Kelly v. Golden

• Decision Date: 08 December 2003
• Docket Number: No. 03-1016.,03-1016.
• Citation: 352 F.3d 344
• Parties: Patrick D. KELLY, Appellant, v. Marc GOLDEN, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

352 F.3d 344

Patrick D. KELLY, Appellant, v. Marc GOLDEN, Appellee.

No. 03-1016.

United States Court of Appeals, Eighth Circuit.

Submitted: September 10, 2003.

Filed: December 8, 2003.

Order Denying Petition for Rehearing and for Rehearing En Banc Denied: January 21, 2004.

The petition for rehearing en banc is denied. The petition for rehearing by the panel is also denied.

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Joan M. Swartz, argued, St. Louis, MO, for appellant.

Phyllis Pollard, argued, Austin, TX (John S. Sandberg, St. Louis, MO, on the brief), for appellee.

Before WOLLMAN, FAGG, and RILEY, Circuit Judges.

WOLLMAN, Circuit Judge.

This is an appeal from the district court's order granting summary judgment on appellee's counterclaims and motions for attorney's fees, punitive damages and injunctive relief, and denying appellant's motion to compel arbitration. We affirm in part and reverse in part.¹

I.

Patrick D. Kelly and Marc Golden met in law school in 1977-1980. Kelly later developed and obtained a series of patents for zinc salts used as antiviral additives. Kelly enlisted Golden's help for the financing and marketing of his products, and the two signed an agreement memorializing their business relationship in February of 1997. Kelly granted Golden partial rights to his patents and agreed to share both income and expenses. Their working relationship began to unravel in early 2000, and Kelly brought an action against Golden in federal court in December 2000.

Kelly and Golden signed a superseding agreement (the SA) in January 2001, terminating and replacing the 1997 agreement. Clause 1 of the SA conveys Golden's interest in Kelly's patents back to Kelly. Clause 4 states that Kelly agrees to dismiss his complaint with prejudice. Clause 5 provides that Golden will receive a royalty and other payments. Clause 6 contains a "Mutual Release and Confidentiality Undertaking" that releases the parties from all claims then or previously held, includes an agreement not to make or authorize disparaging, derogatory, or defamatory comments about one another and provides that they will not discuss, disclose, or release any information related to the 1997 agreement or the SA unless it is privileged, within arbitration proceedings, made with consent, or required by law. Finally, clause 11 states that the parties will use binding arbitration to resolve their disputes and will not file a civil lawsuit or equitable action in any court against the other party except to compel or enforce arbitration.

Following the execution of the SA, the district court dismissed the lawsuit with prejudice at Kelly's request. Kelly soon discovered that a company Golden had negotiated with to market their patents was in financial trouble, and he blamed Golden for losing a potential contract with another client. Rather than seeking arbitration under clause 11, Kelly filed suit against Golden in St. Louis, Missouri, County Court. Golden removed the case to federal district court and filed an answer and counterclaims. The parties consented to a bench trial before a magistrate judge.

Kelly, proceeding pro se, consistently filed lengthy pleadings containing irrelevant and scandalous allegations that reflected his anger and personal feelings regarding the case. He frequently referred to Golden and his counsel as liars. The district court warned Kelly, both in the Rule 16 Conference and in subsequent orders, that he should refrain from such personal attacks. It struck an unnotarized "affidavit" by Kelly that contained "impertinent and scandalous matter" that was "wholly irrelevant" and also struck portions of Kelly's supplement and amendment to his original pleadings that contained "vicious and highly personal attacks... [that could] only have been included to embarrass, harass and oppress defendant and to prejudice the court."

Notwithstanding the district court's warning, Kelly's subsequent pleadings included numerous personal attacks on Golden unrelated to the legal issues and sought to misuse discovery procedures. The district court rejected Kelly's attempt to depose some of Golden's friends, characterizing it as an "attempt to vilify defendant in front of his friends." Not content to confine his attacks to the courtroom, Kelly sent Golden and Golden's counsel inappropriate letters and faxes during the period December 2000 and February 2002 that contained numerous inappropriate, vituperative, and coercive comments, along with arguably defamatory statements. Although he continued to insist that his purpose was to remove obstacles to his ability to make his product available to the world and thus reduce the spread of HIV/AIDS, Kelly's words and actions reflected a personal vendetta against Golden.

The district court held the SA to be valid and enforceable and granted Golden summary judgment on Kelly's recision and breach of fiduciary duties claims. Golden then amended his counterclaims and moved for summary judgment, an injunction, punitive damages, and attorney's fees. Kelly then retained counsel and sought to compel arbitration. The district court denied arbitration as having been waived, granted summary judgment for Golden on two of his breach of contract counterclaims and his prima facie tort counterclaim and granted attorney's fees in the amount of $134,472.50, plus costs, and punitive damages in the amount of $5,000.00. The court enjoined Kelly from making any further disparaging, derogatory, or defamatory statements.

II.

Kelly appeals the district court's ruling that he had waived the right to compel arbitration. We review de novo the district court's interpretation of the contract provision regarding arbitration and examine for clear error the factual findings that formed the basis for the court's ruling. Lyster v. Ryan's Family Steak Houses, Inc., 239 F.3d 943, 945 (8th Cir.2001).

There is a liberal federal policy favoring arbitration, grounded in the Federal Arbitration Act, 9 U.S.C. § 2, which provides that contract provisions directing arbitration shall be enforceable in all but limited circumstances. Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The party seeking arbitration may be found to have waived his right to it, however, if he "(1) knew of an existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by these inconsistent acts." Ritzel Communications, Inc. v. Mid-American Cellular Tel. Co., 989 F.2d 966, 969 (8th Cir.1993); Barker v. Golf U.S.A., Inc., 154 F.3d 788, 793 (8th Cir.1998).

A party acts inconsistently with its right if it "`[s]ubstantially invoke[s] the litigation machinery' before asserting its arbitration right" by failing to request a stay and fully adjudicating its rights. Ritzel, 989 F.2d at 969 (quoting E.C. Ernst, Inc. v. Manhattan Constr. Co., 559 F.2d 268, 269 (5th Cir.1977)). The actions must result in prejudice to the other party for waiver to have occurred. Stifel, Nicolaus & Co. v. Freeman, 924 F.2d 157, 158-59 (8th Cir.1991) (holding there was no prejudice and therefore no waiver, even though the moving party acted inconsistently by initiating the suit). Prejudice results when, inter alia, parties use discovery not available in arbitration, when they litigate substantial issues on the merits, or when compelling arbitration would require a duplication of efforts. Stifel, 924 F.2d at 159.

We conclude that the district court did not err in finding that Kelly had waived his right to arbitration. Kelly, a lawyer, negotiated the terms of the SA, including the arbitration clause. He acted inconsistently with that right by litigating the merits of his self-initiated lawsuit. Kelly consistently encouraged the district court to resolve the entire dispute and failed to object or move to compel arbitration throughout a year of court proceedings. He vigorously pursued discovery and did not raise an arbitration claim until after the district court had ruled against him on all of his motions on the merits of the case. Finally, Golden was prejudiced by Kelly's delay in seeking arbitration. He incurred expense and experienced substantial delay as a result of the extensive litigation and would be required to extensively duplicate his efforts if he were now required to participate in arbitration.

III.

Kelly next contends that the district court erred in entering summary judgment on Golden's counterclaims for breach of the nondisparagement/confidentiality clause in the contract and for prima facie tort. We review a grant of summary judgment de novo. Schaller Tel. Co. v. Golden Sky Sys. Inc., 298 F.3d 736, 742 (8th Cir.2002). We affirm if the evidence presented by both parties, viewed in the light most favorable to the non-moving party, demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); Schaller, 298 F.3d at 742-43. We apply Missouri substantive law to the breach of contract and prima facie tort claims. Nordyne, Inc. v. Int'l Controls & Measurements Corp., 262 F.3d 843, 846 (8th Cir. 2001).

A.

We conclude that Golden has not established that he is entitled to judgment as a matter of law for breach of the confidentiality clause of the SA. Kelly's statements are protected by the absolute privilege afforded by the Missouri courts to statements made in judicial proceedings. Henry v. Halliburton, 690 S.W.2d 775, 780 (Mo.1985) (en banc); see also Barge v. Ransom, 30 S.W.3d 889, 890 (Mo.App. 2000). The privilege is based on the policy favoring freedom of expression and the desire not to inhibit parties from detailing and advocating their claims in court and is absolute, regardless of motive. Barge, 30 S.W.3d at 890-91.

Kelly's actions in criticizing and disparaging Golden and in threatening to destroy Golden's reputation may serve as the basis for court-initiated sanctions, but th...