arbitration contract. Doctor's Ass., Inc., 66 F.3d at 454 (quoting 9 U.S.C. § 2). The court further explained that under § 4 of the FAA, a petition to compel arbitration must be granted "except where a question of fact exists as to (1) 'the making of the arbitration agreement' or (2) the 'failure, neglect, or refusal of another . . . to arbitrate.' Id. (quoting 9 U.S.C. § 4). The court concluded that "because acts by [a] petitioner constituting waiver of the right to arbitrate [does] not fall within either of these enumerated categories," issues of waiver must be decided by the arbitrators. Id.
Notwithstanding this analysis, a "trend" has developed whereby "the waiver defense has slowly been transformed . . . into a broader equitable defense in § 4 cases." Id. at 456. For instance, in Kramer v. Hammond, 943 F.2d 176, 178 (2d Cir. 1991), the Second Circuit decided the waiver issue where the party seeking arbitration had actively participated in pre-trial litigation involving a suit filed against him in state court. Other federal courts have similarly decided issues of waiver. See, e.g., Doctor's Ass., Inc., 66 F.3d at 456 n.12 ("we are bound to hold that a district court may reach the question of waiver whenever a party seeking arbitration has engaged in any prior litigation"); Merrill Lynch, Pierce, Fenner & Smith v. Lecopulos, 553 F.2d 842, 845 (2d Cir. 1977).
In the present case, Petitioners have engaged in substantial pre-trial litigation in Latona v. Hartford. In fact, Petitioners presently appeal to this Court an Order by Magistrate Homer denying Petitioners' request to make an untimely motion, pursuant to 9 U.S.C. § 3, to stay that action pending arbitration.
Given the procedural posture from which the present petition arose, the Court will follow the lead of Doctor's Ass., Inc. and decide the issue of waiver for itself.
A party waives the right to arbitrate when it "engages in protracted litigation that results in prejudice to the opposing party." See, e.g., Cotton v. Slone, 4 F.3d 176, 179 (2d Cir. 1993). In accordance with the healthy federal policy favoring arbitration, "any doubts concerning whether there has been a waiver are resolved in favor of arbitration." Leadertex v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995); see also Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985) (stating "waiver of arbitration is not to be lightly inferred") (internal quotations omitted).
Courts have cautioned that "waiver determinations necessarily depend upon the facts of the particular case and is not susceptible to bright-line rules." Cotton, 4 F.3d at 179; Leadertex, 67 F.3d at 25. Nonetheless, factors to consider in making this determination include "the amount of litigation (usually exchanges of pleadings and discovery), the time elapsed from the commencement of litigation to the request for arbitration, and the proof of prejudice." Leadertex, 67 F.3d at 25; see also Carcich v. Rederi Aì Nordie, 389 F.2d 692, 696 (2d Cir. 1968) (emphasizing that it is "the presence or absence of prejudice which is determinative of this issue"). Prejudice results "when a party seeking to compel arbitration engages in discovery procedures not available in arbitration, makes motions going to the merits of the adversary's claims, or delays invoking arbitration rights while the adversary incurs unnecessary delay or expense." Cotton, 4 F.3d at 179 (internal citations omitted); see also Leadertex, 67 F.3d at 27 (finding petitioner waived right to arbitrate as result of economic prejudice suffered from delay).
The Second Circuit held, in Com-Tech Ass. v. Computer Ass. Int'l, Inc., 938 F.2d 1574, 1576-77 (2d Cir. 1991), that petitioners waived their right to arbitrate by not asserting the arbitration defense in their answers and actively participating in discovery. Under these circumstances, the court reasoned that delay in asserting a contractual right to arbitrate "until the eve of trial defeats one of the reasons behind the federal policy favoring arbitration: that disputes be resolved without 'the delay and expense of litigation.'" Id. (quoting H.R. Rep. No. 536, 68th Cong., 1st Sess. at 3 (1924)).
In Cotton, 4 F.3d at 180, the court held that petitioner waived the right to arbitrate by actively litigating the dispute and thus "securing for himself the benefits of pretrial discovery that [are] often unavailable in an arbitral forum." The court also noted that petitioner's delay "had imposed unnecessary expense . . . on [respondent] which would be compounded if she were now required to arbitrate her claim. Id.
Applying these principles, the Court finds that Petitioners waived their right to arbitrate. First, Petitioners failed to assert the arbitration defense in their answers to the complaint or amended complaint, despite asserting other affirmative defenses and S&R asserting a counterclaim.
Petitioners also actively participated in pre-trial discovery. For instance, S&R served Latona with 19 interrogatories and ten document demands, resulting in the production of over 2100 pages of documents. Petitioners further took depositions, subpoenaed documents, engaged in discovery disputes and attended two settlement conferences.
Although delay alone is generally insufficient to deny a petition to arbitrate, Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985); Demsey v. Ass., Inc. v. S.S. Sea Star, 461 F.2d 1009, 1018 (2d Cir. 1972), it is a relevant in determining whether a party has been prejudiced. See, e.g., Cotton, 4 F.3d at 179. Here, approximately fifteen months elapsed from the time Latona filed the complaint until the time Petitioners raised the arbitration defense to Magistrate Judge Homer. Petitioners' choice to participate in the pending action needlessly delayed resolution of the parties dispute, and unnecessarily exposed Latona to increased expense. Further, Latona would only incur additional expense were the Court to permit Petitioners to abandon the instant action and retreat to arbitration.
Second, Petitioners secured benefits from the pre-trial discovery process otherwise unavailable in arbitration. See Zwitsere Maatschappij van Levensverszekering en Lijfrente v. ABN Int'l Capital Markets Corp., 996 F.2d 1478, 1480 (2d Cir. 1993) (per curiam); Cotton, 4 F.3d at 180; Com-Tech, 938 F.2d at 1577; Liggett & Myers Inc. v. Bloomfield, 380 F. Supp. 1044, 1047-48 (S.D.N.Y. 1974). As distinguished from the case of Rush, 779 F.2d 885 (2d Cir. 1985), the parties here engaged in discovery with respect to arbitrable claims.
In sum, because Petitioners derived benefits from the liberal discovery procedures of the federal courts and unnecessarily delayed asserting their arbitration defense, the Court finds that Petitioners waived their contractual right to compel arbitration.
For the reasons stated above, Petitioners' request to compel arbitration is DENIED in its entirety.
IT IS SO ORDERED.
Dated September 4, 1997
at Albany, New York
Thomas J. McAvoy
Chief U.S. District Judge