Richard A. Messina v. North Central Distributing

Filing

OPINION FILED - THE COURT: Diana E. Murphy, C. Arlen Beam and Raymond W. Gruender AUTHORING JUDGE:Diana E. Murphy (PUBLISHED) [4397033] [15-2323]

United States Court of Appeals
For the Eighth Circuit
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No. 15-2323
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Richard A. Messina
lllllllllllllllllllll Plaintiff - Appellee
v.
North Central Distributing, Inc., doing business as Yosemite Home Decor
lllllllllllllllllllll Defendant - Appellant
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: March 15, 2016
Filed: May 10, 2016
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Before MURPHY, BEAM, and GRUENDER, Circuit Judges.
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MURPHY, Circuit Judge.
Richard Messina sued his former employer, North Central Distributing, Inc.
d/b/a Yosemite Home Decor ("Yosemite") in Minnesota state court for breach of
contract and wrongful termination. Yosemite removed the case to federal court, filed
an answer, and later moved to transfer venue to the Eastern District of California.

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The district court1 denied that motion. Then, eight months after Messina filed his
complaint, Yosemite moved to compel arbitration. The court denied that motion as
well, after finding that Yosemite had acted inconsistently with its right to arbitration
to the prejudice of Messina. It thus concluded that Yosemite had thereby waived the
right. Yosemite appeals that decision. We affirm.
I.
Messina traveled to Fresno, California in August of 2012 to negotiate and sign
an employment contract with Yosemite's vice president Rockie Bogenschutz.
Messina alleges that the two year contract made him Yosemite's vice president of
sales and allowed him to work from his home in Minnesota. Messina also signed an
arbitration agreement separate from the employment contract. Messina worked for
Yosemite for about six months until he was terminated in January 2013.
Messina sued Yosemite in Minnesota state court for wrongful termination and
breach of contract on July 1, 2014 and served Yosemite on July 7. Yosemite removed
the case to federal court in the District of Minnesota in August. It then filed an
answer raising twenty four affirmative defenses but did not mention arbitration. The
parties filed a joint Rule 26(f) report in November which included a discovery and
motion schedule and stipulated that the parties would be ready for trial in August
2015. The report also stated that the parties had discussed alternative dispute
resolution and recommended mediation, but this report also did not mention
arbitration.
On November 26 Yosemite moved to transfer venue to the Eastern District of
California where it is headquartered. Messina states that counsel for the two parties

1

The Honorable Paul A. Magnuson, United States District Judge for the District
of Minnesota.
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conferred several times by phone prior to the filing of the transfer motion and that
Yosemite's counsel never mentioned arbitration. In its motion Yosemite argued that
convenience of the parties, convenience of the witnesses, and the location of evidence
favored a transfer to Fresno. Again it did not mention arbitration. Messina's response
in opposition to the motion to transfer included several affidavits and identified a list
of witnesses who might testify on his behalf. On December 2 the parties attended a
Rule 16 scheduling conference at which Yosemite again failed to mention arbitration.
The district court denied Yosemite's motion to transfer on January 27, 2015.
According to Messina, Yosemite's attorney contacted his counsel on February
10 "and for the first time disclosed the Arbitration Agreement." Yosemite asked
Messina to stipulate to arbitration. According to Yosemite, this conversation
occurred "immediately" after the court denied Yosemite's motion to transfer, and
Messina's counsel did not get back to Yosemite as he had allegedly promised.
Messina's counsel served discovery on Yosemite on February 19 and a response
rejecting Yosemite's request to stipulate to arbitration the following day.
One month later on March 13, more than eight months after the lawsuit was
filed, Yosemite moved to compel arbitration. The district court found that Yosemite
knew of its existing right to arbitration, that it had acted inconsistently with that right,
and that its actions had prejudiced Messina. The court concluded that Yosemite had
waived its right to arbitration and thus denied its motion. Yosemite now appeals. See
9 U.S.C. § 16(a)(1).
II.
We review de novo the district court's conclusion that a party has waived
arbitration and examine the factual findings underlying that ruling for clear error.
Lewallen v. Green Tree Servicing, LLC, 487 F.3d 1085, 1090 (8th Cir. 2007).

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Because of the strong federal policy in favor of arbitration, "any doubts concerning
waiver of arbitrability should be resolved in favor of arbitration." Id.
A party waives its right to arbitration if it "(1) knew of an existing right to
arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party
by these inconsistent acts." Lewallen, 487 F.3d at 1090. A party acts inconsistently
with its right to arbitrate if it "substantially invokes the litigation machinery before
asserting its arbitration right, . . . when, for example, it files a lawsuit on arbitrable
claims, engages in extensive discovery, or fails to move to compel arbitration and stay
litigation in a timely manner." Id. (citations omitted). To safeguard its right to
arbitration, a party must "do all it could reasonably have been expected to do to make
the earliest feasible determination of whether to proceed judicially or by arbitration."
Id. at 1091 (quoting Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d
388, 391 (7th Cir. 1995)).
Yosemite's conduct satisfies each element of the Lewallen waiver test. First,
it knew of its existing right to arbitration because it possessed the arbitration
agreement. Second, Yosemite acted inconsistently with its right to arbitrate by
proceeding in court for more than eight months before asserting that right. See
Lewallen, 487 F.3d at 1090. The Lewallen court concluded that the defendant in that
case had waived its right to arbitration after filing discovery, seeking an extension of
time to respond to the complaint, filing a joint motion to continue trial, and waiting
eleven months to invoke its right until it filed its motion to dismiss. Id. at 1091.
Yosemite's eight month delay is of similar length, and it participated in somewhat
similar pretrial proceedings. Yosemite "substantially invoke[d] the litigation
machinery," id. at 1090, by removing the case to federal court, filing an answer,
participating in a pretrial hearing, filing a scheduling report which recommended a
trial date and discovery deadlines, and filing a motion to transfer venue.

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Yosemite also failed to "do all it could reasonably have been expected to do"
to raise its right at the earliest feasible time. Lewallen, 487 F.3d at 1091. Yosemite
failed to mention the arbitration agreement in its answer which listed twenty four
other affirmative defenses, in the joint Rule 26(f) report, at the pretrial scheduling
conference, or in its motion to transfer venue. As in Lewallen, Yosemite "had several
opportunities to seek arbitration after [Messina] put it on notice of [his] claims, and
it let each of those opportunities pass." Id. Moreover, until Yosemite filed its motion
to compel arbitration in March 2015, it had consistently indicated that it was prepared
to take the case to trial in federal court and never indicated otherwise. For example,
in the joint Rule 26(f) report Yosemite recommended that the district court set a trial
date on or after August 1, 2015. In its motion to transfer venue, Yosemite argued that
it would be a hardship "to litigate this matter in Minnesota" as opposed to "litigating
in the Eastern District of California," and that the court in California would have
more expertise in applying California law. Through these actions and comments,
Yosemite "evidenced a preference for litigation that supports a finding of waiver."
See PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 109 (2d Cir. 1997).
Yosemite only moved to compel arbitration after it lost the motion to transfer
venue. The timing of Yosemite's actions demonstrates that it "'wanted to play heads
I win, tails you lose,' which 'is the worst possible reason' for failing to move for
arbitration sooner than it did." Hooper v. Advance Am., Cash Advance Centers of
Mo., Inc., 589 F.3d 917, 922 (8th Cir. 2009) (quoting Cabinetree, 50 F.3d at 391).
The district court thus did not err in finding that Yosemite acted inconsistently with
its right to arbitration.
Yosemite's actions caused Messina prejudice because, as the district court
found, he "spent considerable time and money obtaining new counsel, partaking in
pretrial hearings, and responding to the transfer motion." Prejudice from a failure to
assert an arbitration right occurs when, for example, "parties use discovery not
available in arbitration, when they litigate substantial issues on the merits, or when
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compelling arbitration would require a duplication of efforts." Kelly v. Golden, 352
F.3d 344, 349 (8th Cir. 2003). Delay in seeking to compel arbitration "does not itself
constitute prejudice." Stifel, Nicolaus & Co. Inc. v. Freeman, 924 F.2d 157, 159 (8th
Cir. 1991). Delay can however combine with other factors to support a finding of
prejudice. Kelly, 352 F.3d at 350 (district court did not err in finding prejudice when
party seeking arbitration caused "substantial delay," expenses, and potential
duplication of efforts when it "failed to object or move to compel arbitration
throughout a year of court proceedings").
Yosemite caused delay by waiting eight months from the time of filing to first
mention arbitration. During that time Messina was forced to defend against
Yosemite's motion to transfer venue to California where Yosemite sought to "litigate"
the case. In response to that motion, Messina compiled affidavits and a list of
witnesses. Later after Yosemite agreed to a discovery schedule, Messina served
discovery on Yosemite. According to Messina, he has spent "considerable time and
thousands of dollars" on the lawsuit to date, including obtaining new counsel.
Further, granting Yosemite's belated motion to compel arbitration would likely cause
Messina to duplicate his efforts to keep the case in Minnesota which Yosemite would
presumably seek to arbitrate in California. See Kelly, 352 F.3d at 349–50. The
district court thus did not err in finding that Yosemite's actions prejudiced Messina.
Because Yosemite knew of its right to arbitrate, acted inconsistently with that
right, and prejudiced Messina by its failure even to mention arbitration despite
multiple opportunities to do so over eight months of litigation, we conclude that
Yosemite waived its right to arbitration. Lewallen, 487 F.3d at 1090.
III.
For these reasons the judgment of the district court is affirmed.
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