PATTEN GRADING & PAVING, INCORPORATED, Plaintiff-Appellee,
v.
SKANSKA USA BUILDING, INCORPORATED, formerly known as Beers Skanska, Incorporated, formerly known as Beers York Construction Company, Incorporated; American Home Assurance Company, Defendants-Appellants.
No. 03-2247.
United States Court of Appeals, Fourth Circuit.
Argued: June 3, 2004.
Decided: August 18, 2004.
Appeal from the United States District Court for the District of South Carolina, Henry M. Herlong, Jr., J. COPYRIGHT MATERIAL OMITTED ARGUED: Jonathan D. Crumly, Sr., Alston & Bird, Atlanta, Georgia, for Appellants. Theodore Sanders Stern, Jr., Covington, Patrick, Hagins, Stern & Lewis, P.A., Greenville, South Carolina, for Appellee. ON BRIEF: J. Andrew Howard, Alston & Bird, Atlanta, Georgia, for Appellants.
Before WIDENER and DUNCAN, Circuit Judges, and Louise W. FLANAGAN, United States District Judge for the Eastern District of North Carolina, sitting by designation.
Reversed and remanded by published opinion. Judge DUNCAN wrote the majority opinion, in which Judge FLANAGAN joined. Judge WIDENER wrote a dissenting opinion.
OPINION
DUNCAN, Circuit Judge:
Skanska USA Building, Inc. and American Home Assurance Co., Inc. (collectively "Skanska") appeal the district court's order denying Skanska's motion to compel arbitration in a civil action filed by Patten Grading & Paving, Inc. ("Patten"). In its complaint, Patten alleged that Skanska breached their subcontract agreement by failing to pay Patten for grading work on a construction project Skanska managed. Skanska sought to compel arbitration based on a clause in the agreement that required Patten to submit any claims arising thereunder to arbitration. The district court denied Skanska's motion, finding that Skanska's participation in the action up to that point constituted a waiver of the arbitration provision. Because we conclude the record here does not support such a finding, we reverse and remand.
I.
The underlying facts are not in dispute. Skanska is the successor-in-interest to the original contractor for a renovation project at the Blue Ridge Middle School in Greer, South Carolina, that began in June 2000. The original contractor retained Patten to perform the grading and site utility work specified in the renovation plans. Although Patten's work was to be completed by August 1, 2001, Patten asserted that project delays attributable to the general contractor both prevented it from meeting this deadline and resulted in additional expenses for Patten. When the renovation was completed in early 2002, Skanska refused to pay Patten additional amounts Patten claimed were due. Patten mailed a demand letter to Skanska in October 2002 and filed the underlying complaint in South Carolina state court on December 18, 2002.
Invoking 28 U.S.C. § 1441, Skanska removed Patten's action to federal court the following month and filed its answer. The parties thereafter exchanged written discovery, including interrogatories and requests for production of documents. In July 2003, Patten acknowledged during discovery that a rider to the subcontract agreement it entered into with Beers York Construction Co., Skanska's predecessor-in-interest, required that any claims arising under the subcontract be submitted to arbitration. The parties also participated in court-ordered mediation, which ended unsuccessfully in August 2003. Although the district court had directed that discovery end on August 17, 2003, Patten sought and received permission to file an amended complaint adding an additional claim, prompting the district court to reopen discovery and extend the discovery period to mid-September.
By motion on August 19, 2003, Skanska requested a stay of proceedings and an order compelling Patten to submit its claims to arbitration. In support, Skanska noted Patten's acknowledgment of the rider requiring Patten to submit any claims arising under the contract to arbitration.1 The district court denied Skanska's motion, finding that Skanska's participation in litigation amounted to a waiver of its contractual right to have Patten's claims submitted to arbitration. Specifically, the court noted that the action had been proceeding for over eight months and that the parties had "engaged in discovery, participated in mediation, and had a motion decided before the court." J.A. 239. The district court further noted that "because Patten ha [d] ... expended [$5862.52] to prosecute its case, compelling arbitration would result in actual prejudice to Patten," a conclusion it found to be reinforced by the fact that Patten would have to pay "a substantial initial fee to engage the American Arbitration Association" if Skanska's motion were granted. Id. Skanska appeals the district court's order, which we have jurisdiction to consider pursuant to 9 U.S.C. § 16(a). See Stedor Enters., Ltd. v. Armtex, Inc.,
II.
Although the underlying factual findings of the district court are entitled to deference, the decision to deny Skanska's motion for stay and to compel arbitration is reviewed de novo. MicroStrategy, Inc. v. Lauricia,
The rights and responsibilities of the parties with respect to the arbitration agreement are governed by the Federal Arbitration Act, codified at 9 U.S.C. §§ 1-16 ("FAA ").2 Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,
To further facilitate arbitration, the FAA authorizes a party to an arbitration agreement to demand a stay of proceedings in order to pursue arbitration, "provid[ed] the applicant for the stay is not in default" of that right. 9 U.S.C. § 3. Such default or waiver arises when the party seeking arbitration "so substantially utiliz[ed] the litigation machinery that to subsequently permit arbitration would prejudice the party opposing the stay." Maxum Founds., Inc. v. Salus Corp.,
Patten argues on appeal that the district court properly found that Skanska waived its right to invoke arbitration, as Skanska's substantial utilization of the litigation machinery would prejudice Patten. In support of this general position, Patten points to (1) Skanska's failure to raise the arbitration clause as an affirmative defense in its answer and the resulting delay in seeking arbitration, (2) the extent of Skanska's participation in pre-trial activity during that delay, (3) the imminence of trial at the time Skanska filed its motion to compel arbitration, (4) Skanska's participation in court-ordered mediation, and (5) the fact that Patten had incurred $5948.06 in litigation-related expenses and would allegedly face approximately $8500.00 in arbitration fees if compelled to arbitrate. We address each contention in turn.
A.
Patten first argues that the delay of almost eight months between the filing of Patten's complaint and Skanska's motion to compel arbitration — including Skanska's failure to assert the right to compel arbitration as an affirmative defense in its answer — constitutes a default under § 3 of the FAA.3 We disagree.
Preliminarily, we question Patten's assertion that eight months is the appropriate time frame to consider in making a determination of waiver here. Throughout these proceedings, Skanska has explained its delay by noting that it was the successor-in-interest to the original contractor for the Blue Ridge Middle School project, and that due to the manner in which it succeeded the original general contractor, it only learned of the precise terms of Patten's subcontract agreement (including the arbitration provision) as discovery unfolded. Significantly, Patten does not contest Skanska's proffered explanation. Indeed, rather than attempting to demonstrate that Skanska was actually or constructively aware of the rider ab initio,4 Patten argues only that Skanska was certainly aware of the rider and arbitration clause as of May 29, 2003, when it requested Patten's admission that the rider applied to the subcontract agreement.
Given these facts, we find it inappropriate to charge Skanska with the full eight months that Patten's action was pending before the district court. In light of Patten's failure to contest Skanska's proffered explanation, we find that the delay properly attributable to Skanska should be measured, at the earliest, from May 29, 2003, cf. Venters v. City of Delphi,
We have previously concluded that delays of such length, without more, are insufficient to demonstrate a party's waiver of its right to arbitration, Maxum Founds.,
B.
Patten's second allegation of prejudice concerns the extent of the parties' pre-trial activities. Patten correctly notes that along with delay, the extent of the moving party's trial-oriented activity is a material factor in assessing a plea of prejudice. Fraser v. Merrill Lynch Pierce, Fenner & Smith, Inc.,
Patten notes that Skanska filed an answer containing affirmative defenses, engaged in discovery, and responded to motions. However, we have previously held that a party's filing of minimal responsive pleadings, such as an answer or compulsory counter-claim, are not necessarily inconsistent with an intent to pursue arbitration. Cf. Carolina Throwing,
Likewise, we find no prejudice arising from the subsequent pre-trial activity. While the district court resolved three motions prior to Skanska's attempt to compel arbitration, none were filed by Skanska and none addressed the merits of any of Patten's claims. See, e.g., Am. Recovery Corp.,
Patten's effort to demonstrate prejudice arising from the discovery conducted in this case is equally unavailing. We have previously held that the party seeking arbitration will not "lose its contractual right by prudently pursuing discovery in the face of a court-ordered deadline." Am. Recovery Corp.,
C.
Patten's third assertion of prejudice relies on the imminence of the scheduled trial date at the time Skanska filed its motion to compel arbitration. Citing Leadertex, Patten asserts that Skanska's motion to compel arbitration "less than three months prior to the scheduled trial date," Appellee's Br. at 6, supports a finding of waiver. However, the imminence of trial is not itself a sufficient basis from which to demonstrate prejudice. Instead, the proximity of trial serves only as a convenient proxy by which to measure the extent of the parties' respective pre-trial efforts, and thus whether the movant has "so substantially utiliz[ed] the litigation machinery that to ... permit arbitration would prejudice the party opposing the stay." Maxum Founds.,
As explored above, the pretrial activity here was minimal, particularly when compared to other fact patterns on the basis of which we have found no waiver. In the absence of a significant resort to the machinery of litigation, the mere proximity of the scheduled trial date will not itself suffice to demonstrate prejudice.
D.
Patten's fourth allegation of prejudice addresses Skanska's participation in pre-trial mediation ordered by the district court. As indicated above, we have previously declined to create a rule that would require a party seeking arbitration to "avoid a finding of default by ignoring court-ordered discovery deadlines and assuming the risk that its motion under the Federation Arbitration Act will be unsuccessful." Maxum Founds.,
E.
Finally, the crux of Patten's claim of prejudice is that it incurred $5862.52 in pre-litigation costs, and that it would have to pay an arbitration fee if compelled to arbitrate. These assertions involve different considerations, which we address separately.
With regard to pre-trial litigation expenses, we note that at least one circuit has concluded that incurring the legal expenses inherent in litigation is, without more, "insufficient evidence of prejudice to justify a finding of waiver," PPG Indus., Inc. v. Webster Auto Parts, Inc.,
Although Patten asserts that the $5862.52 it has spent in legal fees is prejudicial, closer scrutiny of that total indicates that the amount properly attributable to Skanska's conduct during the delay in seeking arbitration is, in fact, much smaller. In the $5862.56 total, Patten included its state court filing fees, document reproduction and Federal Express costs, $810 for a mediator, and over $2000 attributable to its response to a subpoena from the local school district. Such costs are sums that Patten would have incurred irrespective of the timing or the fact of Skanska's motion to compel arbitration, and Patten offers no argument to the contrary. It has therefore failed to advance any facts that would meet its "heavy burden" of showing prejudice.
We further conclude that the contractual obligation of a non-moving party to pay an arbitration fee may not serve as the basis of a finding of waiver. This is a cost that Patten agreed to incur as a contractual matter if it wanted to contest an issue arising under the sub-contract agreement, and therefore not a valid consideration in assessing its claim of prejudice. See Fisher v. A.G. Becker Paribas Inc.,
Moreover, Patten again fails to sustain its burden of proof even as to this expense. The record is devoid of any evidence from which we can ascertain the extent of the fees Patten would incur by proceeding to arbitration, if any. Patten's attempt to demonstrate actual prejudice based on the costs it has incurred thus far (or may in the future) is therefore inadequate.
III.
Having found each of the individual factors advanced by Patten in an effort to demonstrate prejudice to be insufficient, we are further unpersuaded that they suffice when considered collectively. Our decision in MicroStrategy is instructive on the extent to which delay and the movant's pre-trial activity may, when considered collectively, suffice to demonstrate prejudice. Prior to filing its motion to compel arbitration, the movant in MicroStrategy had engaged in what the district court described as a "`remarkably aggressive' course of litigation."
IV.
For the foregoing reasons we find that the district court erred in denying Skanska's motion to compel arbitration, and the order appealed from is
REVERSED AND REMANDED.
Notes:
Notes
The General Conditions to Subcontract Agreement rider to Patten's subcontract agreement with Skanska stated that
any controversy or claim ... between [Skanska] and [Patten] with respect to any matter or thing related to the Contract ... shall be decided as follows:
(i) [Patten] shall be bound conclusively by and abide by [Skanska's] decision, unless [Patten] shall commence arbitration proceedings as hereinafter provided.
(ii) If [Patten] decides to appeal from the decision of [Skanska], then this controversy shall be decided by arbitration ...; provided, however, that arbitration proceedings shall be commenced by [Patten] not later than 30 days following receipt of notice of [Skanska's] decision, otherwise ... [Patten] shall be deemed to have waived its rights to have the controversy or claims decided by arbitration (as provided herein), to have waived any right that it may have to institute an action or proceeding in any state or federal court or tribunal, and to have waived its right to recovery for any claim associated with the particular controversy.
J.A. 197.
The district court specifically found, and the parties acknowledge in their arguments on appeal, that the FAA applies to the contract in this case, and that the contract contains a valid and binding arbitration agreement
Although Patten does not formally make the following distinction, under Federal Rule of Civil Procedure 8(c), Skanska's failure to invoke the arbitration clause in its answer to Patten's complaint arguably constitutes a waiver of that right, and thus an issue that is seemingly distinct from whether Skanska's participation in the litigation during the resulting delay in asserting that right amounts to a default under the FAA. However, it is well established that an affirmative defense is not waived absent unfair surprise or prejudiceSee, e.g., S. Wallace Edwards & Sons, Inc. v. Cincinnati Ins. Co.,
Toward that end, Patten citesBreckenridge v. Farber,
Even if we were to credit Patten's argument that the delay was of eight months duration, we are not persuaded a delay of such length would suffice to establish prejudiceSee Rush v. Oppenheimer & Co.,
WIDENER, Circuit Judge, Dissenting:
I respectfully dissent.
I would affirm the judgment of the district court on its opinion, the reasons for which are summarized in the last full paragraph of its opinion, as follows:
In this case, the court finds that Patten has sufficiently demonstrated that Skanska has waived its right to compel arbitration. This case was filed over eight months ago, and the parties have substantially utilized the court in this case. As stated above, the parties have engaged in discovery, participated in mediation, and had a motion decided before the court. Regardless whether these factors alone would be sufficient for the court to find Skanksa [sic] waived its right to compel arbitration, the court finds that because Patten has thus far expended Five Thousand Eight Hundred Sixty-Two Dollars and Fifty-Two Cents ($5,862.52) to prosecute its case, compelling arbitration would result in actual prejudice to Patten. This prejudice is highlighted by the fact that Patten represents to the court it would be required to pay a substantial initial fee to engage the American Arbitration Association. Although the court is aware of the federal policy favoring arbitration, in this case the court finds that denial of Skanska's motion to compel arbitration is appropriate based on the facts discussed above. (footnote omitted)