S & R Co. of Kingston v. Latona Trucking, Inc.

• Decision Date: 21 October 1998
• Docket Number: Docket No. 97-9236
• Citation: 159 F.3d 80
• Parties: In the Matter of the Application to Compel Arbitration Between S & R COMPANY OF KINGSTON, a New York General Partnership, and Hartford Fire Insurance Company, Petitioners-Appellants, v. LATONA TRUCKING, INC., Respondent-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

Page 80

159 F.3d 80

In the Matter of the Application to Compel Arbitration Between S & R COMPANY OF KINGSTON, a New York General Partnership, and Hartford Fire Insurance Company Petitioners-Appellants, v. LATONA TRUCKING, INC., Respondent-Appellee.

Docket No. 97-9236.

United States Court of Appeals Second Circuit.

Argued April 24, 1998.

Decided Oct. 21, 1998.

Mark T. Walsh, Gleason, Dunn, Walsh & O'Shea, Albany, N.Y., for Petitioners-Appellants.

J. Scott Greer, Lewis & Greer, P.C., Poughkeepsie, N.Y., for Respondent-Appellee.

Before: WALKER and CALABRESI, Circuit Judges, and RESTANI, ^* Judge.

JOHN M. WALKER, JR., Circuit Judge:

Petitioners-appellants S & R Company of Kingston ("S & R") and Hartford Fire Insurance Company ("Hartford") appeal from the September 8, 1997, judgment of the United States District Court for the Northern District of New York (Thomas A. McAvoy, Chief Judge ) denying their petition to compel arbitration under Section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, on the ground that they waived their right to arbitration by engaging in extensive pre-trial litigation to the prejudice of respondent-appellee Latona Trucking, Inc. ("Latona").

AFFIRMED.

BACKGROUND

In July 1995, Latona entered into a contract with S & R, ¹ the owner and developer of a construction project at the Hudson Valley Plaza in Kingston, New York. Latona was to perform site work on the construction project. The contract between S & R and Latona contained an arbitration clause that provided:

In the event any dispute arises between the Parties relative to this contract which Hartford was the surety on a payment bond obtained by S & R to secure payment of the contract price to Latona. The payment bond included a clause incorporating the contract into the bond, which read as follows:

cannot be resolved by the Parties within thirty (30) days from the date first noticed, the Parties agree to refer the dispute to an arbitrator in accordance with the rules of the American Arbitration Association.

WHEREAS, PRINCIPAL [S & R] has entered into a contract with OBLIGEE [Latona] dated July 12, 1995, designated as Phase 1+ Site Work ... which is made a part hereof as fully as if copied verbatim herein.

Disputes arose between the parties regarding work completion and payments. On February 20, 1996, Latona commenced an action in the district court to collect $650,000 from Hartford under the payment bond as a result of S & R's alleged failure to make payments due under the contract. In answering the complaint, Hartford did not include "arbitration and award" as an affirmative defense.

On June 28, 1996, a stipulation and consent order was filed allowing S & R to intervene as a defendant. Latona thereafter served an amended complaint seeking to recover attorney's fees from S & R, pursuant to New York General Obligations Law § 5-322.3, for failure to file the payment bond with the County Clerk. In answering the amended complaint, neither Hartford nor S & R pleaded "arbitration and award" as an affirmative defense. Moreover, S & R counterclaimed against Latona alleging breach of contract.

The action continued with all parties actively participating in the discovery process, which included extensive document production, numerous interrogatories, and several depositions. The parties also negotiated and filed a Joint Civil Case Management Plan, resorted to the court to resolve discovery disputes, and participated in two settlement conferences. On June 5, 1997, the assigned magistrate judge held a telephone conference regarding petitioners' request to substitute counsel. During the course of that conference, petitioners' new attorneys moved for an order to extend the May 15, 1997 deadline for filing pre-trial motions. Specifically, petitioners intended, inter alia, to apply for a stay of the proceedings pending enforcement of the arbitration clause contained in the contract. By an order dated June 6, 1997, the magistrate judge granted petitioners' request for substitution of counsel, but denied their request for leave to file pre-trial motions, and the action was scheduled for trial on October 20, 1997.

Petitioners appealed the magistrate judge's order to the district court and also filed an independent petition, pursuant to 9 U.S.C. § 4, to compel arbitration of the pending action. In its Memorandum Decision and Order dated September 8, 1997, denying the petition to compel arbitration, the district court held that S & R and Hartford had waived their right to arbitration by actively participating for 15 months in pre-trial litigation, including extensive discovery, to the prejudice of Latona. See S & R Co. v. Latona Trucking, Inc., 984 F.Supp. 95, 101-03 (N.D.N.Y.1997).

Petitioners raise three arguments on appeal to this court: (1) that the district court erred in not referring the issue of waiver to the arbitrator; (2) that petitioners did not engage in sufficient litigation or sufficiently prejudice Latona to warrant a finding of waiver; and (3) that the "no waiver" clause found in the arbitration rules precludes a finding of waiver. For the following reasons, we affirm the district court's denial of petitioners' motion to compel arbitration.

DISCUSSION

I. Propriety of District Court Deciding Issue of Waiver

At the outset, petitioners argue that the district court should not have decided the issue of waiver itself, but rather should have referred the matter to the arbitrator. The district court, relying on Doctor's Assocs., Inc. v. Distajo, 66 F.3d 438 (2d Cir.1995), and other cases, held that it could decide the waiver issue in light of petitioners' active participation in the litigation for 15 months. In Distajo, the court reviewed the existing case law and determined that, although ordinarily a defense of waiver brought in opposition Petitioners rely on the Distajo court's statement that it was "bound ... by our most recent precedent" to allow a district court to decide the issue of waiver, 66 F.3d at 456, to argue that Distajo is not binding precedent because in so holding it misinterpreted the prior cases. This argument is without merit. Even assuming the Distajo court was not required to decide the way it did, once it did so, its decision became binding precedent. See Jones v. Coughlin, 45 F.3d 677, 679 (2d Cir.1995) (per curiam ) ("A decision of a panel of this Court is binding unless and until it is overruled by the Court en banc or by the Supreme Court."). Distajo has not been overturned (indeed, it has been followed in recent cases, see, e.g., PPG Indus., Inc. v. Webster Auto Parts Inc., 128 F.3d 103, 107-08, 109 (2d Cir.1997); Doctor's Assocs., Inc. v. Jabush, 89 F.3d 109, 113-14 (2d Cir.1996)), and petitioners identify no Supreme Court case that puts its validity into question.

to a motion to compel arbitration under § 4 is a matter to be decided by the arbitrator, the district court could properly decide the question when the party seeking arbitration had already participated in litigation on the dispute.

Petitioners also argue that, even if Distajo applies, there nevertheless had not been sufficient litigation to justify the district court's deciding the issue. This argument fails as well. Distajo did not predicate a district court's ability to decide the issue of waiver on the condition that the party had engaged in substantial litigation. Rather, the court expressly held that a district court could decide the issue whenever the party seeking arbitration had engaged in "any prior litigation." Distajo, 66 F.3d at 456 n. 12. Such a rule saves judicial resources and prevents needless line-drawing. It makes little sense to require a court to first determine whether a party has engaged in "substantial litigation" before it can reach the issue of waiver, which itself requires determination of the same question. We find that the district court properly concluded that it could decide the issue of waiver in light of petitioners' active participation in the litigation.

II. Finding of Waiver

Petitioners next contend that the district court erred in finding that they had waived their right to arbitrate. We review the district court's determination that a party has waived arbitration de novo, although the factual findings upon which it bases its determination are reviewed for clear error. See Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir.1995). A party is deemed to have waived its right to arbitration if it "engages in protracted litigation that results in prejudice to the opposing party." Cotton v. Slone, 4 F.3d 176, 179 (2d Cir.1993); see also Distajo, 66 F.3d at 457 (requiring litigation on "substantial issues going to the merits" and demonstrated prejudice); Rush v. Oppenheimer & Co., 779 F.2d 885, 886-87 (2d Cir.1985). While waiver of arbitration is not to be lightly inferred, the issue is fact-specific and there are no bright-line rules. See Leadertex, 67 F.3d at 25. Factors to consider include (1) the time elapsed from the commencement of litigation to the request for arbitration; (2) the amount of litigation (including exchanges of pleadings, any substantive motions, and discovery); and (3) proof of prejudice, including taking advantage of pre-trial discovery not available in arbitration, delay, and expense. See PPG Indus., 128 F.3d at 107-09. The district court found that petitioners had waived arbitration on the grounds that (1) they failed to plead the defense of arbitration and award, despite asserting other defenses and S & R's assertion of a counterclaim; (2) they actively participated in the litigation for 15 months before seeking to invoke their right to arbitrate on the eve of trial; (3) they participated in two settlement conferences, and they prejudiced Latona by (4) engaging in extensive discovery--thereby obtaining information that would not have been available in arbitration--and (5) imposing on Latona undue delay and expense. See 984 F.Supp. at 103. We agree...