O'Meara v. Fid. Invs.

• Decision Date: 10 February 2021
• Docket Number: Case No. 2:20-cv-02838-JPM-cgc
• Parties: JEFFREY O'MEARA, as next friend of THOMAS J. O'MEARA, INDIVIDUALLY and as GRANTOR, TRUSTEE AND BENEFICIARY OF THE THOMAS J. AND GAIL A. O'MEARA REVOCABLE TRUST DATED JANUARY 25, 2002, Plaintiff, v. FIDELITY INVESTMENTS, AMERICAN EXPRESS NATIONAL BANK and SUNTRUST BANK, Defendants.
• Court: U.S. District Court — Western District of Tennessee

JEFFREY O'MEARA, as next friend of THOMAS J. O'MEARA,

INDIVIDUALLY and as GRANTOR, TRUSTEE AND

BENEFICIARY OF THE THOMAS J. AND GAIL A. O'MEARA REVOCABLE

TRUST DATED JANUARY 25, 2002, Plaintiff, v. FIDELITY INVESTMENTS, AMERICAN EXPRESS NATIONAL BANK andSUNTRUST BANK, Defendants.

Case No. 2:20-cv-02838-JPM-cgc

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION

February 10, 2021

ORDER GRANTING PLAINTIFF'S MOTION TO COMPEL ARBITRATION AS TO DEFENDANT SUNTRUST BANK

Before the Court is Plaintiff's Motion to Compel Arbitration as to Defendant SunTrust Bank or, in the Alternative, to Extend Deadline to Respond to Defendant SunTrust Bank's Motion to Dismiss, filed on January 11, 2021. (ECF No. 24.) Plaintiff moves the Court for an Order compelling arbitration as to Defendant SunTrust and staying this action pending arbitration. (Id. at PageID 228.) Plaintiff asserts that it has not waived its right to arbitration because Plaintiff's actions in the litigation to date are not inconsistent with reliance on an arbitration agreement and because Plaintiff's actions have not prejudiced Defendant SunTrust Bank (hereinafter "Truist"¹). (Id. ¶¶ 28-33.)

Truist filed its Response on January 19, 2021. (ECF No. 28.) Truist argues that because it is the Plaintiff and not the Defendant moving to compel arbitration, many of the cases regarding waiver of arbitration are inapplicable or distinguishable, and that Plaintiff waived his contractual right to compel Truist to resolve this matter in arbitration by initiating suit in state court, failing to mention arbitration in his Complaint and allowing the case to proceed to the discovery stage. (See generally id.)

Plaintiff filed a Reply on January 22, 2021. (ECF No. 29.) Plaintiff argues that the delay and costs incurred by Truist were incurred by Truist's strategic decisions to pursue the litigation and not by Plaintiff choice to initiate the lawsuit. (Id. at PageID 318.) Plaintiff asserts that his "actions in this matter do not present the level of case progression and development to warrant a finding of waiver." (Id. at PageID 322.)

For the reasons set forth below, Plaintiff's Motion to Compel Arbitration is GRANTED.

I. BACKGROUND

On October 16, 2020, Plaintiff commenced this suit in the Chancery Court of Tennessee for the Thirtieth Judicial District at Memphis, Shelby County, asserting claims for Breach of Contract, Breach of Implied Duty of Good Faith and Fair Dealing, Breach of Fiduciary Duty, Constructive Trust and Negligence against Truist and Defendants Fidelity Investments ("Fidelity") and American Express National Bank ("AmEx"). (Compl., ECF No. 1-1 at PageID 13-59.) On November 18, 2020, Truist removed the case to this Court. (ECF No. 1.)

Defendants Fidelity and AmEx filed Motions to Compel Arbitration on November 19 and December 9, 2020. (ECF Nos. 6 & 18.) On December 8, 2020, the Parties filed a Joint Motion to Stay Scheduling Conference and Other Rule 26 Duties, in which it was alleged that Truist intended to either move to compel arbitration or to file a motion to dismiss and that Plaintiff had asked all Defendants to disclose the arbitration agreements contained within their respective agreements. (ECF No. 17 ¶¶ 7-8.) In response to the Joint Motion, this Court entered an Order Resetting Telephonic Scheduling Conference and Requiring Disclosure of Arbitration Agreements on December 10, 2020. (ECF No. 20.)

On December 14, 2020, Truist filed a Motion to Dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6). (ECF No. 22.) On January 11, 2021, Plaintiff filed the instant Motion to Compel Arbitration as to Truist. (ECF No. 24.) Plaintiff attached as Exhibit A Truist's 2019 Rules and Regulations for Deposit Accounts, which contains the relevant Arbitration Agreement. (Id. at PageID 267-71.)

A Telephonic Scheduling Conference was held on January 13, 2021. (ECF No. 25.) At the Conference, the Court heard arguments from Plaintiff and Truist regarding Plaintiff's Motion to Compel Arbitration. On January 14, 2021, the Court entered a Scheduling Order, Order Granting Defendants Fidelity and AmEx's Motions to Compel Arbitration, and Order Denying the Joint Motion to Stay. (ECF No. 27.) The Scheduling Order set a January 27, 2021 deadline for Rule 26(a)(1) initial disclosures, a March 2, 2021 deadline for motions to join parties or amend pleadings, and an April 2, 2021 deadline for motions to dismiss. (Id. at PageID 301.) A follow-up Telephonic Status/Scheduling Conference is set for February 11, 2021. (Id. at PageID 300.)

Truist filed its Response to Plaintiff's Motion to Compel Arbitration on January 19, 2021. (ECF No. 28.) Plaintiff filed his Reply on January 22, 2021. (ECF No. 29.)

II. LEGAL STANDARD

"[A] party may waive an agreement to arbitrate by engaging in two courses of conduct: (1) taking actions that are completely inconsistent with any reliance on an arbitration agreement; and (2) 'delaying its assertion to such an extent that the opposing party incurs actual prejudice.'" Hurley v. Deutsche Bank Trust Co. Ams., 610 F.3d 334, 338 (6th Cir. 2010) (quoting O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 356 (6th Cir. 2003)). "Although it has long been settled that a party can waive its contractual right to arbitration... 'because of the strong presumption in favor of arbitration, waiver of the right to arbitration is not to be lightly inferred.'" Johnson Assocs. Corp. v. HL Operating Corp., 580 F.3d 713, 717 (6th Cir. 2012) (citation omitted) (quoting Glazer v. Lehman Bros., Inc., 394 F.3d 444, 450 (6th Cir. 2005)).

III. ANALYSIS

Truist does not object to Plaintiff's Motion to Compel Arbitration on grounds that the Arbitration Agreement is invalid or unenforceable or that Plaintiff's claims are not within the scope of the Arbitration Agreement. Therefore, the only issue before the Court is whether Plaintiff waived its right to compel Truist to resolve this matter in arbitration.

A. Plaintiff's Actions Are Not Inconsistent With Reliance on the Arbitration Agreement

Truist's primary argument is that Plaintiff's commencement of litigation and failure to mention arbitration in the Complaint are sufficient actions for the Court to find that Plaintiff's actions are inconsistent with any reliance on the Arbitration Agreement. (ECF No. 28 at PageID 307-10.) In support of its argument, Truist cites to two general categories of cases where courts found that arbitration had been waived: cases where the plaintiff moved to compel arbitration and cases where the defendant moved to compel arbitration after failing to raise arbitration as an affirmative defense.² (Id.) The Court will address each category of cases in turn.

First, Truist cites Commodity Resources, Inc. v. Certain Underwriters at Lloyds, London, No. 2:12-cv-10173, 2013 WL 3716385 (E.D. Mich. July 12, 2013) and Sabatelli v. Baylor Scott & White Health, 832 F. App'x 843 (5th Cir. 2020) (per curiam) as authority for its contention that commencing litigation is itself inconsistent with reliance on an arbitration agreement. (Id. at PageID 307-08.) But the district court's decision in Commodity Resources relied on state law (see id., 2013 WL 3716385, at *2 (collecting cases)) and the facts in Sabatelli are distinguishable because the case was in litigation for 16 months prior to the plaintiff's filing a motion to compel arbitration (see id., 832 F. App'x at 849). Litigation in both cases had also proceeded to the point that the defendant had filed a motion for summary judgment. Commodity Resources, 2013 WL 3716385, at *1; Sabatelli, 832 F. App'x at 845. By contrast, this case had been in litigation for less than three months at the time Plaintiff filed the instant Motion to Compel Arbitration and the case had not even reached the point of discovery.³

Second, Truist cites several cases where the court found that a party's failure to raise arbitration as an affirmative defense in a responsive pleading demonstrated an intent to litigate rather than to arbitrate. (ECF No. 28 at PageID 308.) See Johnson Assocs., 680 F.3d at 719; Blankenship v. Superior Controls, Inc., No. 13-12386, 2014 WL 4857083, at *5 (E.D. Mich. Apr. 25, 2014); S. Sys., Inc. v. Torrid Oven Ltd., 105 F. Supp. 2d 848, 854 (W.D. Tenn. 2000). In response, Plaintiff argues that the requirements for the content of an answer are materially different than the requirements for the content of a complaint. (ECF No. 29 at PageID 320-21.)

Plaintiff's argument is persuasive. Fed. R. Civ. P. 8(a) only requires a complaint to include a short and plain statement of both the grounds for the court's jurisdiction and the claim showing the plaintiff is entitled to relief and a demand for the relief sought. An answer, though, is "the main opportunity for a defendant to give notice of potentially dispositive issues to the plaintiff; and the intent to invoke an arbitration provision is just such an issue." Johnson Assocs., 680 F.3d at 718 (finding that a defendant's failure to raise arbitration as an affirmative defense shows his intent to litigate rather than arbitrate "[r]egardless of whether a defendant is required to raise arbitration as a defense under [Fed. R. Civ. P.] 8(c)"). The failure to include certain allegations in a responsive pleading routinely results in waiver of those allegations; the same is not true of most initial claims for relief.

Defendant also argues that Plaintiff was "test[ing] the judicial waters" by purposely delaying seeking arbitration with Truist until it became clear that arbitration would be required with the other two Defendants. (ECF No. 28 at PageID 309-10.) But there is a material difference between waiting to concede the validity of an arbitration agreement until a party has had a chance to review the agreement and consider the arguments in favor of or in opposition to its applicability and validity, as Plaintiff has done here, and waiting to see how a court will rule on key issues. In this case, prior to...