Commercial Litigation and Arbitration

Waiver of Right to Compel Arbitration — Factors — The Key to a Waiver Analysis Is Prejudice (Good Quote) — Types of Prejudice: Substantive, Excessive Cost — No Waiver Absent Substantial Motion Practice or Discovery

Sutherland v. Ernst & Young, LLP, 2015 U.S. App. LEXIS 773 (2d Cir. Jan. 20, 2015):

  We review [*2]  a district court's decision regarding waiver of a party's right to arbitrate de novo. Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 104 (2d Cir. 2002).

The appeal turns on whether Ernst & Young waived its right to demand arbitration. In determining whether a party has waived its right to arbitration by expressing its intent to litigate the dispute in question, we consider the following three factors: "(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice." La. Stadium & Exposition Dist. v. Merrill Lynch, Pierce, Fenner & Smith, 626 F.3d 156, 160 (2d Cir. 2010). "The key to a waiver analysis is prejudice. Waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated." Thyssen, 310 F.3d at 105 (internal quotation marks and brackets omitted).

This Court has recognized two types of prejudice: substantive prejudice and prejudice due to excessive cost and time delay. Id. "Prejudice can be substantive, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration, or it can be found when a party too long postpones his invocation of his contractual right to arbitration, and thereby causes his adversary [*3]  to incur unnecessary delay or expense." Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991). This Court "has refused to find waiver in a number of cases where delay in trial proceedings was not accompanied by substantial motion practice or discovery." See Thyssen, 310 F.3d at 105 (collecting cases).

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