GRADING & PAVING v. SKANSKA USA BUILDING                7
that Skanska was certainly aware of the rider and arbitration clause
as of May 29, 2003, when it requested Patten’s admission that the
rider applied to the subcontract agreement.

   Given these facts, we find it inappropriate to charge Skanska with
the full eight months that Patten’s action was pending before the dis-
trict court. In light of Patten’s failure to contest Skanska’s proffered
explanation, we find that the delay properly attributable to Skanska
should be measured, at the earliest, from May 29, 2003, cf. Venters
v. City of Delphi, 123 F.3d 956, 967 (7th Cir. 1997) (recognizing that
pertinence of affirmative defense may arise only after discovery, and
that the defendant’s proper recourse is a timely assertion of that
defense). As Skanska moved to compel arbitration on August 19,
2003, the delay properly attributable to it is no more than four
months.

   We have previously concluded that delays of such length, without
more, are insufficient to demonstrate a party’s waiver of its right to
arbitration, Maxum Founds., 779 F.2d at 982 (finding no prejudice in
a delay of three months); In re Mercury Constr. Corp., 656 F.2d 933,
939 (4th Cir. 1981) (same); Carolina Throwing Co. v. S & E Novelty
Corp., 442 F.2d 329, 330 (4th Cir. 1971) (same), and Patten offers no
reason to distinguish these holdings. Skanska acted relatively
promptly after confirming the applicability of the arbitration provi-
sions.5 Nothing in this record suggests that Skanska’s delay, in and of
itself, is sufficient to meet Patten’s "heavy burden" of demonstrating
prejudice, and Patten, apart from conclusory allegations, fails to iden-
tify any consideration supporting such a conclusion. Accordingly, we
find no prejudice in the length of the delay itself.

  5
   Even if we were to credit Patten’s argument that the delay was of
eight months duration, we are not persuaded a delay of such length
would suffice to establish prejudice. See Rush v. Oppenheimer & Co.,
779 F.2d 885, 887 (2d Cir. 1985) (noting a defendant’s delay "in seeking
arbitration during approximately eight months of pretrial proceedings is
insufficient" to demonstrate prejudice absent additional considerations).
8       PATTEN GRADING & PAVING v. SKANSKA USA BUILDING
                                   B.

   Patten’s second allegation of prejudice concerns the extent of the
parties’ pre-trial activities. Patten correctly notes that along with
delay, the extent of the moving party’s trial-oriented activity is a
material factor in assessing a plea of prejudice. Fraser v. Merrill
Lynch Pierce, Fenner & Smith, Inc., 817 F.2d 250, 252 (4th Cir.
1987). However, as is the case with delay, the movant’s participation
in litigation activity alone will not suffice, as the dispositive question
"‘is whether the party objecting to arbitration has suffered actual prej-
udice.’" MicroStrategy, 268 F.3d at 249 (quoting Fraser, 817 F.2d at
252).

   Patten notes that Skanska filed an answer containing affirmative
defenses, engaged in discovery, and responded to motions. However,
we have previously held that a party’s filing of minimal responsive
pleadings, such as an answer or compulsory counter-claim, are not
necessarily inconsistent with an intent to pursue arbitration. Cf. Caro-
lina Throwing, 442 F.2d at 330 (affirming stay pending arbitration
where movant had filed both an answer and counter-claim). Signifi-
cantly, Patten offers no additional facts or assertions to demonstrate
why the required pleadings filed by Skanska are distinguishable, and
makes no showing of prejudice arising from this aspect of Skanska’s
pre-trial activity.

   Likewise, we find no prejudice arising from the subsequent pre-
trial activity. While the district court resolved three motions prior to
Skanska’s attempt to compel arbitration, none were filed by Skanska
and none addressed the merits of any of Patten’s claims. See, e.g., Am.
Recovery Corp., 96 F.3d at 95 (noting "delay and the extent of the
moving party’s trial-oriented activity are material factors in assessing
a plea of prejudice" (emphasis added) (internal quotations omitted));
Fraser, 817 F.2d at 252 (finding prejudice arising from the fact that
non-movant "had to respond to a number of potentially damaging
motions, including a motion for partial summary judgment and three
motions to dismiss"). We are unwilling to include activity that the
moving party did not initiate in assessing that party’s default.

  Patten’s effort to demonstrate prejudice arising from the discovery
conducted in this case is equally unavailing. We have previously held
         PATTEN GRADING & PAVING v. SKANSKA USA BUILDING                  9
that the party seeking arbitration will not "lose its contractual right by
prudently pursuing discovery in the face of a court-ordered deadline."
Am. Recovery Corp., 96 F.3d at 96 (internal quotations omitted). At
the time of Skanska’s motion to compel arbitration, the parties’ dis-
covery efforts were confined to the exchange of interrogatories and
requests for production of documents; significantly, the parties had
not noticed depositions. See MicroStrategy, 268 F.3d at 254 (finding
that limited deposition of a non-movant, "without a showing of actual
prejudice," insufficient to demonstrate waiver). The minimal nature of
the discovery conducted in this case falls well within the scope of dis-
covery we have previously found insufficient to establish prejudice.
Further, Patten fails to demonstrate that Skanska availed itself of dis-
covery procedures unavailable in arbitration, or gained a strategic
advantage through its discovery requests. See Maxum Founds., 779
F.2d at 983 (affirming stay where movant "received no benefit from
discovery initiated by it before it sought dismissal in favor of arbitra-
tion"); See Leadertex, Inc. v. Morganton Dyeing & Finishing Corp.,
67 F.3d 20, 26 (2d Cir. 1995) (finding no prejudice to non-movant
where it had "divulged no significant information in discovery").
Because the written discovery conducted here was limited, the parties
had not proceeded with time-consuming and expensive depositions,
and Patten demonstrates no resulting disadvantage, we find Patten has
not carried its "heavy burden" of establishing that it was prejudiced
by the pre-trial activity conducted prior to Skanska’s motion to com-
pel arbitration.

                                    C.

   Patten’s third assertion of prejudice relies on the imminence of the
scheduled trial date at the time Skanska filed its motion to compel
arbitration. Citing Leadertex, Patten asserts that Skanska’s motion to
compel arbitration "less than three months prior to the scheduled trial
date," Appellee’s Br. at 6, supports a finding of waiver. However, the
imminence of trial is not itself a sufficient basis from which to dem-
onstrate prejudice. Instead, the proximity of trial serves only as a con-
venient proxy by which to measure the extent of the parties’
respective pre-trial efforts, and thus whether the movant has "so sub-
stantially utiliz[ed] the litigation machinery that to . . . permit arbitra-
tion would prejudice the party opposing the stay." Maxum Founds.,
779 F.2d at 981. Indeed, Leadertex implicitly recognizes this distinc-
10      PATTEN GRADING & PAVING v. SKANSKA USA BUILDING
tion, citing Com-Tech Assocs. v. Computer Assocs. Int’l., Inc., 938
F.2d 1574, 1576-77 (2d Cir. 1991)), for the proposition that the prox-
imity of trial may, when coupled with defendants’ full participation
in discovery, support a finding of waiver. Leadertex, 67 F.3d at 25.

   As explored above, the pretrial activity here was minimal, particu-
larly when compared to other fact patterns on the basis of which we
have found no waiver. In the absence of a significant resort to the
machinery of litigation, the mere proximity of the scheduled trial date
will not itself suffice to demonstrate prejudice.

                                   D.

   Patten’s fourth allegation of prejudice addresses Skanska’s partici-
pation in pre-trial mediation ordered by the district court. As indicated
above, we have previously declined to create a rule that would require
a party seeking arbitration to "avoid a finding of default by ignoring
court-ordered discovery deadlines and assuming the risk that its
motion under the Federation Arbitration Act will be unsuccessful."
Maxum Founds., 779 F.2d at 982. We find this reasoning to be
equally applicable in the context of court-ordered mediation. Patten
has neither offered a basis to support a contrary rule nor satisfied its
heavy burden of substantiating how it was prejudiced by Skanska’s
participation in court-ordered mediation on these facts.

                                   E.

   Finally, the crux of Patten’s claim of prejudice is that it incurred
$5862.52 in pre-litigation costs, and that it would have to pay an arbi-
tration fee if compelled to arbitrate. These assertions involve different
considerations, which we address separately.

   With regard to pre-trial litigation expenses, we note that at least
one circuit has concluded that incurring the legal expenses inherent
in litigation is, without more, "insufficient evidence of prejudice to
justify a finding of waiver," PPG Indus., Inc. v. Webster Auto Parts,
Inc., 128 F.3d 103, 107 (2d Cir. 1997). However, we need not reach
such a conclusion here, where the fee amount is, as explored below,
minimal.
        PATTEN GRADING & PAVING v. SKANSKA USA BUILDING               11
   Although Patten asserts that the $5862.52 it has spent in legal fees
is prejudicial, closer scrutiny of that total indicates that the amount
properly attributable to Skanska’s conduct during the delay in seeking
arbitration is, in fact, much smaller. In the $5862.56 total, Patten
included its state court filing fees, document reproduction and Federal
Express costs, $810 for a mediator, and over $2000 attributable to its
response to a subpoena from the local school district. Such costs are
sums that Patten would have incurred irrespective of the timing or the
fact of Skanska’s motion to compel arbitration, and Patten offers no
argument to the contrary. It has therefore failed to advance any facts
that would meet its "heavy burden" of showing prejudice.

   We further conclude that the contractual obligation of a non-
moving party to pay an arbitration fee may not serve as the basis of
a finding of waiver. This is a cost that Patten agreed to incur as a con-
tractual matter if it wanted to contest an issue arising under the sub-
contract agreement, and therefore not a valid consideration in
assessing its claim of prejudice. See Fisher v. A.G. Becker Paribas
Inc., 791 F.2d 691, 698 (9th Cir. 1986) ("This wound was self-
inflicted. The Fishers were parties to an agreement making arbitration
of disputes mandatory. . . . Any extra expense incurred as a result of
the Fishers’ deliberate choice of an improper forum, in contravention
of their contract, cannot be charged to Becker.").

   Moreover, Patten again fails to sustain its burden of proof even as
to this expense. The record is devoid of any evidence from which we
can ascertain the extent of the fees Patten would incur by proceeding
to arbitration, if any. Patten’s attempt to demonstrate actual prejudice
based on the costs it has incurred thus far (or may in the future) is
therefore inadequate.

                                  III.

   Having found each of the individual factors advanced by Patten in
an effort to demonstrate prejudice to be insufficient, we are further
unpersuaded that they suffice when considered collectively. Our deci-
sion in MicroStrategy is instructive on the extent to which delay and
the movant’s pre-trial activity may, when considered collectively, suf-
fice to demonstrate prejudice. Prior to filing its motion to compel
arbitration, the movant in MicroStrategy had engaged in what the dis-
12         PATTEN GRADING & PAVING v. SKANSKA USA BUILDING
trict court described as a "‘remarkably aggressive’ course of litiga-
tion." 268 F.2d at 248. MicroStrategy’s activities included filing three
separate actions against its former employee and her attorney, depos-
ing the employee, successfully seeking the seizure of documents from
the employee that it alleged contained trade secrets, and conducting
written discovery (including requests for documents from third par-
ties), all during a four month period. While agreeing with the district
court’s characterization of MicroStrategy’s conduct and even accept-
ing the "strong argument" that it was undertaken "for the sole purpose
of wearing [the employee] out," we nevertheless declined to hold that
MicroStrategy had waived its contractual right to demand arbitration
as a result. Id. at 254. Given the comparatively restrained pre-trial
activity engaged in by Skanska, the strong policy favoring arbitration,
and the heavy burden borne by the non-movant, we cannot conclude
that Patten has made the requisite showing of prejudice.

                                    IV.

  For the foregoing reasons we find that the district court erred in
denying Skanska’s motion to compel arbitration, and the order
appealed from is

                                          REVERSED AND REMANDED.

WIDENER, Circuit Judge, Dissenting:

     I respectfully dissent.

   I would affirm the judgment of the district court on its opinion, the
reasons for which are summarized in the last full paragraph of its
opinion, as follows:

       In this case, the court finds that Patten has sufficiently dem-
       onstrated that Skanska has waived its right to compel arbi-
       tration. This case was filed over eight months ago, and the
       parties have substantially utilized the court in this case. As
       stated above, the parties have engaged in discovery, partici-
       pated in mediation, and had a motion decided before the
       court. Regardless whether these factors alone would be suf-
   PATTEN GRADING & PAVING v. SKANSKA USA BUILDING                13
ficient for the court to find Skanksa [sic] waived its right to
compel arbitration, the court finds that because Patten has
thus far expended Five Thousand Eight Hundred Sixty-Two
Dollars and Fifty-Two Cents ($5,862.52) to prosecute its
case, compelling arbitration would result in actual prejudice
to Patten. This prejudice is highlighted by the fact that Pat-
ten represents to the court it would be required to pay a sub-
stantial initial fee to engage the American Arbitration
Association. Although the court is aware of the federal pol-
icy favoring arbitration, in this case the court finds that
denial of Skanska’s motion to compel arbitration is appro-
priate based on the facts discussed above. (footnote omitted)