doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself, or an allegation of waiver." Progressive Cas., 991 F.2d at 45 (emphasis added) (quoting Moses H. Cone., 460 U.S. at 24-25).
The Second Circuit, in Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985), stated that "waiver of arbitration is not to be lightly inferred." See 200 East 87th Street Assoc. v. MTS. Inc., 793 F. Supp. 1237, 1255 n.7 (S.D.N.Y. 1992) (Sweet, J.), aff'd, 978 F.2d 706 (2d Cir. 1992); Seguros Banvenez, S.A. v. S/S Oliver Drescher, 761 F.2d 855, 862 (2d Cir. 1985); Sweater Bee by Banff, Ltd. v. Manhattan Industries, Inc., 754 F.2d 457, 461 (2d Cir. 1985). Rather, it is well established that waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated. See 200 East 87th Street, 793 F. Supp at 1255 n.7; Banvenez, 761 F.2d at 862; Sweater Bee, 754 F.2d at 461; Carcich v. Rederi Aì Nordie, 389 F.2d 692, 696 (2d Cir. 1968).
Waiver may be inferred when "a party . . . engages in protracted litigation that results in prejudice to the opposing party." Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991) (citation omitted). In the instant action, the period of litigation prior to the motion for arbitration lasted for approximately six months. The Court finds that the litigation that took place during that time period did not prejudice plaintiff enough to mandate a finding of waiver. See Rush, 779 F.2d at 887 ("It is beyond question that defendants' delay in seeking arbitration during approximately eight months of pretrial proceedings is insufficient by itself to constitute a waiver of the right to arbitrate.") (emphasis added).
In Rush, the Second Circuit noted that neither efficiency nor judicial economy were primary considerations in determining whether to stay proceedings in favor of arbitration, since neither were the primary goals behind the arbitration act. See Rush, 779 F.2d at 891; Dean Witter, 470 U.S. at 219-20; Banvenez, 761 F.2d at 862. In Demsey & Assoc, Inc. v. S.S. Sea Star, 461 F.2d 1009, 1018 (2d Cir. 1972), the Court found prejudice due to the expense and delay incurred in litigation. But as the Second Circuit noted in Rush, 779 F.2d at 888, Demsey included a full trial on the merits. The instant action has not yet proceeded even to the "extensive discovery" that was insufficient to constitute a waiver in Rush.
Moreover, in Rush, the defendants did not raise the right to arbitrate as an affirmative defense. See ITT World Communications, Inc. v. Communications Workers of America, 422 F.2d 77, 82 (2d Cir. 1970) (filing answer is inadequate by itself to support claim of waiver of arbitration). But in the instant action, defendants have raised such a defense, providing them with a stronger argument that they have preserved their right to arbitrate even while engaging in litigation. See Affirmation in Support of Defendants' Motion P 5. See, e.g., Banvenez, 761 F.2d at 862 (finding no prejudice and thus no waiver because, "although [defendant] participated in the litigation, it asserted the right to arbitrate at the very outset when it filed its answer to the amended complaint and cross-claim.").
In fact, the Court in Rush found that "none of the factors cited by the district court, whether viewed individually or in combination, warrants a finding of waiver," since none of the factors, whether eight months of litigation, extensive discovery, or bringing a motion to dismiss, constituted prejudice to the opposing party. See Rush, 779 F.2d at 887 (emphasis added); see also McDonnell, 858 F.2d at 833 (holding that response to plaintiff's complaint, participating in some discovery, and discussion of summary judgment, failed to create prejudice necessary for waiver). Similarly, this Court finds that defendants' appearance at hearings, interposition of an answer, and participation in discovery during the course of six months of litigation before making a motion to stay the action did not create the prejudice necessary to constitute a waiver of the right to arbitrate.
Plaintiff cites 200 East 87th Street to illustrate that waiver is possible when a defendant "'affirmatively accepts the judicial forum.'" See 200 East 87th Street, 793 F. Supp at 1255 (citation omitted); see also Zimmerman v. Cohen, 236 N.Y. 15, 139 N.E. 764 (1923). In 200 East 87th Street, the Court relies on Sherrill v. Grayco Builders, Inc., 64 N.Y.2d 261, 486 N.Y.S.2d 159, 475 N.E.2d 772 (1985) (finding waiver when defendant actively litigated for over three years, and participated in extensive discovery), and Nishio v. E.F. Hutton & Co., 168 A.D.2d 224, 562 N.Y.S.2d 112 (1st Dep't. 1990) (finding waiver when defendant waited over year to seek stay). The Court observes that both Nishio and Sherrill are distinguishable on their facts.
In addition, the Second Circuit has held that "generally, the FAA governs all questions before a federal court regarding the validity and enforceability of arbitration agreements if: (1) the parties have entered into a written arbitration agreement; (2) there exists an independent basis for federal jurisdiction; and (3) the underlying transaction involves interstate commerce." Chung v. President Enterprises, Corp., 943 F.2d 225, 229 (2d Cir. 1991). See Southland Corp. v. Keating, 465 U.S. 1, 11-15, 79 L. Ed. 2d 1, 104 S. Ct. 852 (1984). Thus, federal arbitration law rather than New York arbitration law governs here because the parties entered into the OSN agreement, the Court sits in diversity jurisdiction on an alleged breach of contract, and the contract involves interstate commerce.
Accordingly, plaintiff's claim that Expromtorg's behavior in the instant action constitutes a waiver of the right to arbitrate cannot prevail.
The Court need not consider the scope of the OSN arbitration clause with regard to the counts alleging Razouvaev's personal liability.
"If the court concludes that some . . . of the claims in the case are arbitrable, it must then determine whether to stay the balance of the proceedings pending arbitration." Genesco, 815 F.2d at 844; see also, Circus Productions, 1990 U.S. Dist. LEXIS 4804, 1990 WL 55684 at *4,
It is well established in the Second Circuit that the district court can stay an entire action if "the arbitrable claims predominate the lawsuit and the nonarbitrable claims are of questionable merit." Genesco, 815 F.2d at 856; see, e.g., McDonnell, 858 F.2d at 830; NPS Communications, Inc. v. Continental Group, Inc., 760 F.2d 463, 465 (2d Cir. 1985); Circus Productions, 1990 U.S. Dist. LEXIS 4804, 1990 WL 55684 at *5. In the instant case, the Court has determined that four out of the six claims are arbitrable. See Genesco, 815 F.2d at 856 (instructing district court to re-evaluate its decision to decline staying non-arbitrable claims).
Furthermore, two of the claims against Expromtorg name both Expromtorg and Razouvaev, and the other two claims against Expromtorg arise out of the same alleged breach of contract that created the claims against Razouvaev. Since the four claims against Expromtorg are arbitrable, proceeding with litigation against Razouvaev may impact upon the arbitration, whereas staying the entire proceedings will not greatly affect any federal interest. See Dean Witter, 470 U.S. at 223 ("There is no reason to require that district courts decline to compel arbitration, or manipulate the ordering of the resulting bifurcated proceedings, simply to avoid an infringement of federal interests."). Consequently, the Court stays the entire action pending arbitration.
For the foregoing reasons, defendants' motion to dismiss for lack of personal jurisdiction is denied. The Court grants defendants' motion to stay litigation in favor of arbitration, and denies plaintiff's cross-motion.
New York, New York
July 7, 1995
Peter K. Leisure