BRICKSTRUCTURES, INC., Plaintiff-Appellee, v. COASTER DYNAMIX, INC., Defendant-Appellant.
No. 19-2187
United States Court of Appeals For the Seventh Circuit
Argued December 9, 2019 — Decided March 11, 2020
Before EASTERBROOK, ROVNER, and SCUDDER, Circuit Judges.
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:16-cv-10969 — Joan B. Gottschall,
SCUDDER, Circuit Judge. Brickstructures, Inc. and Coaster Dynamix, Inc. joined forces to create a LEGO-compatible roller coaster set. The venture later soured, and Brickstructures filed a lawsuit in federal court against its former partner. The two companies had signed an agreement that contained an arbitration provision. Coaster Dynamix invoked that provision in a second motion to dismiss. Brickstructures viewed the motion as untimely (indeed frivolous) and stated so in a letter that threatened sanctions if Coaster Dynamix did not withdraw its motion. The tactic worked, and Coaster Dynamix withdrew its arbitration demand. When Coaster Dynamix renewed the argument in a motion to compel arbitration, the district court denied the resurrected request on the ground that the earlier withdrawal amounted to a waiver of the right to arbitrate. We agree.
I
Brickstructures, Inc. is a product design firm that creates LEGO sets, those colorful plastic bricks used to form miniature castles, spaceships, and whatever else a youthful imagination can conjure up. Coaster Dynamix, Inc. creates and sells model roller coasters. The two companies
The agreement contained this arbitration clause:
SECTION TEN: ARBITRATION
The assignment of specific duties and authority to _______ [C.D.] was made to avoid major differences between the parties as to conduct of the venture. The parties declare that the terms of this agreement are controlling as to each of them. Any matter in dispute, and which is not provided for in this agreement, shall be submitted to arbitration __________ [under the provisions of ________ (cite statute) or as the case may be].
With the venture agreement in place, the collaboration successfully released an initial product called the RollerCoaster Factory. But the relationship fizzled once the companies turned their sights toward a successor product that never reached the market. For its part, Coaster Dynamix went on to independently launch the Cyclone, a LEGO-compatible roller coaster kit, without attributing any credit to its former partner.
Brickstructures sued, claiming that Coaster Dynamix breached the joint venture agreement and its fiduciary duties and falsely advertised in violation of the
An amendment cured the jurisdictional issue and added an unjust enrichment claim. Coaster Dynamix moved anew to dismiss, this time under Rules
Days later Coaster Dynamix received a letter from Brickstructures’s attorneys. The letter demanded that the company withdraw the personal jurisdiction and arbitration arguments from its second motion to dismiss because Coaster Dynamix waived them by not advancing them in its first motion. The letter called the arguments “clearly frivolous” and threatened to seek sanctions.
Brickstructures’s letter proved effective. That very day Coaster Dynamix informed the district court that it was withdrawing its personal jurisdiction and arbitration-based venue arguments. The notice Coaster Dynamix filed with the court was clear and precise: “Since Coaster Dynamix did not explicitly move on the personal jurisdiction and venue issues in its motion to dismiss the original complaint, Coaster Dynamix withdraws the sections of its pending motion to dismiss based on lack of personal jurisdiction and improper venue.” That left only Coaster Dynamix’s
The district court declined to compel arbitration, finding that Coaster Dynamix waived its right to arbitrate by expressly withdrawing the arbitration demand in its second motion to dismiss. “By first arguing that the 2012 agreement requires arbitration and then withdrawing that argument,” the court reasoned, “Coaster chose a course inconsistent with submitting the case to an arbitral forum.” Nor did the court allow Coaster Dynamix to rescind its waiver. The court found unconvincing the company’s contention that it was reasonable to abandon an arbitration demand in acquiescence to an adversary’s threat to seek sanctions.
This appeal followed.
II
We start by assuring ourselves of our own jurisdiction. Coaster Dynamix challenges an order denying its motion to compel arbitration and invokes the Federal Arbitration Act as the jurisdictional hook for the interlocutory appeal. The FAA allows appeals from “an order … denying a petition under section 4 of this title to order arbitration to proceed.”
But it is the substance of a motion that counts, not its label. See Obriecht v. Raemisch, 517 F.3d 489, 493 (7th Cir. 2008) (“[W]hether a motion filed within 10 days of the entry of judgment should be analyzed under
Whatever it was called, Coaster Dynamix’s motion to compel arbitration was in substance a motion under
Federal law favors arbitration. See Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1621 (2018). Like other contractual rights, though, the right to arbitrate is waivable. See Kawasaki Heavy Indus., Ltd. v. Bombardier Recreational Prod., Inc., 660 F.3d 988, 994 (7th Cir. 2011). A waiver can be express or implied through action. See id. Either way, the question is whether “based on all the circumstances, the party against whom the waiver is to be enforced has acted inconsistently with the right to arbitrate.” Welborn Clinic v. MedQuist, Inc., 301 F.3d 634, 637 (7th Cir. 2002). The analysis can be short when the basis of the waiver is an express abandonment of the right. In most situations, “I waive arbitration” answers the question. The district court found that Coaster Dynamix’s withdrawal of the arbitration argument amounted to an explicit waiver of any right to arbitrate.
A
Our first stop is the standard of review, which the parties dispute. Brickstructures urges us to apply a clear error standard. It relies on St. Mary’s Medical Center of Evansville, Inc. v. Disco Aluminum Products Co., 969 F.2d 585, 588 (7th Cir. 1992), where we held that the clear error standard applies to both the district court’s factual determinations and its application of the legal standards to those facts. Coaster Dynamix, on the other hand, points to cases in which we have said that factual findings are reviewed for clear error but “the legal question of whether the conduct amounts to waiver is reviewed de novo.” Ernst & Young LLP v. Baker O’Neal Holdings, Inc., 304 F.3d 753, 756 (7th Cir. 2002); see also Kawasaki, 660 F.3d at 994; Halim v. Great Gatsby’s Auction Gallery, Inc., 516 F.3d 557, 561–62 (7th Cir. 2008).
We see no inconsistency. “[T]here is both a factual and a legal dimension to the waiver inquiry.” Iowa Grain Co. v. Brown, 171 F.3d 504, 509 (7th Cir. 1999). The facts drive the waiver analysis, but the inquiry takes direction from the background legal rules. See id. We review de novo the district court’s determinations regarding the legal principles, like the applicable common law rules and presumptions, but defer to the district court’s findings with respect to the facts and the legal consequences of those facts. See id. Where, as here, nobody contends that the district court “misunderstood the applicable law, the result turns on whether the district court clearly erred in its assessment of the situation.” Id.; see also Smith v. GC Servs. Ltd. P’ship, 907 F.3d 495, 499 (7th Cir. 2018) (articulating the same standard of review). Adhering to the position articulated in Iowa Grain, we apply the clear error standard.
All for good reason too: waiver is an intensely fact-bound question and here the district judge is in a better position to assess the parties’ conduct. See St. Mary’s, 969 F.2d at 588. As the Supreme Court explained not long ago, in the case of mixed questions of fact and law that “immerse courts in casespecific factual issues”—which require them to do things like “marshal and weigh evidence” and “make credibility judgments”—“appellate courts should usually review [the] decision with deference.” U.S. Bank Nat’l Ass’n ex rel. CWCapital Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, 138 S. Ct. 960, 967 (2018). Whether a party has waived its right to arbitrate by acting inconsistently with the right is such a mixed question, so we appropriately review the district court’s determination with deference.
We find no clear error in the district court’s finding that Coaster Dynamix waived its right to arbitrate. The company expressly invoked the venture agreement’s arbitration provision and urged dismissal of Brickstructures’s suit because arbitration was the “exclusive venue.” But then Coaster Dynamix withdrew the argument—a litigation choice inconsistent with the right to arbitrate. The withdrawal signaled to Brickstructures and the district court that Coaster Dynamix was content to leave the litigation where it was in federal court. Having put the arbitration card on the table and then taken it back, Coaster Dynamix was not permitted to play that card again later.
As the district court observed, Coaster Dynamix employed a wait-and-see approach—it decided to retract the arbitration issue and roll the dice on its other dismissal arguments before seeking a ruling on the proper venue. Parties seeking to enforce their arbitration rights ought to get to it as soon as possible. Traveling too far down the judicial road before reversing course to restart in an arbitral forum wastes time and resources. See Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995) (“Selection of a forum in which to resolve a legal dispute should be made at the earliest possible opportunity in order to economize on the resources, both public and private, consumed in dispute resolution.”). Taking the time to weigh one’s options “is the worst possible reason for delay.” Id.
That does not mean parties waive their right if a motion to compel arbitration is not the first thing they file on the docket. As Coaster Dynamix points out, we have acknowledged before that taking certain actions, like filing a motion to dismiss or requesting a transfer of venue, does not automatically waive the right to arbitrate. See Halim, 516 F.3d at 562; Sharif v. Wellness Int’l Network, Ltd., 376 F.3d 720, 725–26 (7th Cir. 2004). But Coaster Dynamix did not just file a motion to dismiss. By identifying the arbitration argument in its motion to dismiss, the company showed that it knew of its right to arbitrate, and by then expressly withdrawing the argument, it surrendered the right.
Coaster Dynamix insists that waiver must be based on voluntary conduct and that its withdrawal of the arbitration argument was not voluntary because it was spurred by Brickstructures’s sanctions letter. The waiver analysis does not require us to delve into the deeper motivations behind counsel’s litigation choices. Even if it did, there can be no doubt that Coaster Dynamix’s choice to withdraw its arbitration argument was intentional and voluntary. Indeed, Coaster Dynamix itself calls the withdrawal a “strategic decision.” It had options after receiving Brickstructures’s letter. It could have conducted its own research and concluded that the arbitration argument was neither frivolous nor sanctionable and moved forward with the second motion to dismiss. Or it could have taken the course it ultimately took—withdraw the arbitration demand and see if the other dismissal arguments win the day. Coaster Dynamix voluntarily chose the option inconsistent with the right to arbitrate.
Coaster Dynamix tries to reframe the issue by focusing on the different ways it raised arbitration. It says the arbitration argument in the second motion to dismiss was made under
Nor was Coaster Dynamix entitled to rescind its waiver. A district court has the discretion to allow a party to rescind a waiver of the right to arbitrate. See Iowa Grain, 171 F.3d at 509–10. But rescission is reserved for “abnormal” circumstances, Cabinetree, 50 F.3d at 391, which this case does not present. The district court committed no error in so holding.
All of this leads us to AFFIRM.