Summary
holding that a party who delayed making a motion to compel arbitration for eleven months while it vigorously litigated its case had waived its right to arbitration
Summary of this case from Am. Neighborhood Mortg. Acceptance Co. v. LundOpinion
No. 07-2076.
Submitted Under Third Circuit LAR 34.1(a) December 13, 2007.
Filed: December 18, 2007.
Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action No. 05-cv-2206), District Judge: Honorable Jerome B. Simandle.
Roger B. Kaplan, Greenberg Traurig, Florham Park, NJ, for South Broward Hospital District.
Laura M. Klaus, Robert P. Charrow, Greenberg Traurig, Washington, DC, for Appellees.
Olivier Salvagno, Greenbaum, Rowe, Smith, Ravin, Davis Himmel, Iselin, NJ, Marc J. Gross, Greenbaum, Rowe, Smith Davis, Roseland, NJ, Gail J. Standish, Peter E. Perkowski, Neal R. Marder, Stephen R. Smerek, Winston Strawn, Los Angeles, CA, for Appellants.
OPINION
Medquist Inc, a provider of transcription services to hospitals, appeals the District Court's denial of its motion to compel arbitration. As we agree with the District Court that Medquist waived its right to compel arbitration, we affirm.
Plaintiffs-appellees are a putative class of hospitals. They allege that Medquist manipulated its billing practices in a fraudulent manner that violated the Racketeer Influenced and Corrupt Organizations Act, resulting in various tort claims. Their action, initially filed in the Central District of California, was transferred to the District of New Jersey. After motion practice before that Court and 16 months into the case, Medquist moved to compel arbitration.
The Federal Arbitration Act, 9 U.S.C. § 1, et seq., establishes a policy in favor of arbitration that requires the liberal reading of arbitration agreements and the resolution of any doubts in favor of arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Waiver of the right to compel arbitration is not to be inferred lightly. Great W. Mortgage Corp. v. Peacock, 110 F.3d 222, 233 (3d Cir. 1997) (citing PaineWebber Inc. v. Faragalli, 61 F.3d 1063, 1068 (3d Cir. 1995)). Prejudice is the touchstone for evaluating an asserted waiver of the right to compel arbitration. Ehleiter v. Grape-tree Shores, Inc., 482 F.3d 207, 223 (3d Cir. 2007) (citing Hoxworth v. Blinder, Robinson, Co., 980 F.2d 912, 925 (3d Cir. 1992)). In determining prejudice, we consider the following non-exclusive list of factors: (1) the timeliness or lack of a motion to arbitrate; (2) the degree to which the party seeking to compel arbitration has contested the merits of its opponent's claims; (3) whether the party has informed its adversary of the intention to seek arbitration even if it has not yet filed a motion to stay the District Court proceedings; (4) the extent of that party's non-merits motion practice; (5) its assent to the District Court's pretrial orders; and (6) the extent to which the parties have engaged in discovery. Id. at 222 (citing Hoxworth, 980 F.2d at 926-27). Waiver normally will be found only "where the demand for arbitration came long after the suit commenced and when both parties had engaged in extensive discovery." Faragalli 61 F.3d at 1068-69 (quoting Gavlik Constr. Co. v. H.F. Campbell Co., 526 F.2d 777, 783 (3d Cir. 1975)).
To repeat, the motion to compel arbitration before us came 16 months after the filing of suit. Even after subtracting the five months at the beginning of the case during which no plaintiffs had been named that were parties to contracts containing arbitration provisions, the remaining 11-month period is as long as the period at issue in Hoxworth. See 980 F.2d at 925; see also id. at 926 (noting that "courts have not hesitated to hold that the right to arbitrate has been waived under circumstances similar to those here"). Although the District Court did not entertain motions for summary judgment, Medquist twice tested the sufficiency of the pleadings with motions to dismiss. The fact that the parties did not engage in discovery normally precludes a finding of waiver, but here it is outweighed by Medquist's tactical decision to litigate extensively in federal court before seeking to compel arbitration.
However, plaintiffs incorrectly alleged in the initial complaint that they were parties to contracts containing arbitration provisions and that agreement to those provisions was fraudulently induced. This error was one basis for defendants' motion for Rule 11 sanctions against plaintiffs and their counsel. See Motion for Sanctions 17-22, Case No. C 05-2206 JBS (D.N.J., Nov. 8, 2005).
As detailed by the District Court, Medquist litigated this case vigorously before expressing an intent to force arbitration. This is demonstrated by its motion to dismiss the second amended complaint in favor of arbitration (which was filed eleven months after the beginning of the case, or five months before the motion to compel arbitration). That motion did not indicate an intent to move to compel arbitration in the future. Instead, it argued that "[b]ecause plaintiffs have not indicated whether they will pursue arbitration, and there is no request to compel arbitration before the Court, a stay would serve no purpose and the action should be dismissed." In other words, Medquist attempted to turn to its own advantage its decision not to move to compel arbitration. The hospitals may have delayed somewhat the litigation by their own conduct, but Medquist has not explained how the actions of the hospitals stopped it from moving to compel arbitration at an earlier date.
The District Court concluded correctly that Medquist made a tactical decision to forgo moving to compel arbitration pending litigation of the motions to dismiss. This decision exposed the hospitals to extensive litigation expense and allowed Medquist to pursue a total victory in federal court while presuming to reserve any motion to compel arbitration. Nothing in the cases cited by Medquist entitles it to expose the hospitals to such delay, expense, and prejudice and then move to compel arbitration. Medquist may have expressed its preference for arbitration, but that fact does not reduce the prejudice caused to the hospitals by its tactical decision not to move to compel arbitration. It moved to the arbitration alternative only when its preferred option proved unsuccessful. In this case, it was too late.
We thus affirm. In doing so, we do not reach the other issues raised by Medquist in this appeal because they have not been considered by the District Court.