Hancock Fabrics, Inc. v. Rowdec, LLC, Cause Nos. 1:12CV131–SA–DAS
| Decision Date | 27 August 2015 |
| Docket Number | Cause Nos. 1:12CV131–SA–DAS,1:12CV222–SA–DAS. |
| Citation | 126 F.Supp.3d 784 |
| Parties | HANCOCK FABRICS, INC., Plaintiff v. ROWDEC, LLC d/b/a Westlake Associates, Defendant. Rowdec, LLC, Plaintiff v. Hancock Fabrics, Inc., Defendant. |
| Court | U.S. District Court — Northern District of Mississippi |
Gary Svirsky, Karen L. Koniuszy, O'Melveny & Myers LLP, New York, NY, Michael D. Chase, William C. Spencer, William Collins Spencer, Jr., Mitchell, McNutt & Sams, Tupelo, MS, for Plaintiff.
Amelia Jean Cardenas, George William Morrison, Scott M. Ewing, Haynes and Boone, LLP, Dallas, TX, Paul Nathan Jenkins, Jr., Webb Sanders & Williams, PLLC, Tupelo, MS, for Defendant.
Hancock Fabrics, Inc., filed a Motion to Stay Arbitration Proceeding and for Sanctions [70] against Defendant Westlake. The Court has reviewed the history of this case, the briefs, filings, case law and authorities, and finds as follows:
Factual and Procedural History1
Hancock and Westlake entered into a Consulting and Sales Agreement (CSA), which included an arbitration clause. Westlake chose to invoke that clause when a difference of opinion regarding the calculation of royalties pursuant to the CSA arose between the parties.
The arbitrator issued his award on March 22, 2012, granting Westlake's request for relief against Hancock. In addition to damages awarded, the arbitrator additionally awarded attorneys' fees and costs against Hancock. Hancock immediately filed an action in the Lee County Circuit Court contesting the authority of the arbitrator to award attorneys' fees under the CSA. That action was removed to this Court. See Hancock Fabrics, Inc. v. Rowdec, LLC, No. 1:12cv131–SA–DAS, Notice of Removal [1], 2012 WL 2169673 (N.D.Miss. June 4, 2012). Westlake filed a confirmation action in Texas, which was then transferred to the Northern District of Mississippi and consolidated with the initial Hancock case. See Rowdec, LLC v. Hancock Fabrics, Inc., No.: 1:12cv222–SA–DAS, Order [48] (N.D.Miss. Oct. 18, 2012) (consolidating cases). The transferred action sought confirmation of the arbitral award in all respects, and specifically requested that "in doing so, confirm that the Award obligates Hancock to pay the attorneys' fees award and royalties to Westlake on all Identified Products, wherever they may be sold."
In November of 2013, the Court confirmed the arbitral award, "but not to the extent requested." Indeed, the Court declined to clarify the definition of "Identified Products" as requested by Westlake on the finding that the arbitral award was unambiguous.
Two months later, Westlake filed a Motion to Enforce Judgment, a Motion for Independent Audit, a Motion for Contempt, and Motion for Hearing [45] contending that Hancock was not complying with the disclosure requirements of the CSA and arbitral award pursuant to the Court's prior order. In denying those requests, the Court noted that Westlake failed to comply with the requirements for review as agreed upon under the CSA. The Court cautioned that the proper course of action was to follow the contract agreed to by the parties.
After that ruling, Westlake notified Hancock that its Monthly Report for Period 7 was "incomplete and inaccurate" in that Hancock continued to calculate royalties on Identified Products sold in only certain Hancock stores, rather than Identified Products sold in Hancock's entire chain. Westlake further objected to Hancock's failure to make available all records related to the Monthly Report. Hancock responded within the contractually agreed upon ten day period and cited language from this Court's September 23, 2014 Order that the Court "refused to hold that the arbitral award obligated Hancock to pay royalties to Westlake on all ‘Identified Products' that Hancock sells, as opposed to all ‘Identified Products' Hancock sold within the craft departments of its stores," to justify that the reports were accurate and complete.
In response, Westlake filed an Arbitration Demand and request for Declaratory Judgment with the prior arbitration firm. Hancock has since filed in this Court a Motion to Stay Arbitration and for Sanctions [70].
Hancock contends that Westlake is now precluded from arbitrating its claims under the doctrines of waiver and res judicata. Hancock's contentions implicate issues surrounding the applicability of the arbitration agreement. The parties admittedly have a binding agreement to arbitrate "[a]ny dispute, claim or controversy between the parties arising under or related to [the CSA]."
Historically, courts have struggled to determine where the line is between judicial and arbitral decision-making. Indeed, both the doctrines of waiver and res judicata have recently been noted to "implicate the division of labor between the courts and arbitrators," in deciding these arbitration-related questions. Grigsby & Assocs., Inc. v. M Sec. Inv., 664 F.3d 1350, 1352 (11th Cir.2011). The United States Supreme Court clarified this division of labor in Howsam v. Dean Witter Reynolds, 537 U.S. 79, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). The Howsam Court noted that two "gateway disputes" are presumptively for the courts: "whether the parties are bound by a given arbitration clause" and "whether an arbitration clause in a concededly binding contract applies to a particular type of controversy." Id. at 84, 123 S.Ct. 588. The Supreme Court also listed other questions that are presumptively for the arbitrator, including "procedural questions which grow out of the dispute and bear on its final disposition," and "allegations of waiver, delay, or a like defense to arbitrability." Id., 123 S.Ct. 588. Moreover, other "issues 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." Id., 123 S.Ct. 588 (citation omitted).
Despite the Supreme Court's list of issues including "waiver" as a question presumptively for the arbitrator, the Fifth Circuit has continued to address waiver of the right to arbitrate as an issue for the court. See Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344–45 (5th Cir.2004).2 Accordingly, a determination as to whether Westlake has waived its right to arbitrate shall be made by the Court.
Miller Brewing Co. v. Fort Worth Distr. Co., Inc., 781 F.2d 494, 497 (5th Cir.1986) (quoting Cornell & Co. v. Barber & Ross Co., 360 F.2d 512, 513 (D.C.Cir.1966) ). "To invoke the judicial process, a ‘party must, at the very least, engage in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration.’ " In re Mirant Corp., 613 F.3d 584, 589 (5th Cir.2010) (quoting Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir.1999) ). " ‘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.’ " Id. (quoting PAICO Receivables, LLC, 383 F.3d at 344 ).
" ‘Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party.’ " Mirant Corp., 613 F.3d at 588–89 (quoting Walker v. J.C. Bradford & Co., 938 F.2d 575, 577 (5th Cir.1991) ) (internal quotation marks and citation omitted). "Prejudice in the context of arbitration waiver refers to delay, expense, and damage to a party's legal position." Id. at 591 (quoting Nicholas v. KBR, Inc., 565 F.3d 904, 910 (5th Cir.2009) ). The Fifth Circuit has stated that "[t]hree factors are particularly relevant to the prejudice determination: (1) whether discovery occurred relating to arbitrable claims; (2) the time and expense incurred in defending against a motion for summary judgment; and (3) a party's failure to timely assert its right to arbitrate." Petroleum Pipe Am. Corp. v. Jindal Saw, Ltd., 575 F.3d 476, 480 (5th Cir.2009) (quoting PAICO Receivables, LLC, 383 F.3d at 346 ) (internal quotation omitted).
Hancock asserts that Westlake waived its right to arbitrate by "prosecuting in this Court its request for broad royalties." Westlake commenced the confirmation proceeding, sought to change the venue of Hancock's modification application, defended themselves in that action, and later requested enforcement of the judgment in order to get an independent analysis of Hancock's royalties structure. All discovery was conducted in the prior arbitration proceeding; thus, no discovery was required in either civil action. Moreover, Hancock did not contest the confirmation of the award as much as it attempted to vacate only the attorneys' fee portion awarded by the arbitrator. As for the timely assertion of its right to arbitrate, the Court notified the parties in September of 2014 that arbitration was the more appropriate venue for their issues with the arbitral judgment. Westlake, after the contractual time period for consultation, filed for subsequent arbitration in November of that year. The Court cannot say that Westlake failed to timely assert its right to arbitrate, nor that prejudice has imbued to the detriment of Hancock, who also availed itself of a judicial forum. Accordingly, Westlake has not substantially invoked the judicial process such that Hancock has been prejudiced. Thus, Westlake has not waived its right to arbitrate.
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...analysis of the issue and held that res judicata was a procedural question for the arbitrator. See Hancock Fabrics, Inc. v. Rowdec, LLC, 126 F. Supp. 3d 784, 792 (N.D. Miss. 2015). Hancock initially noted the Fifth Circuit's failure to deal with the issue, except for a decades-old case th......