Summary
finding the parties seeking arbitration "frustrated the purpose behind arbitration by their long [twenty-month] delay in requesting arbitration and by taking full advantage of the litigation process"
Summary of this case from Heartland Coop. Co. v. MurphyOpinion
No. 1-999 / 00-1630.
Filed February 20, 2002.
Appeal from the Iowa District Court for Wayne County, DAVID L. CHRISTENSEN, Judge.
The plaintiff was granted interlocutory appeal from the trial court's ruling granting the defendants' motion to compel arbitration. REVERSED AND REMANDED.
Verle W. Norris, Corydon, for appellant.
Bruce B. Green and Brett Ryan of Willson Pechacek, P.L.C., Council Bluffs, for appellees.
Considered by VOGEL, P.J., and MILLER and EISENHAUER, JJ.
The plaintiff was granted an interlocutory appeal from the trial court's ruling granting the defendants' motion to compel arbitration. The plaintiff contends the court erred in compelling arbitration. We reverse and remand.
I. BACKGROUND FACTS.
On December 16, 1998, plaintiff Frank Campbell filed a petition alleging the defendants, Ag Finder Iowa Nebraska, Management Consultants, Inc., and Paul R. Sopinski, breached a contract for the sale of Campbell's 1997 organic soybeans. On February 13, 1999 the defendants served an answer with affirmative defenses and counterclaims. The affirmative defenses included an allegation that the plaintiff's claims were, pursuant to the terms of the contract, subject to arbitration. An October 1999 order scheduled trial to commence July 12, 2000. A July 7, 2000 order, agreed to by the parties, continued trial to September 27, 2000.
On August 23, 2000 the defendants filed a motion to compel arbitration. On August 30 the plaintiff filed a resistance. On September 6 the defendants served an amended motion to compel arbitration. In a September 8 calendar entry the district court granted the amended motion and directed counsel for defendants to prepare a formal order for arbitration. Such an order was filed September 18, 2000. It stayed this action until arbitration was had, pursuant to 9 U.S.C. § 3 and Iowa Code section 679A.2 (1999). Our supreme court granted Campbell's application for interlocutory appeal from the ruling compelling arbitration.
II. SCOPE OF REVIEW.
We review the district court's ruling on a motion to compel arbitration for the correction of errors at law. Wesley Ret. Servs., Inc. v. Hansen Lind Meyer, Inc., 594 N.W.2d 22, 29 (Iowa 1999).
III. WAIVER OF ARBITRATION.
On appeal, Campbell argues the trial court erred in compelling arbitration by (1) failing to determine whether arbitration clauses in the parties' contracts were valid, and (2) not finding defendants waived their right to enforce the arbitration provisions by filing and pursuing counterclaims and a motion for summary judgment and by waiting nearly twenty months before seeking arbitration. Because we find Campbell's claim that the defendants waived their right to arbitration dispositive of this appeal, we address it first.
Whether a waiver has occurred is generally a fact question. See Scheetz v. IMT Ins. Co. (Mut.), 324 N.W.2d 302, 304 (Iowa 1982); Wemer v. Long, 185 N.W.2d 243, 247 (Iowa 1971). The issue of whether one has waived his right to arbitrate turns on the significance of action taken in a judicial forum, and is an issue for the court to decide. Clinton Nat'l Bank v. Kirk Gross Co., 559 N.W.2d 282, 284 (Iowa 1997). Although both the plaintiff's resistance to the motion to compel arbitration and his Iowa Rule of Civil Procedure 179(b) motion raised claims that the defendants' actions waived any right to arbitration or estopped the defendants from asserting a right to arbitration, the trial court did not expressly address or rule on those repeated assertions. However, implicit in its orders is a finding that the defendants did not waive a right to demand arbitration. See Bahnsen v. Rabe, 276 N.W.2d 413, 414 (Iowa 1979). This finding is binding on appeal if supported by substantial evidence. See Iowa R. App. P. 14(f)(1).
"The essential test for waiver of arbitration requires conduct or activity inconsistent with the right to arbitration and prejudice to the party claiming waiver." Clinton Nat'l Bank, 559 N.W.2d at 284 (quoting Tjeerdsma v. Global Steel Bldgs., Inc., 466 N.W.2d 643, 645 (S.D. 1991)) (emphasis in original). Factors relevant to the assessment of prejudice include the delay in the moving party's request for arbitration and the extent of the moving party's trial-oriented activity. See id. Prejudice can result from "lost evidence, duplication of efforts, or the use of discovery methods unavailable in arbitration." Id. Evidence of waiver must be compelling. Id. Keeping these rules in mind, we must determine whether the district court's unstated factual finding is supported by substantial evidence.
Campbell filed suit on December 16, 1998. The defendants filed an answer, alleging as an affirmative defense that Campbell's claims were subject to arbitration in Nebraska. The defendants also asserted counterclaims involving 1998 contracts between the parties. The record indicates the defendants designated experts and served a request for admissions, a supplemental request for admissions, and a request for the production of documents on Campbell. They filed a motion for summary judgment which was decided adversely to them. They later agreed to a continuance of trial. They did not file a motion to compel arbitration until August 23, 2000, approximately one month prior to the rescheduled trial date and over twenty months after the lawsuit was commenced.
We conclude the trial court erred in determining the defendants did not waive their right to arbitration. Their conduct during the period of over twenty months from the filing of the petition to the date of the motion to compel arbitration was inconsistent with asserting such a right. They utilized discovery methods that are unavailable in arbitration (requests for admissions), see Iowa Code section 679A.7, and otherwise fully availed themselves of the litigation process, including an unsuccessful motion for summary judgment.
In addition, the defendants' conduct prejudiced Campbell by forcing him to participate in discovery and requiring him to spend money and expend other resources in preparation for trial that might not have been necessary in arbitration. Finally, we conclude the defendants have frustrated the purpose behind arbitration by their long delay in requesting arbitration and by taking full advantage of the litigation process. See Modern Piping, Inc. v. Blackhawk Automatic Sprinklers, Inc., 581 N.W.2d 616, 621-22 (Iowa 1998), overruled on other grounds by Wesley, 594 N.W.2d at 29.
Although our preceding analysis is based on Iowa law, the same analysis applies under the Federal Arbitration Act, 9 U.S.C. § 1-14, as shown by cases decided under that Act.
A party is "in default in proceeding with . . . arbitration" under § 3 of the Federal Arbitration Act "when the party `actively participates in a lawsuit or takes other action inconsistent with' the right to arbitration." N D Fashions, Inc. v. DHJ Indus., Inc., 548 F.2d 722, 728 (8th Cir. 1976) (quoting Cornell Co. v. Barber Ross Co., 360 F.2d 512, 513 (D.C. Cir. 1966)). Such a "default" constitutes a waiver of a right to arbitration. Id. The question of whether such a waiver exists is a question for determination by the courts. Id.; see also Weight Watchers of Quebec Ltd. v. Weight Watchers Int'l, Inc., 398 F. Supp. 1057, 1059 (E.D.N.Y. 1975) (holding that where issue of waiver turns on significance of actions taken in a judicial forum, the issue is one for the court, rather than the arbitrator, to decide).
A litigant may waive its right to invoke the Federal Arbitration Act by so substantially utilizing the litigation machinery that to subsequently permit arbitration would prejudice the party opposing the stay. The dispositive question is whether the party objecting to arbitration has suffered actual prejudice. Neither delay nor the filing of pleadings by the party seeking a stay will suffice, without more, to establish waiver of arbitration. However, delay and the extent of the moving party's trial-oriented activity are material factors in assessing a plea of prejudice. [W]here a party fails to demand arbitration during pretrial proceedings, and, in the meantime, engages in pretrial activity inconsistent with an intent to arbitrate, the party later opposing a motion to compel arbitration may more easily show that its position has been compromised, i.e., prejudiced.
Fraser v. Merrill Lynch Pierce, Fenner Smith, Inc., 817 F.2d 250, 252 (4th Cir. 1987) (citations and internal quotations omitted).
After commencement of this lawsuit the defendants undertook significant discovery and a trial date was set. The defendants filed and pursued a motion for summary judgment, on which they were unsuccessful. They agreed to a continuance of trial and a new trial date. Then about one month before the rescheduled trial date and more than twenty months after this case was commenced they first formally sought to compel arbitration. For the same reasons earlier stated in analyzing these facts under state law we conclude the plaintiffs have suffered actual prejudice which, coupled with the defendants' substantial delay in formally requesting arbitration, constituted a waiver by defendants of a right to arbitration.
IV. CONCLUSION.
We conclude that the trial court's ruling is not supported by substantial evidence. Accordingly, we reverse the order compelling arbitration, vacate the stay of trial court proceedings and remand to the trial court for proceedings not inconsistent with this opinion. Our decision on the waiver issue makes it unnecessary to consider Campbell's remaining contention.
REVERSED AND REMANDED.