Zwitserse Maatschappij Van Levensverzekering En Lijfrente v. ABN Intern. Capital Markets Corp.

• Decision Date: 30 June 1993
• Docket Number: No. 1713,D,1713
• Citation: 996 F.2d 1478
• Parties: ZWITSERSE MAATSCHAPPIJ VAN LEVENSVERZEKERING EN LIJFRENTE; N.V. Pensioen ESC, Respondents-Counter-Petitioners-Appellants, v. ABN INTERNATIONAL CAPITAL MARKETS CORPORATION, also known as ABN AMRO Securities (USA), Inc., Petitioner-Counter-Respondent-Appellee. ocket 93-7206.
• Court: U.S. Court of Appeals — Second Circuit

Page 1478

996 F.2d 1478

ZWITSERSE MAATSCHAPPIJ VAN LEVENSVERZEKERING EN LIJFRENTE N.V. Pensioen ESC Respondents-Counter-Petitioners-Appellants, v. ABN INTERNATIONAL CAPITAL MARKETS CORPORATION, also known as ABN AMRO Securities (USA), Inc. Petitioner-Counter-Respondent-Appellee.

No. 1713, Docket 93-7206.

United States Court of Appeals Second Circuit.

Argued June 16, 1993.

Decided June 30, 1993.

Robert E. DeRight, Jr., New York City (Epstein Becker & Green, P.C., New York City, of counsel), for appellants.

Frederick P. Schaffer, New York City (John F. Kowal, J. Lucian Manetta, Schulte Roth & Zabel, New York City, of counsel), for appellee.

Before: CARDAMONE and MAHONEY, Circuit Judges, and PARKER, District Judge. ^*

PER CURIAM:

Zwitserse Maatschappij van Levensverzekering en Lijfrente (ZwitserLeven) and N.V. Pensioen ESC (ESC) (collectively ZwitserLeven or appellants) appeal from an order entered on February 16, 1993 in the United States District Court for the Southern District of New York (Conboy, J.) granting ABN International Capital Markets Corporation's (ABN CMC) petition to stay arbitration, and denying ZwitserLeven's motion to compel it.

ABN CMC's motion to stay arbitration was granted upon the district court's finding that by commencing a preliminary witness hearing in Amsterdam prior to initiating arbitration in New York ZwitserLeven had waived its right to arbitration. The trial court found that ABN CMC was prejudiced by its participation in the Netherlands' discovery-type process since an equivalent procedure would not be available in arbitration in the United States.

Appellants contend that the district court erred in treating the Netherlands' preliminary witness proceeding as substantially equivalent to an American-style discovery. Although federal law generally favors arbitration, see Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983), it is also true that in certain circumstances a party initiating judicial proceedings may waive its right to arbitration. See Sweater Bee By Banff, Ltd. v. Manhattan Indus., 754 F.2d 457, 461 (2d Cir.), cert. denied, 474 U.S. 819, 106 S.Ct. 68, 88 L.Ed.2d 55 (1985). That may occur when a party has unfairly used litigation prior to commencing arbitration in a way that might prejudice the opposing party. See Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir.1985). The Rush principle, which concerned American litigation, extends to analogous and functionally similar processes in non-U.S. courts.

The Netherlands proceeding at the center of this case commenced after ZwitserLeven submitted a Request for a Preliminary Witness Hearing in an Amsterdam court on March 19, 1991. That request stated that ZwitserLeven and ESC, a pension fund it manages, "intend to file legal proceedings" against ABN CMC and its parent, ABN, based on incorrect and misleading information which they supposedly furnished to appellants in connection with the purchases of several bond issues. The court in Holland granted the request on March 28, and the preliminary witness hearing took place between June 21 and December 20, 1991.

At the hearing ZwitserLeven called six witnesses who responded to questions and provided sworn testimony before an examining judge. Two of the witnesses were ABN CMC employees, two were ZwitserLeven employees, and two were ABN employees. In the end, ZwitserLeven never commenced a lawsuit against ABN CMC in the Netherlands. Instead, it served a demand on ABN CMC in May 1992 for arbitration before the National Association of Securities Dealers (NASD).

Sworn affidavits in the record reveal that a preliminary witness hearing under Netherlands law generally occurs before the filing of a complaint. A preliminary witness hearing represents a separate legal proceeding for the purpose of hearing witnesses and preserving testimony. Under this foreign country's code of civil procedure, a hearing may be used independently of either legal action or arbitration. Despite this, the Netherlands' preliminary witness hearing resembles discovery in American-style proceedings. Cf. Fed.R.Civ.P. 27 (providing rules governing when depositions may be ordered before formal action instituted). The record before us particularly demonstrates that the judge presiding over a preliminary witness hearing may compel the testimony of...