WAIVING RIGHT TO ARBITRATE?

Pierre v. Rochdale Village, Inc., No. 18-CV-6383 (MKB) (ST). Dist. Court, ED New York 2020:

".... Plaintiff argues that Defendant waived its right to compel arbitration by participating in this litigation to Plaintiff's prejudice and by delaying, stalling, and ignoring Plaintiff's alleged requests to arbitrate prior to the filing of this suit. (Pl.'s Opp'n 1-2, 5.)

Defendant contends that Plaintiff cannot establish prejudice, which is required for waiver, and that it did not have notice of Plaintiff's desire to arbitrate. (Def.'s Mem. 6; Def.'s Reply 3.)

1. Deciding the issue of waiver

"[O]rdinarily a defense of waiver brought in opposition to a motion to compel arbitration. . . is a matter to be decided by the arbitrator." Meyer, 159 F.3d at 80 (alteration in original) (quoting S & R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 66, 80 (2d Cir. 1998)); see also Howsam, 537 U.S. at 85 ("[T]he presumption is that the arbitrator should decide `allegations of waiver, delay, or a like defense to arbitrability.'" (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983))). However, "[w]hen the party seeking arbitration has participated in litigation regarding the dispute, the district court can properly decide the question of waiver." Meyer, 159 F.3d at 80-81 (citing Bell v. Cendant Corp., 293 F.3d 563, 569 (2d Cir. 2002)); Pacelli v. Augustus Intel., Inc., 459 F. Supp. 3d 597, 612-14 (S.D.N.Y. 2020) ("[C]ourts may properly adjudicate waiver-based objections to arbitration when the type of waiver alleged is that the party seeking arbitration has participated in litigation on the dispute."); Syngenta Crop Prot., LLC v. Ins. Co. of N. Am., Inc., No. 18-CV-715, 2018 WL 1587601, at *3 (S.D.N.Y. Mar. 29, 2018) ("[T]he Second Circuit has recently reaffirmed that `[w]hen the party seeking arbitration has participated in litigation regarding the dispute, the district court can properly decide the question of waiver.'" (quoting Meyer, 868 F.3d at 80-81)); see also Schreiber v. Friedman, 15-CV-6861, 2017 WL 5564114, at *9 (E.D.N.Y. Mar. 31, 2017) (same); Apple & Eve, LLC v. Yantai N. Andre Juice Co., 610 F. Supp. 2d 226, 231 (E.D.N.Y. 2009) (same).

"The Second Circuit [has] not. . . squarely addressed the question of whether litigation-conduct waiver is an issue to be decided by an arbitrator when the parties have agreed to have the arbitrator decide questions of arbitrability." LG Elecs., Inc. v. Wi-LAN USA, Inc., No. 13-CV-2237, 2014 WL 3610796, at *3 n.3 (S.D.N.Y. July 21, 2014) (declining to address the question of who should decide waiver when the issue "ha[d] not been adequately raised" and proceeding to decide waiver), aff'd, 623 F. App'x 568 (2d Cir. 2015); Pacelli, 459 F. Supp. 3d at 614 (citing LG Elecs., Inc., 2014 WL 3610796, at *3 n.3) (noting same). However, one court in this Circuit recently concluded that this question is nondelegable. Pacelli, 459 F. Supp. 3d at 614 ("[P]arties cannot delegate to arbitrators the question of whether, under the judge-made principle of litigation-conduct waiver, a party is barred from asserting its right to arbitration."); see also Id. at 614-15 (noting that "[t]he doctrine is based on prejudice from litigation and the interest of the courts in preventing their processes from being used improperly" and that courts are in the best position to evaluate this prejudice and vindicate this interest); cf. Republic of Ecuador, 638 F.3d at 394 (referring waiver issue to arbitral panel when parties clearly and unmistakably intended panel to decide questions about the validity of the agreement and waiver was based on conduct that "undermin[ed] the agreement" rather than on conduct, like litigation conduct, that waives the right to "tak[e] advantage of an admittedly binding arbitration clause"). But see CMS Inv. Holdings, LLC v. Castle, No. 14-CV-9381, 2016 WL 4557115, at *6 (S.D.N.Y. Aug. 31, 2016) (finding litigation-conduct waiver distinguishable from waiver claimed in Republic of Ecuador but "discern[ing] no relevant difference" and referring question of waiver to arbitrator).

The Court concludes that it may decide the issue of litigation-conduct waiver in this case. However, whether Defendant waived its right to arbitrate based on delay during the grievance procedure or lacked notice of Plaintiff's desire to arbitrate are procedural questions that are presumptively for the arbitrator to decide.^[7] See Howsam, 537 U.S. at 85 ("[I]ssues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide." (emphasis omitted) (quoting Revised Unif. Arb. Act of 2000 § 6(c) cmt. 2, 7 U.L.A. 13)); Republic of Ecuador, 638 F.3d at 394 ("[W]e have noted that `defenses to arbitrability such as waiver, estoppel, or delay' are `questions properly decided by arbitrators.'" (quoting Mulvaney Mech., Inc. v. Sheet Metal Workers Int'l Ass'n, Local 38, 351 F.3d 43, 46 (2d Cir. 2003) (per curiam))); Syngenta Crop Prot., LLC, 2018 WL 1587601, at *3 (distinguishing litigation-conduct waiver from waiver by delay and concluding that "[b]ecause [the plaintiff's waiver argument] is a `waiver, delay, or like defense to arbitrability,' involving out-of-court conduct, that gateway procedural dispute is presumptively one for the arbitrator" (citation omitted) (quoting Howsam, 537 U.S. at 84-85)).

2. Waiver by litigation conduct

Federal policy strongly favors arbitration, and waiver of the right to arbitrate "is not to be lightly inferred." Nicosia v. Amazon.com, Inc., 815 F. App'x 612, 614 (2d Cir. 2020) (quoting Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 104-05 (2d Cir. 2002) (per curiam)). Indeed, "the rule preferring arbitration, when agreed upon, ha[s] led to its corollary that any doubts concerning whether there has been a waiver are resolved in favor of arbitration." Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading, Inc., 252 F.3d 218, 228 (2d Cir. 2001) (alteration in original) (quoting Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995)). Nevertheless, a party waives its right to arbitration "when it engages in protracted litigation that prejudices the opposing party." Tech. in P'ship, Inc. v. Rudin, 538 F. App'x 38, 39 (2d Cir. 2013) (quoting Crysen/Montenay Energy Co. v. Shell Oil Co. (In re Crysen/Montenay Energy Co.), 226 F.3d 160, 162 (2d Cir. 2000)).

"To determine whether a party has waived its right to arbitration, [courts] consider `(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice.'" LifeTree Trading Pte., Ltd. v. Washakie Renewable Energy, LLC, 764 F. App'x 105, 107 (2d Cir. 2019) (quoting La. Stadium & Expo. Dist. v. Merrill Lynch, Pierce, Fenner & Smith Inc., 626 F.3d 156, 159 (2d Cir. 2010)). "There is no rigid formula or bright-line rule for identifying when a party has waived its right to arbitration; rather, the above factors must be applied to the specific context of each particular case." La. Stadium & Expo. Dist., 626 F.3d at 159. However, "[t]he key to a waiver analysis is prejudice. Waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated." Sutherland v. Ernst & Young, LLP, 600 F. App'x 6, 8 (2d Cir. 2015) (quoting Thyssen, Inc., 310 F.3d at 105); see also Leadertex, Inc., 67 F.3d at 25 ("Although litigation of substantial material issues may amount to waiver, delay in seeking arbitration does not create a waiver unless it prejudices the opposing party." (citation omitted)).

A. Yearlong Delay

Although Plaintiff argues that Defendant waited approximately a year from the time Plaintiff filed the Complaint to raise the arbitration issue, (Pl.'s Opp'n 3), it is well established that delay alone cannot support a finding of waiver. See, e.g., Thyssen, Inc., 310 F.3d at 105 (collecting cases and noting that "[t]his Circuit has refused to find waiver. . . where delay in trial proceedings was not accompanied by substantial motion practice or discovery"); Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985) ("It is beyond question that defendants' delay in seeking arbitration during approximately eight months of pretrial proceedings is insufficient by itself to constitute a waiver of the right to arbitrate. . . ." (citing Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir. 1968))); Chehebar v. Oak Fin. Grp., Inc., No. 14-CV-2982, 2017 WL 946292, at *2 (E.D.N.Y. Mar. 7, 2017) (collecting cases finding no waiver despite delays from four months to three years).

Rather, the extent of delay must be considered "in conjunction with (1) the amount of litigation that occurred" during the delay and "(2) any proof that [the party opposing arbitration] was prejudiced by [the other party's] conduct during that period." PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 108 (2d Cir. 1997) (citing Leadertex, Inc., 67 F.3d at 25); In re Arb. Between S & R Co. of Kingston & Latona Trucking, Inc., 984 F. Supp. 95, 103 (N.D.N.Y. 1997) ("Although delay alone is generally insufficient to deny a petition to arbitrate, it is. . . relevant in determining whether a party has been prejudiced." (citations omitted)), aff'd sub nom. S & R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 80 (2d Cir. 1998).

B. Amount of litigation to date

In assessing the amount of litigation for purposes of a waiver analysis, courts find relevant, inter alia, any motion practice engaged in by the parties and the extent of discovery the parties have exchanged. See, e.g., Tech. in P'ship, Inc., 538 F. App'x at 39 (affirming district court's finding of waiver where the party asserting waiver "had to defend two substantive motions to dismiss, then produce its witness for deposition, comply with an extensive document request, and participate in extended discovery disputes"); S & R Co. of Kingston, 159 F.3d at 83 (observing that the waiver analysis includes consideration of "the amount of litigation (including exchanges of pleadings, any substantive motions, and discovery)").

The lack of substantive motion practice in this case weighs against a finding of waiver. See Tech. in P'ship, Inc., 538 F. App'x at 39. Although Plaintiff has been forced to brief the arbitration issue, neither party has briefed the sufficiency of Plaintiff's allegations or the merits of his underlying Title VII claim or filed any other substantive motions. Cf. Rush, 779 F.2d at 888 (explaining that defendants' "motion [to dismiss] alone, however, does not waive the right to arbitrate"); Murray v. UBS Sec., LLC, No. 12-CV-5914, 2014 WL 285093, at *6 (S.D.N.Y. Jan. 27, 2014) (collecting cases finding that a defendant's filing of a motion to dismiss does not itself result in a waiver of the right to arbitration).

Similarly, the extent of discovery and other litigation activity in this case prior to Defendant's pre-motion conference letter raising the issue of arbitration weighs against a finding of waiver. Since Plaintiff filed the Complaint, Defendant has filed an answer,^[8] and the parties have participated in court-annexed mediation that was ultimately unsuccessful, (Minute Entry dated Aug. 15, 2019), and engaged in settlement negotiations, which also failed, (Minute Entry dated Dec. 9, 2019).^[9] No depositions were taken before Defendant raised the issue of arbitration; rather, discovery had been provided "only in anticipation of [the] mediation and a settlement conference," (Def.'s Mem. 6), and it had involved only minimal exchange of documents and responses to interrogatories, (Def.'s Reply 2). Indeed, Plaintiff notes that Defendant had been "reluctan[t] to participate fully in discovery," leading to "limited production." (Pl.'s Opp'n 2.) This limited activity does not support a finding of waiver.

C. Prejudice

Notwithstanding the above, "[t]he key to a waiver analysis is prejudice"; without prejudice, there can be no waiver of the right to arbitrate a dispute. Sutherland, 600 F. App'x at 8 (quoting Thyssen, Inc., 310 F.3d at 105); see Enron Power Mktg. Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cnty. (In re Enron Corp.), 364 B.R. 489, 511 (Bankr. S.D.N.Y. 2007) ("[I]t is the presence or absence of prejudice that is determinative of the issue of waiver."). Moreover, "[p]rejudice is not presumed based on the timing of [an] arbitration demand and. . . participation in litigation — i.e., the first two prongs of the three-part waiver inquiry — standing alone." Nat'l Union Fire Ins. Co. of Pittsburgh v. NCR Corp., 376 F. App'x 70, 72 (2d Cir. 2010) (citing In re Crysen/Montenay Energy Co., 226 F.3d at 162-63).

The Second Circuit has recognized "two types of prejudice: substantive prejudice and prejudice due to excessive cost and time delay." Sutherland, 600 F. App'x at 8 (citing Thyssen, Inc., 310 F.3d at 105). Substantive prejudice exists when, for example, "a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration." Id. (quoting Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991)). Prejudice due to excessive cost and time delay may be found "when a party too long postpones his invocation of his contractual right to arbitration[] and thereby causes his adversary to incur unnecessary delay or expense." Id. (quoting Kramer, 943 F.2d at 179); Nat'l Union Fire Ins. Co. of Pittsburgh, 376 F. App'x at 72 ("Prejudice. . . `refers to the inherent unfairness — in terms of delay, expense, or damage to a party's legal position — that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate that same issue.'" (quoting In re Crysen/Montenay Energy Co., 226 F.3d at 162-63)); S & R Co. of Kingston, 159 F.3d at 83-84 ("Prejudice results `when a party seeking to compel arbitration engages in discovery procedures not available in arbitration, makes motions going to the merits of an adversary's claims, or delays invoking arbitration rights while the adversary incurs unnecessary delay or expense.'" (quoting Cotton v. Slone, 4 F.3d 176, 179 (2d Cir. 1993)) (citing PPG Indus., Inc., 128 F.3d at 109)). A court will not find waiver where "delay in trial proceedings was not accompanied by substantial motion practice or discovery." Sutherland, 600 F. App'x at 8 (quoting Thyssen, Inc., 301 F.3d at 105).

Relying on In re Crysen/Montenay Energy Co., 226 F.3d at 162-63, Plaintiff argues he will be prejudiced if compelled to arbitrate because he has "expended substantial time, energy, and resources into this litigation." (Pl.'s Opp'n 3.) Plaintiff also notes that, if the Court compels arbitration, he will "be forced to start over on his own." (Id.)

Although the Court is sympathetic to Plaintiff's position, the unfairness he alleges does not rise to the level of prejudice under the law. Apart from time spent learning the Federal Rules of Civil Procedure and the Court's rules as a pro se litigant, Plaintiff has not identified any specific costs incurred, let alone excessive costs. (Id.); Chehebar, 2017 WL 946292, at *2 (noting that costs incidental to the motion practice alone are insufficient). Further, there have been no substantive motions, no court decisions adverse to Defendant, and no discovery that would not otherwise be available in arbitration. (Def.'s Reply 2); Sutherland, 600 F. App'x at 8; S & R Co. of Kingston, 159 F.3d at 83-84. In addition, although Defendant did not move to compel arbitration until nearly one year after filing its answer, the docket reflects that Defendant moved soon after the court-ordered mediation on July 25, 2019, failed. (Def.'s Mot.)

Accordingly, viewing the facts in the light most favorable to Plaintiff, yet mindful that "[w]aiver is not to be lightly inferred," Nicosia, 815 F. App'x at 614 (quoting Thyssen, Inc., 310 F.3d at 104-05), the Court concludes that Defendant has not waived its right to arbitrate by way of its litigation conduct and therefore grants Defendant's motion to stay the action and compel arbitration. In addition to determining whether Plaintiff's claims are arbitrable, the arbitrator will decide any threshold procedural questions, including whether Defendant waived the right to arbitrate by delaying and ignoring Plaintiff's requests to do so prior to the filing of this suit."

As a footnote of my own to this case, I represented the Plaintiff in the mediation under the MAP program and there was substantial time and energy expended in that process.