The opinion
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
ROBERT LEJA, JR. AND THOMAS CIVIL ACTION
DAVIS
VERSUS
BROUSSEAU MANAGEMENT CoO., NO.: 19-00269-BAJ-EWD
L.L.C., ET AL.
RULING AND ORDER
Before the Court is the Motion for Partial Dismissal to Compel
Arbitration (Doc. 21) filed by Defendants. Plaintiffs have filed an opposition (Doc.
24). For the reasons that follow, the Motion (Doc. 21) is DENIED.
I. BACKGROUND
According to the allegations of the Second Amended Complaint, Leja signed an
arbitration agreement mandating arbitration before the Association of Professional
Arbitrators and Mediators (APAM). (Doc. 20 at 11). On April 9, 2019, Leja’s counsel
requested to toll the statute of limitations. fd. On April 12 and 15, Leja’s counsel
followed up with Defendants regarding tolling. Id. On April 16, Leja’s counsel filed
an arbitration demand and sent a copy of the demand to Defendants’ counsel. Jd. On
April 30, Defendants’ counsel agreed to a tolling agreement in writing. Jd. On May
1, Defendants’ counsel attempted to retract the tolling agreement. Jd. That same
day, Leja filed suit against Defendants. (Doc. 1). On May 2, APAM sent Leja’s
arbitration demand to Defendants’ counsel. (Doc. 20 at 12). Pursuant to APAM rules,
Defendants had until May 12 to file an answering statement. /d. As of July 22,
Defendants still had not filed an answering statement. Jd. On July 22, Plaintiffs
field their Second Amended Complaint. On July 26, Defendants filed their Motion
for Partial Dismissal to Compel Arbitration, (Doc. 21), On September 23, Plaintiffs
filed an opposition, in which they argue that Defendants waived their right to compel
arbitration. (Doc. 24). Defendants never filed a reply.
LEGAL STANDARD
Under Federal Rule of Civil Procedure 12(b)(1), a claim is “properly dismissed
for lack of subject-matter jurisdiction when the court lacks the statutory or
constitutional power to adjudicate the claim.” In re FEMA Trailer Formaldehyde
Products [nab. Litig, 668 F.3d 281, 286 (5th Cir. 2012) (quoting Home Builders Ass’n,
Inc, v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998)). In determining its
jurisdiction, the Court may consider “(1) the complaint alone, (2) the complaint
supplemented by undisputed facts evidenced in the record, or (8) the complaint
supplemented by undisputed facts plus the [Clourt’s resolution of disputed facts.”
Carroll v. Abide, 788 F.3d 502, 504 (5th Cir. 2015) (citation omitted).
HI. DISCUSSION
The Federal Arbitration Act (“FAA”) requires courts to enforce arbitration
agreements by issuing an order directing the parties to engage in arbitration and
staying litigation in any case raising a dispute referable to arbitration. Moses H.
Cone Mem Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (19838).
The FAA provides:
If any suit or proceeding be brought in any of the courts of
the United States upon any issue referable to arbitration
under an agreement in writing for such arbitration, the
court in which such suit is pending, upon being satisfied
that the issue involved in such suit or proceeding is
referable to arbitration under such an agreement, shall on
application of one of the parties stay the trial of the action
until such arbitration has been had in accordance with the
terms of the agreement.
U.S.C. § 3 (2012).
When considering a motion to compel arbitration, the Court must determine
first whether a valid arbitration agreement exists between the parties, and second,
whether the dispute is within the scope of the arbitration agreement. Graves v. BP
America, Inc., 568 F.3d 221, 222 (5th Cir. 2009). Neither party disputes there is a
valid agreement that provides for arbitration. Rather, Plaintiff argues that
Defendants waived their right to compel arbitration.
“The right to arbitration, like any other contract right, can be waived.” Miller
Brewing Co. v. Fort Worth Distributing Co., Inc., 781 F.2d 494, 497 (5th Cir. 1986).
“Waiver will be found when the party seeking arbitration substantially invokes the
judicial process to the detriment or prejudice of the other party.” Jd. “A party
generally invokes the judicial process by initially pursuing litigation of claims then
reversing course and attempting to arbitrate those claims.” Nicholas v. KBR, Inc.,
565 F.3d 904, 907 (5th Cir. 2009). However, “waiver can also result from some overt
act in Court that evinces a desire to resolve the arbitrable dispute through litigation
rather than arbitration.” Jd, Gnternal quotation marks omitted).
“[F]or purposes of a waiver of an arbitration agreement: prejudice refers to the
inherent unfairness in terms of delay, expenses, 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 that same issue.” Republic Ins. Ca. v. PAICO Receivables, LLC, 383 F.3d
341, 346 (6th Cir. 2004) Gnternal quotation marks omitted). The United States Court
of Appeals for the Fifth Circuit has recognized that engaging in pretrial discovery of
arbitrable claims, incurring time and expense engaging in pretrial motion practice
concerning arbitrable issues, and failing to timely assert the right to arbitration are
factors to consider in determining whether a party seeking arbitration has caused
prejudice to the opposing party. Id.
Although the Fifth Circuit has not expressly identified conduct that amounts
to a waiver of the right to arbitrate, other circuits have offered guidance on this point.
In Brown v. Dillard’s, Inc., 430 F.3d 1004, 1005 (9th Cir. 2005), the plaintiff filed a
notice of intent to arbitrate a wrongful termination claim. The defendant refused to
participate in the arbitration proceedings. Jd, The plaintiff filed suit. (Id. at 1006).
The United States Court of Appeals for the Ninth Circuit found that the defendant
waived its right to arbitrate the plaintiffs claims because its refusal to arbitrate after
being served with the plaintiffs notice of intent to arbitrate was an act inconsistent
with that right. Ud. at 1012). The Ninth Circuit also stated that the plaintiff chose
to arbitrate, not to litigate, and sued as a last resort when she was rebuffed by the
defendant. Ud. at 1012-18). Thus, it concluded, the delay and costs the plaintiff
incurred were prejudicial. Ud. at 1013).
Similarly, in O./. Distributing, Inc. v. Hornell Brewing Co., 340 F.3d 345 (6th
Cir. 2003), the plaintiff entered a distribution agreement with the defendant, which
included a mandatory arbitration provision. The defendant informed the plaintiff
that it would stop supplying it with its products. The plaintiff threatened legal action.
Over the next year, the parties engaged in negotiations, during which time the
defendant’s representatives denied the agreement’s existence. The plaintiff filed suit,
and the defendant moved to compel arbitration. The United States Court of Appeals
for the Sixth Circuit held that the defendant had waived its right to arbitrate due to
its engaging in negotiations with the plaintiff for over a year while denying the
existence of the agreement, and therefore the arbitration provision. (Ud. at 357).
In In Re Tyco Intl Ltd. Sec. Litig., 422 F.3d 41, 42 (st Cir. 2005), the plaintiff
and the defendant signed an agreement requiring the parties to submit all disputes
arising from or concerning the defendant’s employment to binding arbitration. The
plaintiff submitted a demand for arbitration against the defendant. fd. The
defendant sent the plaintiff a letter stating that he did not agree to participate in the
arbitration. Ud. at 45). The plaintiff sued the defendant. (/d. at 43). The defendant
moved to dismiss, citing the binding arbitration clause in the agreement. Jd. The
United States Court of Appeals for the First Circuit held that the defendant had
unequivocally waived his arbitration rights. Ud. at 44). The First Circuit also found
that the plaintiff had suffered prejudice because if had submitted a doomed demand
for arbitration, filed a complaint, and defended against two motions for compelled
arbitration. (Ud. at 46).
Lastly, in Robinson v. Alston, 596 F. App’x 871, 871 (1th Cir. 2015), the
plaintiffs brought an action against the defendants. The Court granted a consent
motion to stay the proceedings pending arbitration. Jd. Over the next several
months, the defendants ignored correspondence from the plaintiffs seeking to initiate
the arbitration proceedings, forcing the plaintiffs to move to reopen the case. Cd. at
872). The defendants moved to compel arbitration. Id. The United States Court of
Appeals for the Eleventh Circuit held that the defendants waived their arbitration
right by acting inconsistently with their desire to arbitrate the case. ([d. at 873). The
defendants contended that they did not affirmatively invoke litigation machinery, but
rather that their only action was inaction. Id. The Eleventh Circuit dispelled the
defendants’ argument, noting that by ignoring the plaintiffs’ requests to initiate the
arbitration hearing, the defendants forced the plaintiffs to participate in the district
court proceedings, thus raising their litigation costs. Id.
In the case before the Court, Leja’s counsel filed an arbitration demand on
April 16. (Doc. 20 at 11). On April 30, Defendants’ counsel agreed to a tolling
agreement in writing. Jd. On May 1, Defendants’ counsel attempted to retract the
tolling agreement. fd, That same day, Leja filed suit against Defendants. (Doc. 1).
On May 2, APAM sent Leja’s arbitration demand to Defendants’ counsel. (Doc. 20 at
12). As of July 22, Defendants still had not filed an answering statement. Id. On
July 26, Defendants filed their Motion for Partial Dismissal to Compel Arbitration.
(Doc. 21). In their Motion, Defendants do not contest or deny the allegations of the
Second Amended Complaint, on which Plaintiffs waiver argument is based, and also
do not contend that they have filed an answering statement to Leja’s arbitration
demand. On September 23, Plaintiffs filed an opposition, in which they argue that
Defendants waived their right to compel arbitration. (Doc, 24). Defendants never
filed a reply.
In determining its jurisdiction on a motion under Rule 12(b)(1), the Court may
consider “(1) the complaint alone, (2) the complaint supplemented by undisputed facts
evidenced in the record, or (8) the complaint supplemented by undisputed facts plus
the [Cjourt’s resolution of disputed facts.” Carroll, 788 F.3d at 504. Given that
Defendants have not disputed the alleged facts on which Plaintiffs’ waiver argument
is based, and pursuant to Brown, O.J. Distributing, Inc., Tyco, and Robinson, the
Court concludes that Defendants waived their right to arbitrate by ignoring
correspondence seeking to initiate the arbitration proceedings. Defendants’ inaction
evinces a desire to resolve the arbitrable dispute through litigation rather than
arbitration. See NCM Int'l, Inc. v. Cozzoli Mach. Co., 2007 WL 9761624, at *5 (D.P.R.
Sept. 18, 2007) (“In sum, the Court agrees with the Magistrate Judge’s conclusions
that Defendant’s inaction caused precisely the type of undue delay that rises to the
level of waiver of arbitral rights [and] that Defendant’s silence was tantamount to
rejecting plaintiffs demand for arbitration.”) Gnternal quotation marks omitted)).
The Court also finds that Defendants’ inaction caused Plaintiffs prejudice.
Leja submitted a domed demand for arbitration, sued as a last resort to toll the
statute of limitations, and incurred time and expense defending against Defendants’
Motion for Partial Dismissal to Compel Arbitration.
IV. CONCLUSION
Accordingly,
IT IS ORDERED that the Motion for Partial Dismissal to Compel
Arbitration (Doc. 21) is DENIED.
Baton Rouge, Louisiana, this 10 day of March, 2020.
ba. >t
JUDGE BRIA JACKSON
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA