Petroleum Pipe Americas Corp. v. Jindal Saw, Ltd.

• Decision Date: 09 July 2009
• Docket Number: No. 08-20461.,08-20461.
• Citation: 575 F.3d 476
• Parties: PETROLEUM PIPE AMERICAS CORPORATION, Plaintiff-Appellee, v. JINDAL SAW, LTD., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

575 F.3d 476

PETROLEUM PIPE AMERICAS CORPORATION, Plaintiff-Appellee, v. JINDAL SAW, LTD., Defendant-Appellant.

No. 08-20461.

United States Court of Appeals, Fifth Circuit.

July 9, 2009.

David Michael Bond (argued), Craig Douglas Dillard, Boyar & Miller, Houston, TX, for Plaintiff-Appellee.

Hunter M. Barrow, Thompsom & Knight, L.L.P., Houston, TX, Debora B. Alsup (argued), Thompson & Knight, LLP, Austin, TX, for Defendant-Appellant.

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

Before JONES, Chief Judge, and WIENER and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

Jindal Saw, Ltd. ("Jindal") appeals the district court's denial of its motion to stay litigation and compel arbitration. We affirm.

I

Defendant-Appellant Jindal is a manufacturer of steel pipes based in India. Plaintiff-Appellee Petroleum Pipe Americas Corp. is a Texas-based corporation whose United Arab Emirates' affiliate, Petroleum Pipe Middle East (collectively, "PPA"), began purchasing pipe from Jindal in the fall of 2004. From November 2004 until August 2005, Jindal accepted several purchase orders from PPA for various grades of pipe. These purchase orders do not contain arbitration clauses. PPA then supplied the pipe to third-parties, two of whom—Gunn Oil Co. ("Gunn") and Magnum Producing, LP ("Magnum")—suffered well failures allegedly caused by defective Jindal grade P110 pipe. PPA notified Jindal that PPA had reached a settlement with Gunn and Magnum conditioned on Jindal's agreement to a separate settlement with PPA. Jindal responded favorably to this offer, and, on January 9, 2006, the parties resolved the dispute by reaching a comprehensive settlement agreement ("Settlement Agreement") in which Jindal would, inter alia, pay PPA $750,000 as full settlement of all claims that Gunn and Magnum brought against PPA and give PPA a $200,000 credit on two pending purchase orders. The agreement defines "Financial Claims" as those raised by PPA against Jindal in PPA's December 2, 2005 claim letter. In turn, that claim letter describes the Gunn and Magnum claims and also specifically describes the issues with the P110 pipe, but with no other pipe. Likewise, the Settlement Agreement specifically mentions only P110 pipe.

The Settlement Agreement includes a release provision in which PPA contracted to forgo:

any claim against the claimed rejection in [PPA's] Internal Inspection carried out on any other material bought by [PPA] from [Jindal]. This clause relates only to the material received up to 12th December 2005. PPA reserves the right to bring claims for claimed rejection in respect of material received after this date.

Additionally, the parties' meeting minutes from the discussions surrounding the Settlement Agreement state that the Settlement Agreement "forms as the full and final settlement of the claims on P110 products supplied so far to [PPA], as on date." The parties dispute whether the release agreement applies to claims for all defective pipe received before December 12, 2005, or only P110 pipe received before that date.

The Settlement Agreement includes an arbitration clause whereby:

The parties agree to have the dispute if any to have the same arbitrated [sic] than litigated. All disputes arising in connection with the present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by a Sole Arbitrator.... The law governing the contract and the arbitration procedure shall be English law. The place of arbitration shall be London.

On May 30, 2007, PPA sent Jindal a demand letter alleging that Jindal sold PPA defective L80 and N80 pipe. On that same day, PPA filed the instant lawsuit in Texas state court seeking damages of $2.46 million for breach of contract and breach of warranty based on the allegedly defective L80 and N80 pipe, but not any P110 pipe. PPA has disclaimed any intention to seek damages for L80 and N80 pipe that was inspected and rejected before December 12, 2005. On July 9, 2007, Jindal removed this case to the District Court for the Southern District of Texas. A week later, Jindal filed an answer and counterclaim. In its counterclaim, Jindal alleges that PPA failed to fulfill what Jindal views as PPA's obligations under the Settlement Agreement, including PPA's alleged agreement to purchase an additional 6,000 metric tons of pipe from Jindal. Jindal asserts four causes of action related to PPA's performance under the Settlement Agreement: (1) breach of the Settlement Agreement and purchase orders, (2) unjust enrichment or restitution for the amount Jindal paid to PPA under the Settlement Agreement, (3) promissory estoppel, and (4) money had and received.

The parties then exchanged documents and, at the district court's urging, discussed settlement and kept the judge updated regarding settlement discussions. The district court held a series of off-the-record conferences in chambers over the next several months. On November 15, 2007, the parties submitted a joint status report stating that at the October 29, 2007, status conference, the parties had agreed "that in the event that settlement was unlikely, that they could narrow the issues in the case to several discrete legal issues requiring rulings from the Court." Following another conference on March 12, 2008, the parties jointly filed their respective interpretations of the Settlement Agreement, neither of which mentioned the arbitration provision. Then, according to PPA, the district court, in a May 19, 2008, off-the-record conference, interpreted the Settlement Agreement in a manner contrary to Jindal's interests. Jindal characterizes this conference as an informal discussion in which the district court "expressed concern" over Jindal's interpretation, and denies that any rulings were made.

On May 29, 2008, ten days after that conference and a year after PPA originally filed suit, Jindal moved to stay the litigation and compel arbitration. PPA objected on two grounds: (1) that the claims did not fall within the scope of the arbitration clause of the Settlement Agreement, and (2) that even if the parties had agreed to arbitrate the claims, Jindal waived that right by substantially invoking the judicial process. The district court summarily denied Jindal's motion to stay and to compel arbitration. Jindal timely filed a notice of appeal.

II

Because Jindal seeks review of an order refusing to stay the proceedings and compel arbitration, we have jurisdiction over this interlocutory appeal. See Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir.2004). This court reviews de novo a district court's denial of a motion to stay litigation and to compel arbitration. See Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1065 (5th Cir.1998).¹

III

Even assuming arguendo that the parties agreed to arbitrate their dispute, Jindal has waived its right to compel arbitration. "The question of what constitutes a waiver of the right of arbitration depends on the facts of each case...." Walker v. J.C. Bradford & Co., 938 F.2d 575, 576 (5th Cir.1991) (citation omitted). The court finds waiver "when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party."² Id. at 577 (citation omitted). In this context, "prejudice" means "the inherent unfairness in terms of delay, expense, or damage to a party's legal position that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate the same issue." Republic, 383 F.3d at 346 (citation omitted). And, "[t]hree factors are particularly relevant" to the prejudice determination: (1) whether discovery occurred relating to arbitrable claims; (2) the time and expense incurred in defending against a motion for summary judgment; and (3) a party's failure to timely assert its right to arbitrate. Id.

To invoke the judicial process, a 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." Id. at 344 (citation omitted). A presumption against waiver exists such that the party asserting waiver "bears a heavy burden of proof in its quest to show" waiver. Id. at 344 (citation omitted). And, "[w]hile the mere failure to assert the right of arbitration does not alone translate into a waiver of that right ... such failure does bear on the question of prejudice, and may, along with other considerations, require a court to conclude that waiver has occurred." Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1161 (5th Cir.1986). A party waives arbitration by seeking a decision on the merits before attempting to arbitrate. See Miller Brewing Co. v. Ft. Worth Distributing Co., 781 F.2d 494, 498 (5th Cir.1986) ("Any attempt to go to the merits and to retain still the right to arbitration is clearly impermissible." (quotation omitted)).

In this case, PPA argues that Jindal's actions demonstrate a desire to litigate rather than arbitrate, stating that, before seeking to compel arbitration, Jindal: (1) delayed seeking arbitration until a year after PPA filed suit; (2) removed the case to federal court; (3) filed counterclaims that relate to the Settlement Agreement; (4) participated in discovery and numerous discovery meetings; and (5) sought a ruling from the district court on the interpretation of the Settlement Agreement. According to PPA, Jindal sought to compel arbitration in an attempt to avoid the district court's anticipated unfavorable interpretation of the Agreement.

Jindal does not contest that it took the first four actions cited by PPA but contends that they do not support a waiver finding. Jindal denies, however, that it sought any merits ruling from the district court or that any "substantive decisions" took place, and contends that the district court merely "expressed concern"...