Johnson Assocs. Corp. v. HL Operating Corp.

• Decision Date: 23 May 2012
• Docket Number: No. 10–6468.,10–6468.
• Citation: 680 F.3d 713
• Parties: JOHNSON ASSOCIATES CORPORATION; T. Chantal International Limited, Plaintiffs–Appellees, v. HL OPERATING CORP., dba Hartmann, Defendant–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

680 F.3d 713

JOHNSON ASSOCIATES CORPORATION; T. Chantal International Limited, Plaintiffs–Appellees,

v.HL OPERATING CORP., dba Hartmann, Defendant–Appellant.

No. 10–6468.

United States Court of Appeals, Sixth Circuit.

May 23, 2012.

ON BRIEF:Samuel L. Felker, Kathryn Hannen Walker, Bass, Berry & Sims PLC, Nashville, Tennessee, for Appellant. Stephen H. Price, Erika R. Barnes, Stites & Harbison PLLC, Nashville, Tennessee, for Appellees.

Before: NORRIS, CLAY, and GRIFFIN, Circuit Judges.

OPINION

GRIFFIN, Circuit Judge.

Defendant-appellant HL Operating Corporation (“Hartmann”) appeals from the district court's order denying its motion to compel arbitration on the basis that it waived its right to enforce an arbitration clause against plaintiffs-appellees Johnson Associates Corporation (“Johnson”) and T. Chantal International Limited (“T. Chantal”) in their suit for breach of contract and unjust enrichment. We affirm.

I.

This case involves a dispute over Hartmann's contract with Johnson and T. Chantal to manufacture Hartmann's luggage lines. Plaintiffs filed suit against Hartmann on December 22, 2009, seeking damages for breach of contract based on a “Sourcing Agreement” between the parties and claiming that Hartmann was unjustly enriched. Hartmann filed an answer and asserted a counterclaim for breach of contract. A case management conference was held. Thereafter, the parties engaged in a judicial settlement conference, held settlement discussions, and exchanged multiple offers from approximately the middle of April 2010 through the middle of June 2010 with the assistance of a magistrate judge. These efforts were unsuccessful. On July 1, 2010, the magistrate judge assisting with the settlement proceedings returned the case file to the magistrate judge otherwise handling the case because “it now appears that there is very little chance of resolution at this stage in the proceedings.”

That same day, Hartmann filed a motion to continue the trial and to modify the case management order, which at the time required the parties to complete written discovery and fact witness depositions by August 15, 2010. The district court denied Hartmann's motion. Hartmann then served plaintiffs with interrogatories, requests for production of documents, and a request for admissions on July 2, 2010, and July 16, 2010; and plaintiffs served Hartmann with their discovery requests on July 13, 2010. On July 21, 2010, Hartmann noticed eight depositions; those depositions, however, were later postponed. The parties then filed a joint motion to modify the case management order to make the responses to the discovery requests due on August 26, 2010, and the court entered an order to that effect on August 12, 2010.

On August 23, 2010, just three days before the newly agreed-upon discovery deadline, Hartmann notified plaintiffs that it intended to exercise its right to arbitrate the dispute as provided by paragraph 13(a) of the Sourcing Agreement. Hartmann requested a response by August 24, 2010, and notified plaintiffs that in the event they did not agree to arbitrate, Hartmann would file a motion to compel arbitration. Hartmann also stated that “[i]t is our position that no discovery should be had until the Court rules on such a motion. Consequently, we will grant you an indefinite extension to respond to any of our outstanding discovery.... We ask that you do the same for Hartmann.” When plaintiffs failed to respond, Hartmann filed a motion to compel arbitration on August 25, 2010.

On August 26, 2010, plaintiffs served their discovery responses on Hartmann in accordance with the deadline. They produced 1,151 pages of responsive documents and provided a 4.11 gigabyte hard drive containing responsive information. Plaintiffs then continued to seek discovery from Hartmann while the motion to compel arbitration was pending. On September 1, 2010, plaintiffs' counsel wrote to Hartmann's counsel: “Regardless of its motion to dismiss or stay the litigation pending arbitration, which Plaintiffs oppose, Hartmann is still required to comply with outstanding court orders regarding discovery,.... Specifically, Plaintiffs intend to continue to take depositions in this matter.” As a result, when Hartmann served written discovery responses and documents on September 15, 2010, it stipulated that “it [wa]s doing so under objection and Hartmann does not agree that its response to these requests constitutes any waiver of its right to arbitrate this dispute.”

The district court held a hearing on Hartmann's motion to dismiss or compel arbitration in mid-November. In an opinion dated November 30, 2010, the court held that Hartmann had waived its right to compel arbitration because Hartmann “moved for and was granted an extension of time within which to file an Answer”; “asserted ten affirmative defenses and a counterclaim”; “engaged in a judicial settlement conference and informal efforts to resolve the case”; “both unilaterally and jointly with Plaintiffs moved for adjustments of the Case Management Order”; “served ... discovery requests”; and prejudiced Plaintiffs because “[w]hile litigating in this court for most of a year, Plaintiffs have participated in scheduling, requested discovery materials and prepared discovery responses” that “[they assert] ... will not be fully transferrable to an arbitration process.” Hartmann timely appeals.

II.

“We review a district court's denial of a motion to compel arbitration de novo.” Hurley v. Deutsche Bank Trust Co. Ams., 610 F.3d 334, 338 (6th Cir.2010) (citing Albert M. Higley Co. v. N/S Corp., 445 F.3d 861, 863 (6th Cir.2006)).

III.

Hartmann makes two arguments on appeal. First, Hartmann contends that it could not have waived its right to arbitration because the Sourcing Agreement contains an explicit no-waiver provision: “No waiver by either party of any provision of this Agreement or of any breach or default shall constitute a continuing waiver of such provision or of any other provisions of this Agreement.” Because Hartmann raised this issue in its reply to its motion to compel arbitration below, and the district court failed to address it, Hartmann claims that the district court's ruling must be vacated and the matter remanded for further consideration. Plaintiffs, on the other hand, assert that Hartmann did not properly raise the issue in its reply below, and that even if it did, the fact that the district court failed to address the argument does not mean that the court committed any error in making its determination that Hartmann waived its right to arbitration. We consider each of these arguments in turn.

Plaintiffs argue that Hartmann made only a “vague” reference in passing in its reply brief, without explanation or legal citation, that it could not waive the specific arbitration provision as a result of the general no-waiver provision in the Sourcing Agreement. This vague reference, they contend, was insufficient to raise the issue before the district court and thus did not preserve it for appeal. We disagree. Because the issue of waiver was first raised in plaintiffs' response, Hartmann's reply was the first and only opportunity it had to address the issue. Moreover, although Hartmann's argument lacked legal citation, it was not vague or made merely in passing. Hartmann argued that:

In addition to the facts that Plaintiffs have not and will not suffer any prejudice and that Hartmann has not taken any actions “completely inconsistent” with arbitration, Hartmann cannot be found to have waived its right because the parties expressly agreed that neither party could waive any provision of the Contract between them. Section 13(e) of the agreement between the parties states plainly that “[n]o waiver by either party of any provision of this Agreement or any breach or default shall constitute continuing waiver of such provision or of any other provisions of this Agreement.” Docket No. 1–1 at § 13(e). As such, not only did Plaintiffs expressly agree to arbitrate this dispute, but they also agreed that the actions they now claim constitute waiver would not in fact act as a waiver of the arbitration provision.

This was sufficient to preserve the issue for our review.

However, even though the no-waiver clause argument is preserved, Hartmann wrongly concludes that the district court's failure to address the issue requires remand. “[T]he presence of [a] ‘no waiver’ clause does not alter the ordinary analysis undertaken to determine if a party has waived its right to arbitration.” S & R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 80, 86 (2d Cir.1998), cert. denied,528 U.S. 1058, 120 S.Ct. 629, 145 L.Ed.2d 506 (1999). This makes sense because “to allow the ‘no waiver’ clause to preclude a finding of waiver would permit parties to waste scarce judicial time and effort and hamper judges' authority to control the course of the proceedings” and allow parties to “test[ ] the water before taking the swim” by delaying assertion of their right to arbitration until the litigation is nearly complete. Id. (citation and internal quotation marks omitted); accord Gray Holdco, Inc. v. Cassady, 654 F.3d 444, 452–53 (3d Cir.2011); Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 348–49 (5th Cir.2004). Given that the alleged no-waiver provision in the Sourcing Agreement was not potentially determinative, Hartmann's argument that the district court's failure to address the issue requires remand is without merit.

Second, Hartmann argues that the district court erred in concluding that Hartmann waived its right to arbitration based on its participation in the litigation. Although it has long been settled that a party can waive its contractual right to arbitration, see Am. Locomotive Co. v. Gyro Process Co., 185 F.2d 316, 318 (6th Cir.1950), “because of the strong presumption in favor of arbitration, waiver of the right to arbitration is not to be lightly inferred.” Glazer v. Lehman Bros., Inc., 394 F.3d 444, 450 (...