damages, there could be no finding that they had waived their right to arbitration by participating in litigation. See Respondents' "Counter-Petitioners' Reply Memorandum," p. 4. See also Rutger J. Schimmelpenninck's "Affidavit in Opposition to Petition to Stay, and in Support of Counter-Petition to Compel Arbitration," May 27, 1992 ("Under Dutch law, ZwitserLeven and ESC have never commenced litigation it the Netherlands against ABN CMC (or ABN), for which issuance of a Writ would be required." Id. at 8.). There are undoubtedly significant substantive and semantic differences in the procedures of Dutch and United States courts, but the inescapable reality is that Respondents engaged in substantial pre-trial discovery. Respondents now seek to use this discovery to "level the playing field" in the arbitration proceeding. See "Counter-Petitioners' Reply Memorandum," p. 8. This they cannot do.
Respondents also argue that Petitioner was not prejudiced by the Netherlands proceedings because Petitioner "had every opportunity to participate, and in fact did participate, in the Dutch hearings." "Counter-Petitioners' Reply Memorandum," p. 7 (underlined in original). See Schimmelpenninck's Affidavit ("Counsel for all parties had the opportunity to propose questions for each of these witnesses. Thus, counsel for ABN and ABN CMC were free, for example, to interrogate the chief executives of ZwitserLeven and ESC to the extent they saw fit." Id. at 7.).
The Court observes that when Respondents initiated the Netherlands proceeding, they did not give notice to Petitioner of their intent to arbitrate. Indeed, Respondents indicated in the original Request for Hearing in Amsterdam, that they intended "to file legal proceedings." Request for Hearing, p. 1. Petitioner claims that if it had been notified of Respondent's intention to arbitrate, it would have raised objections to the proceedings, and, in the event that those objections failed, would have conducted additional cross-examination of witnesses and might have called their own witnesses.
"Supplemental Declaration of H.G. Van Everdingen," pp. 4-5. Given the facts that the Petitioner neither called witnesses nor requested any document production in the Netherlands proceeding (See "Petitioner's Memorandum in Support of Petition to Stay Arbitration," May 4, 1992, p. 6), Petitioner's "opportunity to participate" seems to have been significantly prejudiced by its lack of notice.
The Court further observes that Respondents seem to confuse the legal meaning of "prejudice" in the context of finding a waiver to arbitrate. Respondents suggest that parties can conduct as much discovery as they want before seeking to arbitrate as long as the process of discovery is even-handed and affords the other party the same access to discovery. The Court disagrees with Respondents' legal interpretation of "prejudice." In the context of this case, prejudice signifies taking advantage of discovery procedures in litigation not otherwise available in arbitration. This prejudice may result whether or not the discovery process provides both sides the same opportunities for discovery.
Respondents have cited Rush v. Oppenheimer & Co. in support of their opposition to the petition to stay arbitration. Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985) See Com-tech Associates v. Computer Associates Intern., 753 F. Supp. 1078 (E.D.N.Y. 1990), aff'd 938 F.2d 1574 (2nd Cir. 1991) ("the starting point of the waiver analysis necessarily begins with the leading case of Rush v. Oppenheimer & Co. . . ." Id. at 1085.). In Rush, the Court found insufficient prejudice to establish a waiver of the right to arbitrate despite the fact that defendants had waited eight and one-half months to move to compel arbitration, during which time they had filed a motion to dismiss, had answered the complaint with denials and affirmative defenses, and had taken discovery.
This case is distinguishable from Rush. The Rush Court found that no prejudice had occurred as a result of defendant's discovery because the discovery concerned only non-arbitrable claims. Thus, the Rush defendants were unable to use the litigation discovery to their advantage in arbitration. In contrast, in this case, the discovery conducted in Amsterdam concerns only arbitrable claims, and it can and will, according to Respondents, be used in the arbitration proceeding. See Dickinson v. Heinold Securities, Inc., 661 F.2d 638 (7th Cir. 1981) ("No waiver of the right to arbitrate can occur from conducting discovery on non-arbitrable claims." Id. at 642.); Gilmore v Shearson/American Exp., Inc., 668 F. Supp. 314, 319 (S.D.N.Y. 1987).
Despite the strong federal policy favoring arbitration, the Court finds that this is one of those rare cases in which the conduct of one of the parties results in prejudice to the other side. This prejudice is sufficient to constitute a waiver of the right to arbitrate. We observe that while federal courts encourage the enforcement of arbitration clauses, they also discourage parties from taking measures which are inconsistent with and prejudicial to both parties' right to arbitrate. Such inconsistent and prejudicial measures, such as those taken by Respondents in this case, defeat the very purposes of contractual arbitration clauses, which seek to save time and money and provide certainty to both parties with respect to choice of law and forum.
Accordingly, the Court grants ABN CMC's petition to stay arbitration and denies ZwitserLeven and ESC's counter-petition to compel arbitration. Because the Court has granted ABN CMC's petition to stay arbitration, it has become unnecessary to rule on ABN CMC's other two arguments in support of its petition to stay.
Dated: New York, New York
February 4, 1993
KENNETH CONBOY, U.S.D.J.