Hasco Inc v. Schuyler, Roche ( 1998 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
HASCO, INCORPORATED; HAROLD A.
SNEDDON,
Plaintiffs-Appellees,
v.
No. 97-2618
SCHUYLER, ROCHE & ZWIRNER, a
professional corporation;
MICHAEL B. ROCHE; L. ANDREW
BREHM,
Defendants-Appellants.
Appeal from the United States District Court
for the Southern District of West Virginia, at Charleston.
Charles H. Haden II, Chief District Judge.
(CA-97-625)
Argued: June 4, 1998
Decided: September 22, 1998
Before WILKINSON, Chief Judge, MURNAGHAN, Circuit Judge,
and SMITH, United States District Judge
for the Eastern District of Virginia,
sitting by designation.
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Reversed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Peter Bedford King, HENDRICKSON & LONG,
P.L.L.C., Charleston, West Virginia, for Appellants. Robert A. Gold-
berg, KING, ALLEN, GUTHRIE & MCHUGH, Charleston, West
Virginia, for Appellees. ON BRIEF: Jeffry H. Hall, HENDRICK-
SON & LONG, P.L.L.C., Charleston, West Virginia; Michael F.
Bruan, SCHUYLER, ROCHE & SWIRNER, Chicago, Illinois; Ancil
G. Ramey, Daniel R. Schuda, STEPTOE & JOHNSON, Charleston,
West Virginia, for Appellants. Blake O. Brewer, KING, ALLEN,
GUTHRIE & MCHUGH, Charleston, West Virginia, for Appellees.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Here we face a case in which the appellants, the law firm of Schuy-
ler, Roche, & Zwirner, and two attorneys associated with that firm
(collectively, "SRZ"), seek to enforce an arbitration clause contained
in a retention agreement executed by Hasco, Inc. ("Hasco"). After
Hasco and Harold A. Sneddon filed suit against SRZ, SRZ moved to
stay or dismiss the action pending arbitration. The district court
denied SRZ's motion, holding that SRZ had waived its right to arbi-
tration by pursuing a fee collection suit against Sneddon in Illinois
state court.
We have jurisdiction of SRZ's appeal from that order under
9 U.S.C. § 16(a)(1) and 28 U.S.C. § 1291. The district court's conclu-
sions regarding arbitrability, including the question whether SRZ has
waived the right to compel arbitration, are reviewed de novo.
American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96
F.3d 88, 91, 95 n.2 (4th Cir. 1996); Fraser v. Merrill Lynch Pierce,
Fenner & Smith, Inc., 817 F.2d 250, 251 (4th Cir. 1987). Because we
conclude that Hasco and Sneddon have failed to demonstrate preju-
dice as a consequence of SRZ's pursuit of the fee collection suit, we
reverse. Finding no merit to Hasco and Sneddon's other objections to
arbitration, we remand the case to the district court with instructions
that it be stayed pending arbitration.
2
I
In the fall of 1994, SRZ agreed to represent Hasco and several indi-
viduals in a lawsuit filed against First Options of Chicago, Inc., in
West Virginia state court. In connection with that representation,
Hasco executed a retention agreement with SRZ which contained the
following arbitration clause:
It is SRZ's policy to discuss and to attempt to resolve fairly
any concerns its clients may have concerning the billings
provided to them, or regarding any other aspect of the
attorney-client relationship. However, if a dispute should
develop which is not promptly resolved in a mutually satis-
factory manner, any such dispute will be subject to arbitra-
tion in Chicago, Illinois, pursuant to the Commercial
Arbitration Rules of the American Arbitration Association
then in effect.
Dissatisfied with SRZ's advocacy, Hasco and Sneddon filed suit on
June 12, 1997, in the United States District Court for the Southern
District of West Virginia. In the four-count complaint, Hasco and
Sneddon asserted claims against SRZ for breach of fiduciary duties,
professional negligence, breach of contract, and negligent and inten-
tional infliction of emotional distress. Invoking the arbitration clause
in the retention agreement, SRZ moved the district court to stay or
dismiss the instant action pending arbitration. 1
The district court denied SRZ's motion to stay or dismiss on Octo-
ber 21, 1997, holding that SRZ had waived its right to arbitration by
suing Sneddon to recover fees for legal services associated with the
organization of a limited partnership. SRZ's motion for reconsidera-
tion was denied on November 4, 1997, and SRZ timely appealed.
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1 SRZ also filed a petition to compel arbitration in the United States
District Court for the Northern District of Illinois. That court dismissed
SRZ's petition on November 18, 1997, with prejudice but with leave to
reinstate the petition within one year.
3
II
The Federal Arbitration Act ("FAA"), 9 U.S.C.§§ 1-16, commands
the federal courts to stay judicial proceedings upon application of a
party to a valid arbitration agreement, unless the applicant is in "de-
fault." 9 U.S.C. § 3. Emphasizing the existence of "a liberal federal
policy favoring arbitration agreements," Moses H. Cone Mem'l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), we have explained
that "[a]lthough this principle of `default' is akin to waiver, the cir-
cumstances giving rise to a statutory default are limited, and . . . are
not to be lightly inferred." Maxum Founds., Inc. v. Salus Corp., 779
F.2d 974, 981 (4th Cir. 1985). As a consequence, the party opposing
arbitration bears a heavy burden of proving waiver. American Recov-
ery Corp., 96 F.3d at 95; Britton v. Co-op Banking Group, 916 F.2d
1405, 1412 (9th Cir. 1990).
Waiver of the right to compel arbitration may occur when a litigant
"so substantially utiliz[es] the litigation machinery that to subse-
quently permit arbitration would prejudice the party opposing the
stay." Maxum Founds., 779 F.2d at 981. The dispositive inquiry is
whether the party resisting arbitration has suffered actual prejudice.
American Recovery Corp., 96 F.3d at 95; Fraser, 817 F.2d at 252.
The actual prejudice required to support a finding of waiver "can be
substantive prejudice to the legal position of the party opposing arbi-
tration, . . . or the unnecessary delay or expense that results when an
opponent delays invocation of its contractual right to arbitrate."
Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 131 (2d Cir.) (internal
quotation marks and citations omitted), cert. denied sub nom. Distajo
v. Doctor's Assocs., Inc., 118 S. Ct. 365 (1997). We determine preju-
dice "contextually, by examining the extent of the delay, the degree
of litigation that has preceded the invocation of arbitration, the result-
ing burdens and expenses, and the other surrounding circumstances."
Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991).
At the threshold, Hasco and Sneddon argue that we are precluded
from considering SRZ's challenge to the district court's finding of
waiver because its arguments were not timely presented to the district
court. SRZ first addressed the question of waiver in connection with
the fee suit in its motion for reconsideration. Although the district
court commented upon SRZ's late presentation, it considered and
4
rejected SRZ's arguments on their merits. SRZ is not precluded,
therefore, from raising those arguments here.
We conclude that Hasco and Sneddon have not suffered actual
prejudice as a consequence of the fee litigation. The case at bar and
the fee suit present different legal issues arising out of SRZ's repre-
sentation of Hasco and Sneddon in discrete legal matters, and have
only a tenuous and immaterial factual connection. See Doctor's
Assocs., 107 F.3d at 133 (holding that "only prior litigation of the
same legal and factual issues as those the party now wants to arbitrate
results in a waiver of the right to arbitrate."); Gingiss Int'l, Inc. v.
Bormet, 58 F.3d 328, 330-32 (7th Cir. 1995) (finding no waiver
where disputes "involved different issues"). Hasco and Sneddon have
not suffered any delay or duplicative expense in the instant suit as a
consequence of SRZ's decision to litigate its claim for attorneys' fees.
Although litigation of the fee suit may be more expensive than arbi-
tration, the choice of forum in that case has no effect on the costs
incurred by Hasco and Sneddon in pursuing their claims against SRZ.2
Furthermore, there is no evidence that SRZ's litigation of the
legally distinct fee claim has prejudicially affected Hasco and Sned-
don's legal position in the current action. We find no merit to the con-
tention that Hasco and Sneddon have been prejudiced by SRZ's active
participation in discovery in the fee litigation. Although the use of
discovery devices not available in arbitration may result in prejudice
where a party obtains through discovery a benefit not available in
arbitration, see Maxum Founds., 779 F.2d at 982-83, Hasco and Sned-
don have failed to show that SRZ's allegedly aggressive discovery
tactics in the fee suit have accrued to its benefit in the case at bar.
There is no evidence that SRZ has obtained information relevant to
the current dispute but unobtainable in arbitration. We hold, therefore,
that Hasco and Sneddon have failed to sustain their heavy burden of
proving waiver.
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2 Both parties, however, have been forced to endure significant expense
and delay in the instant case because of Hasco's vehement opposition to
arbitration. To the extent Hasco and Sneddon complain of expenses
caused by SRZ's vigorous pursuit of the fee litigation, we note the
absence of evidence that Sneddon has ever sought to arbitrate that dis-
pute.
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III
Because the district court held that SRZ had waived its right to
arbitration by initiating the fee collection suit, it did not expressly rule
on Hasco and Sneddon's other objections to arbitration. The district
court did remark, however, that several of the arguments in opposition
to arbitration "appear[ed] meritorious," and later asserted that the
"waiver argument was but one of th[e] grounds justifying a refusal to
compel arbitration." In the interests of efficiency and economy, there-
fore, we have considered each of Hasco and Sneddon's objections to
arbitration, see American Recovery Corp., 96 F.3d at 95 n.2 (holding
that district court's failure to rule on legal issue of waiver was no bar
to consideration of the question by this court), and conclude that they
are without merit. Accordingly, we reverse the judgment of the dis-
trict court and remand with instructions that Hasco and Sneddon's
action against SRZ be stayed pending arbitration. 3
REVERSED
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3 Also outstanding is SRZ's motion for permission to correct several
factual inaccuracies in its opening brief. Although we agree with SRZ
that the errors are not material to the issues presented on appeal, we
hereby grant the unopposed motion, and deem SRZ's brief corrected as
set forth in the motion.
6