Commercial Litigation and Arbitration

Arbitration — Res Judicata Is for Arbitrator to Decide, Waiver by Litigation for Court — Abandonment of Issue on Appeal by Failing to Brief It

Grigsby & Assocs., Inc. v. M Secs. Inv., 2011 U.S. App. LEXIS 25217 (11th Cir. Dec. 20, 2011):

This case is about whether the district court should have permitted a dispute to be arbitrated. Plaintiffs, Grigsby & Associates, Inc., argue that the district court should have enjoined the arbitration proceedings, in part because Defendants, M Securities Investment, Inc., waived the right to arbitrate by engaging in litigation conduct inconsistent with that right. Plaintiffs also argue that, even if arbitration was permissible, the district court should have vacated the award the arbitration panel entered in Defendants' favor. Because we conclude that the district court abused its discretion by failing to decide itself whether Defendants had waived the right to arbitrate, we vacate the district court's order declining to enjoin the arbitration and remand for that court to decide the waiver issue. ***

Footnote 4. Plaintiffs ask us also to reverse the district court's denial of Rule 11 sanctions against Defendants. But Plaintiffs' brief fails to argue this issue, abandoning it. See Greenbriar, Ltd. v. City of Alabaster, 881 F.2d 1570, 1573 n.6 (11th Cir. 1989). ***

Plaintiffs argue that the district court should have enjoined arbitration for two reasons: first, because the arbitration was barred by res judicata and, second, because Defendants waived the right to arbitrate by filing several lawsuits against Plaintiffs before initiating arbitration proceedings.

Both of these arguments implicate the division of labor between courts and arbitrators: which decisionmaker is presumptively — that is, in the absence of some agreement to the contrary between the contracting parties — responsible for deciding certain arbitration-related questions. The Supreme Court explained this division of labor in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002). In Howsam, the Supreme Court noted two questions that are presumptively for the courts: "whether the parties are bound by a given arbitration clause" and "whether an arbitration clause in a concededly binding contract applies to a particular type of controversy." Id. at 592. But the Supreme Court also listed other questions that are presumptively for the arbitrator, including "procedural questions which grow out of the dispute and bear on its final disposition," and "allegations of waiver, delay, or a like defense to arbitrability." Id. (internal quotation marks and citations omitted).

The Supreme Court also indicated in Howsam that, in determining whether a specific question is presumptively for the court or for the arbitrator to resolve, it is important to consider the comparative expertise of the respective decisionmakers and also the contracting parties' likely expectations about which decisionmaker would adjudicate a given issue: "for the law to assume an expectation that aligns (1) decisionmaker with (2) comparative expertise will help better to secure a fair and expeditious resolution of the underlying controversy -- a goal of arbitration systems and judicial systems alike." Id. at 593. ***

Klay [v. United Healthgroup, Inc., 376 F.3d 1092, 1109 (11th Cir. 2004)] is particularly important to this case because we said in Klay that res judicata is in the category of "disputes over whether a particular claim may be successfully litigated anywhere at all": a dispute that is presumptively assigned to the arbitrator. Id. Today we stand by Klay and repeat that res judicata is a question for the arbitrator, in the absence of an agreement to the contrary between the contracting parties. ***

In Howsam the Supreme Court listed as issues presumptively for the arbitrator "allegations of waiver, delay, or a like defense to arbitrability." Howsam, 123 S. Ct. at 592. Notwithstanding this language, three Circuit Courts of Appeal have interpreted Howsam as presumptively assigning to courts — rather than to arbitrators — questions involving allegations of waiver when the waiver is specifically based on a party's conduct. See JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 393-94 (6th Cir. 2008) (party wrote a letter disputing allegations before seeking arbitration); Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 217-19, 48 V.I. 1034 (3d Cir. 2007) (party defended against a lawsuit for four years before seeking arbitration); Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 12-14 (1st Cir. 2005) (party participated in EEOC proceedings before seeking arbitration); but see Nat'l Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462, 466 (8th Cir. 2003) (ordering issue of conduct-based waiver to be presented to arbitrator). Circuits, in the most part, treated Howsam's use of the term "waiver" as referring not to conduct-based waiver, but to a "defense[] arising from noncompliance with contractual conditions precedent to arbitration." Ehleiter, 482 F.3d at 219; JPD, Inc., 539 F.3d at 393-94.

The reasoning of the First, Third, and Sixth Circuits is persuasive to us. Today we conclude that it is presumptively for the courts to adjudicate disputes about whether a party, by earlier litigating in court, has waived the right to arbitrate. This presumption leaves the waiver issue to the decisionmaker with greater expertise in recognizing and controlling abusive forum-shopping. Ehleiter, 482 F.3d at 218; JPD, Inc., 539 F.3d at 394; see also Howsam, 123 S. Ct. at 593 (stressing the need to consider the comparative expertise of courts and arbitrators).

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