Ritzel Communications, Inc. v. Mid-American Cellular Telephone Co.

• Decision Date: 19 May 1993
• Docket Number: MID-AMERICAN,No. 91-3212,91-3212
• Citation: 989 F.2d 966
• Parties: RITZEL COMMUNICATIONS, INC., Plaintiff, v.CELLULAR TELEPHONE COMPANY, a Kansas Corporation; Mac-Tel Co., a Kansas Corporation; Alton Cellular, Inc., a Missouri Corporation, Defendants. Mid-American Cellular Telephone Company; Third Party-plaintiff-Appellee, Barclay Robert Goodwin, Jr.; Steven L. Johnson; Emmett M. Capper; D.C. Taylor; Tina M. Green; B & R Communications, c/o Richard N. Brown; Appollo Communications; Channel Communication, c/o Ted and Delores Landkammer, Third Party-defendant-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 966

989 F.2d 966

RITZEL COMMUNICATIONS, INC., Plaintiff, v. MID-AMERICAN CELLULAR TELEPHONE COMPANY, a Kansas Corporation; Mac-Tel Co., a Kansas Corporation Alton Cellular, Inc., a Missouri Corporation, Defendants Mid-American Cellular Telephone Company; Third Party-plaintiff-Appellee Barclay Robert Goodwin, Jr.; Steven L. Johnson; Emmett M Capper; D.C. Taylor; Tina M. Green; B & R Communications, c/o Richard N. Brown; Appollo Communications; Channel Communication, c/o Ted and Delores Landkammer, Third Party-defendant-Appellants.

No. 91-3212.

United States Court of Appeals, Eighth Circuit.

Submitted Dec. 2, 1992.

Decided March 30, 1993.

Rehearing and Rehearing En Banc Denied May 19, 1993.

Frederick H. Riesmeyer, Kansas City, MO, argued, (J. Dale Youngs, on the brief), for appellants.

Mark D. Murphey, Kansas City, MO, argued (James Lieber, on the brief) for appellee.

Before JOHN R. GIBSON, Circuit Judge, FLOYD R. GIBSON, Senior Circuit Judge, and BEAM, Circuit Judge.

JOHN R. GIBSON, Circuit Judge.

Barclay Robert Goodwin, Jr. and several associates ¹ appeal from the district court's denial of their motion to stay litigation and compel arbitration. While this appeal was pending, the Goodwin group proceeded to try the case in the district court. We now determine that by continuing to litigate in the district court and by failing to seek a stay of the district court proceedings from this court or to otherwise expedite the appeal, the Goodwin group waived any right to arbitrate the purchase and sale agreement.

In March 1990, Mid-American Cellular Telephone Company sold one of its wholly-owned subsidiaries, Alton Cellular, Inc., to the Goodwin group of investors. The terms of the sale are contained in the "Stock Purchase Agreement" dated March 20, 1990.

On October 11, 1990, Ritzel Communications, Inc., the broker involved in the sale, sued Mid-American for recovery of a broker's fee. Mid-American's defense was that the sale to the Goodwin group had never been completed. On November 20, 1990, Mid-American moved to add members of the Goodwin group as additional parties needed for adjudication of the claims, and this motion was granted March 12, 1991. Mid-American named members of the Goodwin group as additional parties and, on March 27, 1991, Mid American filed a cross claim against the group. The district court later termed these filings a third-party complaint. On May 10, 1991 the Goodwin group filed a motion to dismiss the cross-claim of Mid-American and an alternative motion for a separate trial.

On June 28, 1991, the Goodwin group filed a motion to stay litigation and to compel arbitration based on cross indemnification agreements contained in the Stock Purchase Agreement. The district court denied the motion, concluding that arbitration under the Agreement was elective, not mandatory. ² The Goodwin group appealed.

While this appeal was pending, the group continued to litigate in the district court. On November 5, 1991, it filed an answer to Mid-American's cross-claim and its own amended counterclaim. It responded to interrogatories and requests for production, participated in the deposition of A. Lawrence Summers, and actively opposed the deposition of Barclay Robert Goodwin. The group participated in pre-trial conferences (including a settlement conference at which Ritzel and Mid-American settled) and filed numerous motions and documents in preparation for trial. ³ Eventually, the parties tried the case in a six-day bench trial which ended on June 3, 1992.

In this court, the Goodwin group twice requested and received extensions of time to file briefs. Under the original schedule, the briefing would have been completed by January 6, 1992. The group, however, obtained an extension of time to file its brief (originally due November 22), and filed its twelve-page brief on December 24. Mid-American obtained two extensions, totalling thirty days, to file its brief. The Goodwin group then obtained an extension to file a reply brief and filed its seven-page brief on March 17, 1992.

Until oral argument, the Goodwin group made no request to this court to expedite the appeal or to stay the proceedings in the district court. We heard argument on June 12, 1992, shortly after the completion of the trial in the district court, but before the district court had entered judgment and issued its findings of fact and conclusions of law. We then held the appeal in abeyance until the district court issued its final order.

On July 29, 1992, the Goodwin group filed a motion in this court requesting that proceedings in the district court be stayed pending our decision. The Goodwin group argued that because a decision by this court in its favor (i.e., upholding Goodwin's right to arbitrate) would vacate any order of the district court, concern for judicial economy justified the stay. We denied this motion.

In late November, we received a certified copy of the district court's order entering judgment against the Goodwin group, and requested additional briefing on the question of whether the Goodwin group had waived its right to arbitrate by continuing to litigate in the district court. For purposes of this appeal, we assume, without deciding, that the Goodwin group had a right to demand arbitration.

The issue before us then is whether the Goodwin group has waived its right of arbitration by proceeding to trial in the district court, by failing to raise the arbitration issue before this court in a motion either to expedite the appeal or to stay proceedings in the district court, and by delaying its filings in this court. We conclude that the group has waived its arbitration rights.

In light of the strong federal policy in favor of arbitration, any doubts concerning waiver of arbitrability should be resolved in favor of arbitration. Nesslage v. York Sec., Inc., 823 F.2d 231, 234 (8th Cir.1987). Nevertheless, we will find waiver where the party claiming the right to arbitrate: (1) knew of an existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by these inconsistent acts. Stifel, Nicolaus & Co. v. Freeman, 924 F.2d 157, 158 (8th Cir.1991).

The Goodwin group drafted the Stock Purchase agreement that contains the arbitration provisions, and thus knew of the existing right of arbitration. We must determine whether the Goodwin group acted inconsistently with its right to arbitrate and so prejudiced Mid-American. ⁴

We have considered similar "inconsistent action" questions in three previous cases. In N & D Fashions, Inc. v. DHJ Industries, 548 F.2d 722, 728 (8th Cir.1976), we concluded that there had been no waiver when a party responded to the filing of a suit by immediately demanding arbitration and by requesting a stay of proceedings in the district court. In Nesslage v. York Securities, we affirmed a district court finding of no waiver when a party did not assert its arbitration rights until after the filing of a relevant Supreme Court decision, and when discovery was limited to issues the Supreme Court held to be arbitrable. 823 F.2d at 234. Finally, in Stifel, we reviewed a waiver question de novo ⁵ and concluded that the party requesting arbitration had acted inconsistently with its right to arbitrate by initiating litigation and participating in discovery. 924 F.2d at 158. We found no waiver, however, because these inconsistent acts did not prejudice the other parties: "No issues were litigated and the limited discovery conducted will be usable in arbitration." Id. at 159.

The facts before us, distinguishable from those of the cases just cited, convince us that the Goodwin group acted inconsistently with its right to arbitrate. First, the group "[s]ubstantially invoke[d] the litigation machinery" before asserting its arbitration right. E.C. Ernst, Inc. v. Manhattan Const. Co., 559 F.2d 268, 269 (5th Cir.1977), cert. denied, 434 U.S. 1067, 98 S.Ct. 1246, 55 L.Ed.2d 769 (1978).

Mid-American filed its crossclaim against the Goodwin group on March 27, 1991. The Goodwin group's first response was not to demand arbitration, but to file (on May 10, 1991) a motion to dismiss, or in the alternative, to sever the cross-claim for a separate trial. The group's motion argued that it was improper for the group to be a party, that Mid-American had failed to join necessary parties, and that Mid-American had failed to state a claim with respect to Count III (a request for an accounting). Thus, before asserting the intent to arbitrate (on June 28, 1991), the group submitted the dispute to the court for resolution by either court order or a trial.

The motion for dismissal represents a substantial, active invocation of the litigation process. With this motion, the group initiated steps in the litigation and required responsive actions by Mid-American rather than immediately demanding arbitration. Moreover, the alternative motion is even more inconsistent with the arbitration rights; in essence, the Goodwin group requested a trial. ⁶

We think the Goodwin group's actions here resemble those described in two cases where other circuit courts found a waiver. In S & H Contractors, 906 F.2d at 1514, a party waived its arbitration rights by filing a motion to dismiss, opposing discovery, and taking the depositions of five of its opponent's employees. In the present case, we have less pretrial discovery activity, but do have the group's additional inconsistent acts of intentional delay and failure to expedite the appeal, which may have led to an unnecessary six-day trial on the merits.

In St. Mary's Medical Center v. Disco Aluminum Products, 969 F.2d 585, 587 (7th Cir.1992), a party waited ten months before asserting its arbitration rights and, in the interim, filed a motion to dismiss and an alternative motion for summary judgment. The Seventh Circuit concluded that the delay and the submission of the case by filing the motion to dismiss were inconsistent with the...