Nicholas v. Kbr, Inc.

• Citation: 565 F.3d 904
• Decision Date: 15 April 2009
• Docket Number: No. 08-20140.,08-20140.
• Parties: Geraldine NICHOLAS, Individually and as Administratrix of the Estate of James Nicholas, Plaintiff-Appellant, v. KBR, INC.; M.W. Kellogg Co.; Kellogg Brown & Root; Halliburton, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

565 F.3d 904

Geraldine NICHOLAS, Individually and as Administratrix of the Estate of James Nicholas, Plaintiff-Appellant, v. KBR, INC.; M.W. Kellogg Co.; Kellogg Brown & Root; Halliburton, Defendants-Appellees.

No. 08-20140.

United States Court of Appeals, Fifth Circuit.

April 15, 2009.

Edward Downs Fisher, John A. Cowan, Provost Umphrey, Beaumont, TX, for Plaintiff-Appellant.

Michael James Muskat, Muskat, Martinez & Mahony, LLP, Houston, TX, for Defendants-Appellees.

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

Before HIGGINBOTHAM, ELROD and HAYNES, Circuit Judges.

HAYNES, Circuit Judge:

Geraldine Nicholas appeals the district court's denial of her motion to compel arbitration of her contract dispute with KBR, Inc., the successor corporation of her deceased husband's former employer, M.W. Kellogg Co. Nicholas contends that the district court improperly ruled that she waived her right to arbitrate her dispute with KBR. For the reasons set forth below, we conclude that the district court did not err when it found that Nicholas substantially invoked the judicial process to the prejudice of KBR. Consequently, we affirm the district court's judgment.

I. FACTS

James Nicholas was an employee of Kellogg when he developed mesothelioma, a fatal form of lung cancer associated with asbestos exposure. On December 24, 1998, Kellogg executed a written severance agreement with Mr. Nicholas (the "Agreement"). Under the Agreement, Kellogg agreed to continue Mr. Nicholas's "company-provided" benefits and Mr. Nicholas agreed to release Kellogg from liability for any claims he had against it. The Agreement also contained an arbitration clause.

Mr. Nicholas took a medical leave of absence from his job in late 1998 and continued to receive health insurance benefits at active employee rates. He died in December 2006.

Mr. Nicholas's wife, Geraldine Nicholas, filed this lawsuit in Texas state court on January 17, 2007, alleging that KBR breached the Agreement with her husband by failing to pay his life insurance benefits. Although Nicholas did not attach the Agreement to her original petition, she described in her petition a severance agreement executed by Kellogg and her husband in "December of 1998." She also alleged that the agreement she described contained Kellogg's guarantees of additional "benefits," "salary," and "payments," and Mr. Nicholas's release of Kellogg from any potential liability. Nicholas's petition, however, neither mentioned the Agreement's arbitration clause nor gave any other indication that she wanted to arbitrate her claims.

KBR removed the case to federal court on February 23, 2007. Thereafter, Nicholas filed a motion to remand, or, in the alternative, to amend the pleadings. On April 18, 2007, the district court denied Nicholas's motion to remand, but granted her motion for leave to amend. In denying the motion to remand, the district court found that section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B) (2006), completely preempted Nicholas's state law claims because they sought to recover benefits allegedly due her deceased husband under KBR's benefits plan. See Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 66, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987).

Nicholas filed her first amended complaint on May 2, 2007. The amended complaint reiterated Nicholas's allegations concerning KBR's breach of the Agreement. As she did in her original petition, Nicholas did not mention the Agreement's arbitration clause or otherwise indicate that she wanted to arbitrate her claims.

On June 19, 2007, the parties filed their Joint Discovery/Case Management Plan. Shortly thereafter, the district court issued a scheduling order. The order set a discovery cutoff of February 1, 2008, a pretrial motions deadline of February 22, 2008, and a docket call for April 25, 2008.

Shortly after the district court issued its scheduling order, KBR served written discovery on Nicholas. Nicholas responded to that discovery without raising arbitration or otherwise objecting. Nicholas also sat without objection for her deposition.

In her deposition, portions of which were included as an attachment to KBR's response to the motion to compel, Nicholas admitted that a copy of the Agreement was in her possession in her late husband's files.¹ She also admitted that she may have seen a copy of that document prior to finding the original in his files in the spring of 2007.² She further admitted to having a discussion in January of 2007 with someone at KBR regarding whether her husband signed an agreement to arbitrate.

On November 20, 2007 — more than ten months after Nicholas sued KBR in Texas state court — Nicholas filed the underlying motion to compel arbitration. In the motion, Nicholas did not address the potential waiver of her right to arbitrate.

On December 4, 2007, Nicholas noticed the deposition of a third-party witness, Jim Wilhite, and proceeded to take his deposition on December 18, 2007.

On January 4, 2008, KBR filed a response to Nicholas's motion to compel arbitration and argued that Nicholas waived her right to arbitration by substantially invoking the judicial process to the prejudice of KBR. In the motion, KBR specifically argued that Nicholas was aware of the Agreement's arbitration clause when she filed her original petition in Texas state court in January 2007. Nicholas did not respond to KBR's argument that she waived arbitration. Indeed, she filed no reply or evidence of any kind.

The district court denied Nicholas's motion to compel arbitration. The court found that Nicholas's decision to file suit indicated a "disinclination" to arbitrate her claims, and that her failure to assert her right to arbitration for over ten months prejudiced KBR. Nicholas appeals that decision, arguing that the district court improperly ruled that she substantially invoked the judicial process to the prejudice of KBR.

II. DISCUSSION

We have jurisdiction of this appeal even though the district court's denial of Nicholas's motion to compel arbitration is an interlocutory ruling. 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)(C). We review the legal question of whether Nicholas's conduct amounts to a waiver of arbitration de novo; however, we review the factual findings underlying the district court's waiver determination only for clear error. Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir.1999). The district court's factual findings are clearly erroneous only if, after reviewing the record, we are firmly convinced that a mistake has been made. Baldwin v. Stalder, 137 F.3d 836, 839 (5th Cir.1998).

The right to arbitrate a dispute, like all contract rights, is subject to waiver. Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir.1986). Although waiver of arbitration is a disfavored finding, "[w]aiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party." Id. at 496-97. A party generally invokes the judicial process by initially pursuing litigation of claims then reversing course and attempting to arbitrate those claims. See Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co., 304 F.3d 476, 484 (5th Cir.2002). But "waiver can also result from some overt act in Court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration." Id. (internal quotations omitted). One of the primary goals of arbitration is to avoid the expense of litigation. Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1158 (5th Cir.1986). In reviewing the question of whether the district court properly found waiver, then, we must look at two questions: (1) did Nicholas substantially invoke the judicial process, and if, so (2) was KBR prejudiced thereby?

A. Invocation of the Judicial Process

In the vast majority of cases involving the question of waiver, it is the party being sued that belatedly seeks arbitration. Here, in contrast, it is the plaintiff, who, despite filing suit and pursuing her claims in court for more than ten months, now seeks to compel arbitration. The district court concluded that Nicholas substantially invoked the judicial process by filing suit and pursuing her claims for over ten months before invoking her right to arbitrate. We agree.

Although this circuit has not expressly drawn a distinction between the waiver analysis when applied to a plaintiff and that applied to a defendant, we have recognized that the decision to file suit typically indicates a "disinclination" to arbitrate. Joseph Chris Pers. Servs. Inc. v. Rossi, 249 Fed.Appx. 988, 991 (5th Cir.2007) (unpublished); see also Miller, 781 F.2d at 497 (concluding that a party revealed a "disinclination to resort to arbitration" by, among other things, filing suit in state court without mentioning its desire to arbitrate). We have not, however, gone as far as the Seventh Circuit on this issue, and we do not do so here, as we continue to require a showing of prejudice, even if there is a substantial invocation of the process. See Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir.1995) (holding that a party's "election to proceed before a nonarbitral tribunal for the resolution of a contractual dispute is a presumptive waiver of the right to arbitrate.").³

We conclude that the act of a plaintiff filing suit without asserting an arbitration clause constitutes substantial invocation of the judicial process, unless an exception applies. Indeed, short of directly saying so in open court, it is difficult to see how a party could more clearly "evince[ ] a desire to resolve [a] . . . dispute through litigation rather than arbitration," Gulf Guar., 304 F.3d at 484, than by filing a lawsuit going to the merits of an otherwise arbitrable dispute. We emphasize that the legal standard...