Republic Ins. Co. v. Paico Receivables, LLC

• Citation: 383 F.3d 341
• Decision Date: 13 September 2004
• Docket Number: No. 03-11156.,03-11156.
• Parties: REPUBLIC INSURANCE COMPANY, Plaintiff-Counter Defendant-Appellant, v. PAICO RECEIVABLES, LLC, Defendant-Counter Claimant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

383 F.3d 341

REPUBLIC INSURANCE COMPANY, Plaintiff-Counter Defendant-Appellant, v. PAICO RECEIVABLES, LLC, Defendant-Counter Claimant-Appellee.

No. 03-11156.

United States Court of Appeals, Fifth Circuit.

September 13, 2004.

Don D. Martinson (argued), Robert Harris Fugate, Fanning, Harper & Martinson, Dallas, TX, for Republic Ins. Co.

Mary Cannon Veed (argued), Jenifer Caracciolo, Arnstein & Lehr, Chicago, IL, for PAICO Receivables, LLC.

Appeal from the United States District Court for the Northern District of Texas.

Before DAVIS, EMILIO M. GARZA and PRADO, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Republic Insurance Company ("Republic") appeals the district court's denial of its motion to compel arbitration of its contract dispute with PAICO Receivables, LLC ("PRLLC"). Republic claims that the district court incorrectly ruled that it waived its right to arbitrate its dispute with PRLLC. We find that Republic substantially invoked the judicial process to the prejudice of PRLLC, and the district court properly found that Republic had waived its right to arbitrate.

I

Republic was party to a reinsurance agreement between a group of insurance companies. This group included the United Kingdom insurer Pan Atlantic Insurance Company ("Pan Atlantic"). Arbitration of a dispute between the members of that group resulted in a Settlement Agreement. The Settlement Agreement defines the rights and obligations of the group members with respect to various reinsurance agreements. This Settlement Agreement contains an arbitration clause compelling arbitration of any disputes between the parties to that agreement. Pan Atlantic subsequently encountered financial difficulty and entered into provisional liquidation pursuant to United Kingdom law. As part of this provisional liquidation, Pan Atlantic assigned its rights to recover under certain reinsurance contracts to PRLLC. This assignment includes Pan Atlantic's reinsurance agreements "in the possession or control" of Republic.¹ The assignment agreement expressly states that Pan Atlantic was not transferring any of its obligations to PRLLC. After this assignment, PRLLC unsuccessfully sought to enforce Pan Atlantic's rights under the Settlement Agreement against Republic.

Republic subsequently filed suit in federal district court seeking a declaration that the assignment of Pan Atlantic's rights under the Settlement Agreement to PRLLC was invalid because Pan Atlantic did not obtain Republic's written consent to the assignment. In the alternative, Republic sought a declaration that the assignment also transferred Pan Atlantic's obligations under the Settlement Agreement to PRLLC. Republic did not include an alternative pleading asserting its arbitration rights under the Settlement Agreement. PRLLC's answer included counterclaims alleging that Republic had breached the Settlement Agreement and also that Republic had breached the fiduciary duties it allegedly owed to PRLLC under that agreement. Republic asserted nine affirmative defenses in response to PRLLC's counterclaims, but it still did not assert its right to arbitrate PRLLC's counterclaims.

The parties then conducted full-fledged discovery, and Republic actively participated in this process. The discovery encompassed all of the claims and counterclaims in the case and was not limited to the issue of whether Pan Atlantic's assignment to PRLLC was valid. Republic filed two separate motions to compel discovery from PRLLC seeking, at least in part, information that was only relevant to PRLLC's counterclaims. In response to Republic's first motion to compel discovery PRLLC filed a motion for a protective order. This motion asked the district court to limit the parties' initial discovery to the issue of whether PRLLC's assignment from Pan Atlantic was valid. Republic opposed this motion, arguing that all of the issues, including PRLLC's counterclaims, were before the district court and properly the subject of discovery. The district court granted the majority of Republic's first motion to compel discovery and denied PRLLC's motion for a protective order. The parties also conducted four depositions as part of the discovery process.

Republic then filed an amended complaint, which included another alternative pleading asking the district court to declare that an event of default had occurred under the Settlement Agreement and to appoint Republic as PRLLC's attorney-in-fact. The parties filed cross-motions for summary judgment on all three of the issues contained in Republic's first amended complaint. The district court ruled that Pan Atlantic had validly assigned its rights under the Settlement Agreement to PRLLC; that PRLLC had also assumed Pan Atlantic's obligations under the Settlement Agreement; and that Republic was not entitled to be appointed as PRLLC's attorney-in-fact. The district court's order indicates that the only issues remaining in the case were PRLLC's counterclaims. After the district court ruled on the summary judgment motions, the parties completed discovery and filed their required pretrial materials. Republic objected to portions of the depositions that PRLLC designated in its pretrial materials. Republic also filed an extensive motion in limine in an attempt to limit the evidence that PRLLC could present during the trial on the merits of its counterclaims. Republic still did not indicate that it wished to arbitrate PRLLC's counterclaims.

Days before the trial was originally scheduled to begin, Republic, for the first time, asserted its right to arbitrate under the Settlement Agreement by filing its motion to stay the proceedings and compel arbitration of PRLLC's counterclaims. The district court denied this motion, ruling that Republic had waived its right to arbitrate. The district court found that PRLLC would be "sorely prejudiced" if it compelled arbitration at this late date because "[i]n addition to incurring very significant legal fees, PRLLC has participated in full-fledged discovery, expert preparation, and trial preparation." The district court denied Republic's motion to reconsider, and this appeal followed.

II

We have jurisdiction over this interlocutory appeal because Republic seeks review of a district court order refusing to stay the proceedings and compel arbitration when there is a written agreement to arbitrate. See Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 86, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000); 9 U.S.C. § 16(a)(1)(A), (B). We review whether a party's conduct amounts to a waiver of arbitration de novo, but we review any factual findings underlying the district court's waiver determination for clear error. Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir.1999).

"Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party." Subway, 169 F.3d at 326 (quoting Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir.1986)). 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. Subway, 169 F.3d at 326.

A

To invoke the judicial process "[t]he 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." Subway, 169 F.3d at 329. Further, "a party only invokes the judicial process to the extent it litigates a specific claim it subsequently seeks to arbitrate." Id. at 328. The district court found that Republic invoked the judicial process by waiting to file its motion to compel arbitration until days before the trial was originally scheduled to begin.

Republic undertook extensive litigation activities before asserting its right to arbitrate under the Settlement Agreement. It answered PRLLC's counterclaims; conducted full-fledged discovery, including four depositions; amended its complaint; and filed the required pretrial materials with the district court. In addition, before Republic filed its motion to compel arbitration, it filed numerous other motions, including: two motions to compel discovery, a motion for summary judgment, and a motion in limine attempting to limit the evidence that PRLLC could produce at trial. Republic thus demonstrated "a desire to resolve the arbitrable dispute through litigation rather than arbitration." Id. at 329; cf. Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159, 1162 (5th Cir.1986) (holding that the party moving for arbitration had waived that right because it had "initiated extensive discovery, answered twice, filed motions to dismiss and for summary judgment, filed and obtained two extensions of pre-trial deadlines, all without demanding arbitration").

Republic, however, argues that it did not waive its right to arbitrate because its conduct was reasonable for a plaintiff seeking a judgment declaring that PRLLC, as Pan Atlantic's assignee, was not a party to the Settlement Agreement, which contained the arbitration agreement. Republic claims that, because of the terms of PRLLC's agreement with Pan Atlantic, Republic was unable to assert its arbitration rights under the Settlement Agreement until after the district court determined that PRLLC was bound by the obligations of that agreement. "The propriety and desirability of having an initial judicial determination of whether an arbitration contract exists is well recognized." Gen. Guar. Ins. Co. v. New Orleans Gen. Agency, Inc., 427 F.2d 924, 928 (5th Cir.1970). PRLLC concedes that Republic did not waive its arbitration rights by asking the district court to determine whether Pan Atlantic validly assigned its rights to PRLLC. Instead PRLLC argues that waiver occurred because Republic invoked the judicial process for all of the issues in this case, including those subject to arbitration, rather than limiting its pretrial activity to the...