After litigating for nine months, including engaging in active discovery, the plaintiff sought an “eleventh-hour stay” in favor of litigation. Not condoning “the use of an arbitration clause as a parachute when judicial winds blow unfavorably”, the First Circuit found the plaintiff waived its right to arbitrate.
In Joca-Roca Real Estate, LLC v. Brennan, No. 14-1353 (1st Cir. Dec. 1, 2014), the plaintiff alleged claims for fraud and breach of contract arising from an asset purchase agreement. While the agreement contained a broad arbitration clause, the plaintiff made no effort to pursue arbitration, instead filing claims in federal court. For eight months, the parties engaged in extensive discovery including sixteen depositions, interrogatories, and the exchange of thousands of pages of documents, as well as several telephone conferences to resolve discovery disputes and scheduling conflicts. On December 6, 2013, with trial scheduled for February 3, 2014, and without explanation, plaintiff moved to stay the proceedings pending arbitration; defendant objected.
In determining whether conduct-based waiver has occurred, the First Circuit asks whether there has been an undue delay in seeking arbitration and whether the other party would suffer unfair prejudice were the request for arbitration to be granted. That determination, according to the court, rests on a ‘salmagundi’ of factors including: the length of the delay, the participation in the litigation of the party now seeking arbitration, the amount of discovery and other litigation related activities. In Joca-Roca, the plaintiff claimed that the district court found a waiver of arbitral rights without requiring a showing of prejudice to the defendant, thus applying the wrong legal standard.
The First Circuit, found undue delay not only manifest but particularly troubling because the plaintiff never offered an explanation for it. Admitting that the required showing of prejudice was ‘tame at best’, the court said some degree of prejudice may be inferred from a protracted delay and sufficient litigation activity.
And, the longer the delay and the more extensive the litigation activities, the stronger the inference of prejudice. In this case, the court had no difficulty finding prejudice in the significant discovery that occurred (as well as the likely substantial expenses incurred by the defendant) and the postponed resolution of the case if the forum were changed. Given the chronology and circumstances, the court considered it ‘nose-on-the-face-plain’ that the defendant demonstrated granting a stay would cause him prejudice.