Intl Engy Ventures Manage v. Untd Engy Grp ( 2021 )

Case: 20-20221 Document: 00515880813 Page: 1 Date Filed: 05/28/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
May 28, 2021
No. 20-20221 Lyle W. Cayce
Clerk
International Energy Ventures Management, L.L.C.,
Plaintiff—Appellee,
versus
United Energy Group, Limited,
Defendant—Appellant.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:17-CV-2262
Before Haynes, Higginson, and Oldham, Circuit Judges.
Andrew S. Oldham, Circuit Judge:
International Energy Ventures Management (“IEVM”) sued United
Energy Group (“UEG”) more than seven years ago. Since then, the dispute
has bounced back and forth between three courts and two arbitrations. We
now consider whether IEVM’s persistent pursuit of litigation prevents it
from returning to arbitration once more. The district court said no with
almost no analysis. We reverse.
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I.
IEVM is a consulting firm that specializes in oil and gas transactions.
In 2010, it agreed to help UEG obtain British Petroleum’s (“BP”) Pakistani
assets in exchange for a finder’s fee. UEG then submitted a bid to BP for $775
million, which BP accepted. UEG reimbursed IEVM’s out-of-pocket
expenses for its work on the deal. But according to IEVM, UEG never paid
the agreed-upon finder’s fee.
In March 2012, the parties entered into a supplemental agreement for
additional consulting work on the BP assets. The agreement included UEG’s
acknowledgment that it still owed IEVM payment for past services. It also
contained the following arbitration clause:
Governing Law, Arbitration. This Agreement shall be
governed by and interpreted by the laws of the state of Texas.
Any controversies arising out of this Agreement or its
interpretation shall be settled by a single arbitrator in Houston,
Texas in accordance with the rules of the American Arbitration
Association, and the judgment upon award may be entered in
any court having jurisdiction thereof.
Without mentioning arbitration, IEVM sued UEG in Texas state
court in July 2013. It alleged that despite the initial and supplemental
agreements, UEG continued not to pay IEVM for services rendered. UEG
responded by removing the case to federal court and filing a motion to dismiss
for insufficient service of process and lack of personal jurisdiction. IEVM
filed a motion to remand to state court in October 2013, and the parties
submitted a joint case-management plan shortly thereafter. The plan
proposed to stay all discovery until the court ruled on UEG’s motion to
dismiss. It also included a statement that “in the event the Court denies [the]
motion to remand and [the] motion to dismiss, IEVM anticipates filing a
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motion to compel arbitration.” The district court denied IEVM’s motion to
remand the next month. But UEG’s motion to dismiss remained pending.
Three months into the case, IEVM moved to compel arbitration. The
district court suspended all briefing on that motion and all other case
deadlines pending resolution of UEG’s motion to dismiss. So IEVM filed a
demand for arbitration with the American Arbitration Association (“AAA”)
on its own. UEG promptly moved to dismiss the arbitration on the theory
that IEVM had waived its right to arbitrate through its litigation conduct in
state and federal court.
Arbitrator Gary McGowan agreed. In his view, IEVM had
substantially invoked the judicial process to UEG’s detriment. McGowan
found substantial invocation based on IEVM’s “decision to seek substantive
relief in court,” its opposition to UEG’s motion to dismiss, its motion to
remand, and its participation in the parties’ joint case-management plan. And
he found prejudice to UEG based on the “significant” time and attorney’s
fees UEG spent filing and briefing the motion to dismiss, opposing the
motion to remand, and preparing the case-management plan. So McGowan
dismissed the arbitration.
IEVM chose not to challenge the McGowan Award. Instead, it waited
for the district court to resolve UEG’s jurisdictional challenge. When the
district court held that Texas lacked personal jurisdiction over UEG, IEVM
appealed that ruling along with the prior dismissal of its motion to remand.
We initially affirmed the district court’s remand denial but reversed its
jurisdictional holding. See Int’l Energy Ventures Mgmt. v. United Energy Grp.,
800 F.3d 143, 150, 154 (5th Cir. 2015). We revisited that decision after UEG
petitioned for rehearing, and we ultimately affirmed the district court on both
issues. See Int’l Energy Ventures Mgmt. v. United Energy Grp., 818 F.3d 193,
213 (5th Cir. 2016). Then IEVM filed a petition for rehearing, which we
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denied. Nearly three years had passed since IEVM initially filed its lawsuit in
state court.
Having failed in arbitration and then in court, IEVM tried yet again.
This time it initiated arbitration and litigation simultaneously. The parties
drew Platt W. Davis III as their arbitrator. Davis held a preliminary hearing
and concluded that “the dispute presented jurisdictional and arbitrability
issues that should be addressed prior to . . . a merits determination.” He then
invited UEG to move to dismiss. UEG did so, raising the same waiver defense
on which it prevailed in the McGowan arbitration. IEVM countered that its
potential waiver was a matter for a court to decide, not an arbitrator.
The litigation proceeded on a parallel track. IEVM once again sued
UEG in Texas state court—this time on the theory that doing so was
necessary to compel arbitration. And UEG again removed the action to
federal court. At that point, IEVM asked the district court to decide the
waiver issue that was pending before Arbitrator Davis and to compel
arbitration on everything else. The court held a hearing and decided to stay
the case “pending completion of . . . arbitration.”
Davis issued a final arbitration award a few months later. He first
determined that Arbitrator McGowan’s decision did not bind him because
McGowan lacked the authority to issue it. Davis pointed to “prevailing case
law” holding that issues of litigation-conduct waiver are presumptively for
the courts. And he found that IEVM and UEG had done nothing to contract
around that presumption. Nevertheless, Davis went on to hold that he had
authority to resolve the waiver dispute because the district court was aware
of the issue and had approved the “completion of . . . arbitration” without
any exceptions. Davis then held that IEVM had waived its right to arbitrate
for many of the same reasons that persuaded McGowan. He added that
IEVM’s decision to pursue a two-year appeal instead of challenging the
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McGowan Award confirmed its waiver: “IEVM was undeniably looking
solely to the appellate process, and a potentially favorable ruling on personal
jurisdiction, for authority to pursue its claims in court and effectively
abandoned and waived its right to arbitrate.”
With round two of arbitration completed, IEVM returned to litigation
yet again. It asked the district court to vacate the Davis Award and compel
arbitration on grounds that Davis had exceeded his authority and UEG
hadn’t established the elements of waiver. Two years later, the district court
issued a five-page “Opinion on Arbitration.” It first held that Davis
shouldn’t have reached the waiver issue because of the presumption that
litigation conduct is an issue for the courts. Of course, Davis agreed on that
point; he decided waiver despite the presumption because he thought the
district court had told him to.
The district court then held that UEG couldn’t show sufficient
prejudice to justify holding IEVM to its waiver. It offered no citations and the
following four sentences in support:
[IEVM] may have first filed a lawsuit in state court in 2013, but
merely filing a lawsuit and conducting a little discovery did not
prejudice [UEG]. The bulk of the litigation’s activity arose
from dismissals and appeals on jurisdictional grounds, never
coming close to addressing the core issues. In other words, this
case has mostly been a game of cat-and-mouse. Litigation of
this sort does not waive arbitration.
Accordingly, the district court vacated the Davis Award and granted IEVM’s
motion to compel arbitration. It also vacated the McGowan Award—even
though IEVM never asked for that.
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UEG timely appealed that order under 9 U.S.C. § 16(a)(1)(E).1 Since
then, IEVM initiated a third arbitration that remains pending. A panel of our
court denied UEG’s motion to stay that proceeding.
II.
Whether IEVM can continue with arbitration is a function of two
questions. First, who did the parties agree would decide UEG’s waiver
defense: an arbitrator or a court? Second, is UEG correct that IEVM waived
its right to arbitrate through its litigation conduct? Our ability to answer the
second question depends on our answer to the first. So we start there. We
review the district court’s legal determinations de novo and its factual
findings for clear error. See Forby v. One Techs., L.P., 909 F.3d 780, 783 (5th
Cir. 2018).
A.
Arbitrators McGowan and Davis both reached the issue of litigation-
conduct waiver and resolved it in UEG’s favor. IEVM’s attempt to bypass
1
We agree with UEG that § 16(a)(1)(E) permits us to consider its appeal. That
provision authorizes appellate jurisdiction over “an order” that “modif[ies], correct[s], or
vacat[es]” an arbitration award. The district court’s order vacated both the Davis and the
McGowan Awards. So § 16(a)(1)(E) unquestionably applies. And because it applies, we
have jurisdiction to review the district court’s entire “order”—including the waiver
discussion related to IEVM’s motion to compel. See BP P.L.C. v. Mayor & City Council of
Balt., 141 S. Ct. 1532, 1538 (2021) (interpreting 28 U.S.C. § 1447(d) to permit appellate
review of “each and every” issue in a district court’s remand order despite the fact that
“§ 1447(d) extends . . . review only to some orders” because “the statute allows courts of
appeals to examine the whole of a district court’s ‘order,’ not just some of its parts or
pieces” (second emphasis added)); Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199,
205 (1996) (adopting a similar interpretation of 28 U.S.C. § 1292(b) because “the text of
§ 1292(b) indicates [that] appellate jurisdiction applies to the order certified to the court of
appeals[] and is not tied to the particular question formulated by the district court”); see
also Murchison Cap. Partners v. Nuance Commc’ns, Inc., 760 F.3d 418, 420–21 (5th Cir. 2014)
(“It is . . . well established that an order vacating an award and remanding the case back to
arbitration for a rehearing is a final appealable order.”).
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those determinations turns on whether the arbitrators “exceeded their
powers” in violation of the Federal Arbitration Act (“FAA”). 9 U.S.C.
§ 10(a)(4). Because “[a]rbitration is a matter of contract,” the “power and
authority of arbitrators in an arbitration proceeding is dependent on” the
parties’ agreement. Brook v. Peak Int’l, Ltd., 294 F.3d 668, 672 (5th Cir.
2002) (quotation omitted); accord BG Grp. v. Republic of Argentina, 572 U.S.
25, 33–34 (2014). Here, the parties’ agreement is silent on the specific
question of who should decide whether IEVM waived its right to arbitrate by
pursuing litigation. So we must “determine the parties’ intent with the help
of presumptions.” BG Grp., 572 U.S. at 34.
Most circuits to consider the issue have held that litigation-conduct
waiver is presumptively a judicial matter. See Martin v. Yasuda, 829 F.3d
1118, 1123 (9th Cir. 2016) (“[T]he question before us is presumptively for a
court and not an arbitrator to decide. Every circuit that has addressed this
issue—whether a district court or an arbitrator should decide if a party
waived its right to arbitrate through litigation conducted before the district
court—has reached the same conclusion.” (citation omitted)). But see Nat’l
Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462, 466 (8th
Cir. 2003) (holding that all waiver challenges should be submitted to an
arbitrator). We aligned with that majority in two recent unpublished
decisions. See Sabatelli v. Baylor Scott & White Health, 832 F. App’x 843, 848
n.3 (5th Cir. 2020) (per curiam); Vine v. PLS Fin. Servs., Inc., 689 F. App’x
800, 802–03 (5th Cir. 2017) (per curiam). And we see no reason to change
course here. As we explained in Vine, “parties would expect [a] court to
decide litigation-conduct waiver” because the issue “implicates courts’
authority to control judicial procedures or to resolve issues arising from
judicial conduct.” 689 F. App’x at 803 (emphases omitted) (quoting Ehleiter
v. Grapetree Shores, Inc., 482 F.3d 207, 219 (3d Cir. 2007)). Thus, a
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presumption that courts decide the consequences of litigation conduct best
captures the intent of the typical contracting party.
B.
UEG recognizes the general proposition that litigation-conduct
waiver is an issue that should be decided by a court. But it contends that the
general rule does not apply here for three reasons. None is persuasive.
First, UEG relies on the Supreme Court’s observation that parties can
contract around presumptions about the proper decisionmaker by “clearly
and unmistakably” coming to an alternative arrangement. BG Grp., 572 U.S.
at 34 (quotation omitted). UEG asks us to find such an alternative in the
parties’ agreement that “[a]ny controversies arising out of [their] Agreement
or its interpretation shall be settled by a[n] . . . arbitrator . . . in accordance
with the rules of the American Arbitration Association.” The AAA Rules in
turn provide that the arbitrator “shall have the power to rule on its own
jurisdiction, including any objections with respect to the existence, scope, or
validity of the arbitration agreement[].” International Dispute
Resolution Procedures art. 19(1) (Am. Arb. Ass’n 2014).
Characterizing an arbitrator’s power to decide litigation-conduct waiver as a
question of “jurisdiction,” UEG concludes that the parties’ contractual
incorporation of the AAA rules clearly and unmistakably gave McGowan and
Davis authority to resolve the issue.
We disagree. The fact that language in an arbitration agreement is
broad enough to cover a particular issue does not mean the language is clear
and unmistakable. Thus, we held in Vine that an agreement requiring
arbitration of “any claim or attempt to set aside this Arbitration Provision”
did not rebut the presumption that courts decide litigation-conduct waiver.
689 F. App’x at 803–04. And though we’ve held that “the express adoption
of [AAA] rules” can sometimes provide “clear and unmistakable evidence
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that the parties agreed to arbitrate” an issue, Petrofac, Inc. v. DynMcDermott
Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012), that case is readily
distinguishable from this one. The issue in Petrofac was who should decide
“the initial question of arbitrability, i.e. whether the claim is within the
parties’ agreement to arbitrate.” Id. at 674–75. As noted above, AAA rules
expressly give arbitrators the power to resolve that question. See
International Dispute Resolution Procedures art. 19(1)
(specifically listing the “scope” of an arbitration agreement as a jurisdictional
issue that an arbitrator can decide). But the rules do not expressly give
arbitrators the power to resolve questions of waiver through litigation. So
incorporation of those rules cannot supply the clear and unmistakable
agreement that is required here. See Marie v. Allied Home Mortg. Corp., 402
F.3d 1, 15 (1st Cir. 2005) (“Neither party should be forced to arbitrate the
issue of waiver by conduct without a clearer indication in the agreement that
they have agreed to do so.”).
Second, UEG contends that the parties agreed to arbitrate litigation-
conduct waiver by “submission” if not by contract. See Executone Info. Sys.,
Inc. v. Davis, 26 F.3d 1314, 1323 (5th Cir. 1994) (“If the parties go beyond
their promise to arbitrate and actually submit an issue to the arbitrator, we
look both to the contract and to the scope of the submissions to . . . determine
the arbitrator’s authority.” (emphasis omitted)). UEG supports its
submission argument by claiming that IEVM consented to McGowan
deciding the waiver issue in the first arbitration.
Again, no. IEVM expressly told Arbitrator Davis that UEG’s waiver
defense was a “matter . . . for the District Court to resolve.” And while
IEVM didn’t make that point in the McGowan arbitration, nothing in the
record evinces a “joint arbitral submission” in which the parties “clearly and
unmistakably” agreed to have McGowan decide the issue. Murchison Cap.
Partners v. Nuance Commc’ns, Inc., 625 F. App’x 617, 624 (5th Cir. 2015); BG
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Grp., 572 U.S. at 34 (quotation omitted). To the contrary, UEG began its
motion to dismiss by asserting that McGowan had an “obligati[on] . . . to
abate” the arbitration because of IEVM’s pending lawsuit. And the parties’
inattention to the “who decides” question prompted McGowan to invite a
“federal court [to] revisit the waiver issue de novo” if his decision to address
it was incorrect.
Third, UEG contends that the presumption of a judicial
decisionmaker should not apply to the unique facts of this case. As UEG sees
it, issues of litigation-conduct waiver typically arise in court when one party
wants to switch to arbitration and the other party objects. This case is
meaningfully different, it says, because the waiver issue arose for the first
time in an arbitration initiated by IEVM. UEG offers no citations to support
its proposed distinction. Nor would we expect to find any. “Arbitration is a
matter of contract,” plain and simple. Brook, 294 F.3d at 672. Extra-
contractual factors—like where an issue first arises and who initiates
arbitration—are not part of the interpretive analysis.2
We therefore conclude that the parties failed to contract around the
general rule that courts resolve litigation-conduct waivers. See Vine, 689 F.
App’x at 802. That means that McGowan and Davis exceeded their authority
in resolving the issue, and we must address it.3
2
This principle also explains why Arbitrator Davis was wrong to decide an issue
on the theory that the district court had left it open. See supra Part I. Courts cannot delegate
to an arbitrator in violation of a contract any more than Congress can delegate to an agency
in violation of the Constitution. See U.S. Const. art. I, § 1.
3
UEG asserts that, even if McGowan exceeded his authority, IEVM’s failure to
challenge the McGowan Award provides an independent basis for enforcing it. UEG may
have a point. The FAA imposes a three-month statute of limitations that “governs the
period of time within which a party must file a lawsuit in federal court asking the court to
vacate, modify, or correct an arbitration award.” Brown v. Witco Corp., 340 F.3d 209, 218
n.8 (5th Cir. 2003) (emphasis omitted) (citing 9 U.S.C. § 12). IEVM never asked the
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III.
“[W]aiver of arbitration is a disfavored finding.” Nicholas v. KBR,
Inc., 565 F.3d 904, 907 (5th Cir. 2009). But we will find it “when the party
seeking arbitration substantially invokes the judicial process to the detriment
or prejudice of the other party.” Ibid. (quotation omitted). Substantial
invocation and prejudice are questions of federal law in every case where the
FAA applies. See Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494,
497 & n.4 (5th Cir. 1986); Vine v. PLS Fin. Servs., Inc., 807 F. App’x 320, 327
(5th Cir. 2020) (per curiam). So they are federal questions here. See Circuit
City Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001) (explaining that the FAA’s
coverage provision extends to all “contract[s] evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter arising
out of such contract or transaction” (quoting 9 U.S.C. § 2)).4
district court to vacate the McGowan Award, much less did it do so within three months.
So it’s arguable that even though McGowan exceeded his authority in addressing UEG’s
waiver defense, his pro-waiver resolution is still binding.
Nevertheless, the issue is complicated by the fact that Arbitrator Davis determined
the McGowan Award lacked binding effect. See New Orleans S.S. Ass’n v. Gen. Longshore
Workers, 626 F.2d 455, 468 (5th Cir. 1980) (“Whether [an arbitration] award can be given
[preclusive] effect [is for] . . . neither the district court nor this court [to] decide. If the
parties do not agree, that issue itself is a proper subject for arbitration.”); Martel v. Ensco
Offshore Co., 449 F. App’x 351, 355 n.1 (5th Cir. 2011) (per curiam) (holding that because
the FAA only “directs the manner in which a district court may vacate, modify, or correct”
an arbitration award, its limitations period “has no bearing on modification or clarification
sought from an arbitrator”). We need not resolve this complication because we reach the
same conclusion as McGowan: litigation-conduct waiver applies. See infra Part III. The
district court committed reversible error when it held to the contrary. Whether it
committed additional error in overturning the unchallenged McGowan Award makes no
difference.
4
Federal standards continue to apply even though the parties agreed to a Texas
choice-of-law provision. See Miller Brewing, 781 F.2d at 497 n.4 (“dismiss[ing] out of hand”
a party’s citation to state waiver law in a case where the FAA applied); In re L&L Kempwood
Assocs., 9 S.W.3d 125, 127–28 (Tex. 1999) (applying federal law under the FAA because
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A.
The substantial-invocation analysis in this case is straightforward.
Substantial invocation occurs when a party performs an “overt act in [c]ourt
that evinces a desire to resolve the arbitrable dispute through litigation rather
than arbitration.” Nicholas, 565 F.3d at 907 (quotation omitted). “[I]t is
difficult to see how a party could more clearly evince [such] a desire . . . than
by filing a lawsuit going to the merits of an otherwise arbitrable dispute.” Id.
at 908 (quotation omitted). So outside of the rare case in which initiating
litigation “would not be inconsistent with seeking arbitration,” the “act of a
plaintiff filing suit without asserting an arbitration clause constitutes
substantial invocation of the judicial process.” Ibid.Here, IEVM sued UEG in state court without saying anything about
arbitration. It demanded a jury trial and paid the required fee. It filed a motion
to remand the action to state court and appealed the district court’s denial of
that motion. It vigorously defended the existence of personal jurisdiction in
Texas and appealed the district court’s personal jurisdiction dismissal. And
it sought rehearing en banc after this court affirmed the district court’s
removal and jurisdictional holdings. Only after we denied its rehearing
petition did IEVM initiate the Davis arbitration. IEVM’s litigation conduct
is therefore a paradigmatic example of what it means to “initially pursu[e]
litigation of claims” and then “revers[e] course and attempt[] to arbitrate
those claims.” Id. at 907. As Arbitrator Davis put it, “[o]nly when the path
“[t]he choice-of-law provision did not specifically exclude [it]”); cf. Porter Hayden Co. v.
Century Indem. Co., 136 F.3d 380, 383 n.5 (4th Cir. 1998) (“[C]hoice-of-law provisions
typically embody the parties’ choice of one state’s laws over another’s, rather than express
a preference between federal and state law.”).
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to judicial resolution . . . was foreclosed did IEVM turn its attention back to
the possibility of arbitration.” That easily constitutes substantial invocation.
B.
That leaves prejudice. Whether a party has been prejudiced is a “fact-
dependent inquiry” that asks if the party suffered “delay, expense, or
damage to [its] legal position” because of an opposing party’s pursuit of
litigation. Id. at 910; Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d
341, 346 (5th Cir. 2004). UEG does not claim damage to its legal position. So
we focus on delay and expense.
1.
Start with delay. “[A] party’s failure to timely assert its right to
arbitrate is . . . relevant to the prejudice determination.” Republic Ins., 383
F.3d at 346. While there is no hard-and-fast rule for how long is too long, we
have found delays of 10 and 18 months to be sufficiently troubling. See
Nicholas, 565 F.3d at 910 (10 months); MC Asset Recovery LLC v. Castex
Energy, Inc. (In re Mirant Corp.), 613 F.3d 584, 591 (5th Cir. 2010) (18
months). Delay coupled with extensive pretrial litigation is even more
problematic because of the “inherent unfairness” that occurs when a party
“forces it[s] [opponent] to litigate” a dispute “and later seeks to arbitrate”
it. Republic Ins., 383 F.3d at 346 (quotation omitted); see also In re Mirant
Corp., 613 F.3d at 590 (rejecting a litigant’s attempt to obtain “a second bite
at the apple through arbitration” (quotation omitted)).
These principles clearly establish that IEVM’s repeated delays in
seeking arbitration were significant. IEVM filed its state-court lawsuit in July
2013. It said nothing about arbitration until three months later—and only
when it became apparent that IEVM might not get to proceed in state court
like it wanted. The McGowan arbitration began in January 2014 and
concluded in June when McGowan determined that IEVM had waived its
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right to arbitrate. Rather than challenge that ruling, IEVM jumped right back
to the pending litigation. The district court’s dismissal, IEVM’s appeal, our
affirmance, and IEVM’s rehearing petition took the parties all the way to
September 2016. That November—after stretching out the first round of
litigation as long as it possibly could—IEVM filed a second lawsuit in state
court and simultaneously initiated the Davis arbitration. More than three
years had passed since IEVM first filed suit, and nearly two-and-a-half years
had passed since the first arbitration concluded. That far surpasses the 10-
and 18-month delays that concerned us in prior cases. In short, “[IEVM] was
aware of its right to compel arbitration [from] the beginning . . . but chose
instead to resolve as much of the case as possible [in] . . . court.” In re Mirant
Corp., 613 F.3d at 592.
Next consider expense. As with delay, there is no magic number as to
how much expense is enough to show prejudice. Indeed, a party claiming
prejudice need not submit a number at all. See Nicholas, 565 F.3d at 910–11
(affirming the district court’s waiver holding even though the party seeking
waiver “did not put on evidence in terms of dollars and cents of its litigation
costs”). Rather, the party need only show that it was “forc[ed] . . . to expend
substantial amounts of time and money defending itself” in court. Miller
Brewing, 781 F.2d at 496; see also Nicholas, 565 F.3d at 910 (finding prejudice
where the arbitration opponent’s “litigation activities were significant in the
context of th[e] dispute”).
UEG has made the requisite showing. Among other things, IEVM’s
persistent pursuit of litigation required UEG to defend its interests by:
• removing the case to federal court,
• opposing IEVM’s motion to remand,
• filing a motion to dismiss for lack of personal jurisdiction,
• preparing a joint discovery and case-management plan,
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• filing an appellate brief defending the district court’s dismissal,
• traveling to New Orleans to participate in oral argument,
• filing a petition for rehearing after we initially reversed the district
court, and
• responding to IEVM’s rehearing petition after we ultimately affirmed
the district court.
Little wonder that Arbitrators McGowan and Davis determined UEG
incurred “significant attorney[’s] fees” and submitted “substantial
briefing” to protect its interests. UEG easily suffered prejudice.
2.
The district court concluded otherwise—a holding we’d typically
review for clear error. See, e.g., Nicholas, 565 F.3d at 911; Price v. Drexel
Burnham Lambert, Inc., 791 F.2d 1156, 1159–60 (5th Cir. 1986). But clear-
error review assumes there are “factual findings underlying” a district
court’s determination. Forby, 909 F.3d at 783. And here the district court’s
analysis contains no factfinding. Rather than carefully review the record for
prejudice like McGowan and Davis did, the district court dismissed IEVM’s
prejudicial litigation as a harmless jurisdictional “game of cat-and-mouse.”
We owe no deference to such conclusory assertions. Cf. Univ. of Tex. M.D.
Anderson Cancer Ctr. v. U.S. Dep’t of Health & Hum. Servs., 985 F.3d 472,
475–76 (5th Cir. 2021) (reviewing an agency determination de novo when the
agency refused to address a regulated party’s legal objections).
IEVM advances three principal arguments to defend the district
court’s no-prejudice holding. First, IEVM contends that it did not damage
UEG’s legal position because it never litigated the merits of its claims in any
court or tribunal, and the litigation never proceeded beyond threshold
jurisdictional issues. That’s irrelevant because damage to UEG’s legal
position is only one way IEVM could prejudice its opponent. See Republic Ins.,
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383 F.3d at 346 (“Prejudice refers to . . . inherent unfairness in terms of delay,
expense, or damage to a party’s legal position . . . .” (emphasis added)
(quotation omitted)). And there can be little doubt that IEVM’s litigation
conduct resulted in significant delay and expense to UEG. See supra Part
III.B.1. That the delay and expense stemmed from a jurisdictional dispute
instead of a “merits” one is beside the point.5
Second, IEVM argues that its three-plus years of litigation did not
prejudice UEG because all discovery was stayed. Once again, IEVM mistakes
a prejudice indicator for a prejudice requirement. Discovery is a prejudice
indicator because it can lead to delays, it can generate expenses, and it can
damage a party’s legal position by revealing information that would not be
discoverable in arbitration. See Frye v. Paine, Webber, Jackson & Curtis, Inc.,
877 F.2d 396, 399 (5th Cir. 1989). But that does not mean discovery is always
necessary to find prejudice. Cf. Walker v. J.C. Bradford & Co., 938 F.2d 575,
578 (5th Cir. 1991) (holding that a court “should not ordinarily infer waiver
based upon prejudice” when “only a minimal amount of discovery has been
conducted” (quotation omitted)). A three-year dispute over personal and
subject-matter jurisdiction spanning three courts, two arbitrators, and
hundreds of pages of briefing generates prejudice—regardless of the amount
of discovery.
5
We’re also unpersuaded by IEVM’s contention that it needed to litigate personal
jurisdiction over UEG to secure its right to arbitrate. IEVM knew about the parties’ Texas
arbitration clause from the beginning. And that arbitration clause standing alone justified
arbitration in Texas, even if personal jurisdiction over UEG was otherwise absent. See Int’l
Energy Ventures Mgmt., 818 F.3d at 212 (applying the longstanding rule that an agreement
to arbitrate a case in a state permits district courts in that state to “exercise personal
jurisdiction over the parties for the limited purpose of compelling arbitration,” even if
personal jurisdiction is otherwise lacking (quotation omitted)).
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Finally, IEVM protests that the three-year delay was not its fault. It
reasons that “much of that time was simply spent waiting on [the district
court] to rule and then for the first appeal to be briefed and then decided.”
Red Br. 36. And it insists that “[UEG] caused the problem” by “cho[osing]
to remove the case to federal court” and then “mov[ing] to dismiss based on
personal jurisdiction.” Ibid. Those arguments fail too. With respect to our
court and the district court’s decision time, IEVM had the option to
challenge Arbitrator McGowan’s waiver determination within three months
if it wanted to remain in arbitration. See 9 U.S.C. § 12; supra note 3. It never
did so. As for IEVM’s allegation that UEG caused the problem by noticing
its removal and moving to dismiss, we have already rejected that argument.
See Miller Brewing, 781 F.2d at 497 (finding prejudice where the arbitration
proponent “busily pursu[ed] its legal remedies” for three-and-a-half years,
then noting that its opponent “[o]f course . . . had to participate and defend
its interests in all these actions”). IEVM filed suit and thereby forced UEG
to respond or lose its rights. UEG’s decision to defend itself in litigation does
not discount the prejudice it suffered.
* * *
We hold that IEVM substantially invoked the judicial process to
UEG’s detriment. We therefore REVERSE and REMAND with
instructions to deny IEVM’s motion to compel arbitration and to enter
judgment for UEG.
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