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Full Opinion
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
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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).
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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
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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.
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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.
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