KenAmerican Resources, Inc. v. Potter Grandchildren, LLC

Filing 17

MEMORANDUM OPINION & ORDER: KenAmerican's 8 MOTION to Stay and MOTION to Compel Arbitration is DENIED. Signed by Judge Joseph M. Hood on January 4, 2013. (AWD) cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON

KENAMERICAN RESOURCES, INC.
Plaintiff,
v.
POTTER GRANDCHILDREN, LLC,
Defendant.

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) Action No. 5:12-CV-86-JMH
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) MEMORANDUM OPINION AND ORDER
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This matter is before the Court on the Motion of the
Plaintiff

KenAmerican

Resources,

Inc.

(“KenAmerican”)

to

stay this matter in this Court and compel arbitration as
provided in the contract between the parties.
8].

Defendant

Potter

Grandchildren,

L.L.C.

[Record No.
(“Potter”)

timely objected [Record No. 11] and KenAmerican filed a
Reply [Record No. 12], and this matter is now ripe.
Potter

does

not

challenge

the

validity

of

the

arbitration agreement contained in the lease (the “Lease”),
dated July 21, 1997, but instead contends that KenAmerican
waived its right to compel arbitration when it chose to
file the complaint against Potter in Fayette Circuit Court
prior to removal to this Court.

1

This Court agrees.

“There is a strong presumption in favor of arbitration
and waiver of the right to arbitration is not to be lightly
inferred.”

O.J. Distributing, Inc. v. Hornell Brewing Co.,

Inc., 340 F.3d 345, 355-56 (6th Cir. 2003)(quoting Cotton
v. Slone, 4 F.3d 176, 179 (2nd Cir. 1993)).

The parties

appear to agree, and this Court holds, that federal law
governs

whether

KenAmerican

waived

arbitration in this matter.
Co.,

LLC,

No.

04-510-KKC,

October 16, 2007).
waived

by

the

its

right

to

compel

See Francis v. Nami Resources
2007

WL

3046061,

*4

(E.D.Ky.

“[A]n agreement to arbitrate may be

actions

of

a

party

which

inconsistent with any reliance thereon.”

are

completely

Gen’l Star Nat.

Ins. Co. v. Administratia Asigurarilor de Stat, 289 F.3d
434, 438 (6th Cir. 2002)(quoting Germany v. River Terminal
Ry. Co., 477 F.2d 546, 547 (6th Cir. 1973)(per curiam)).
There can be no question that KenAmerican’s decision
to file suit against Potter in Fayette Circuit Court flies
in

the

agreement

provision.

KenAmerican chose the forum for its dispute.

Only when

Potter

face

removed

of

the

the

arbitration

case

to

federal

court

and

filed

a

dispositive motion did KenAmerican choose to reverse course
and try to enforce the arbitration provision. KenAmerican’s
timing smacks of forum shopping.

2

Nonetheless, filing this

action

in

the

Fayette

Circuit

Court

was

a

clear

and

irrefutable renouncement of the arbitration provision.
The difference between this case and the vast majority
of

authority

on

the

issue

of

waiver

is

that

the

party

seeking arbitration in this instance is the Plaintiff, who
initially

invoked

the

power

of

the

arbitration to file its Complaint.

courts,

eschewing

The converse situation,

in which a defendant seeks to compel arbitration once a
suit is instituted in a court by its opponent, is the far
more

prevalent

scenario.

Citing

authority

from

other

jurisdictions, KenAmerican argues that its status as the
instigator of this lawsuit is of little consequence to this
Court’s analysis and that Potter must show that KenAmerican
delayed “its assertion to such an extent that the opposing
party

incurs

Trust

Co.

actual

Americas,

prejudice.”
610

F.3d

Hurley

334,

v.

338

Deutsche

(6th

Cir.

Bank
2010)

(internal quotations and citations omitted); see Zimmer v.
CooperNeff
2008);

Advisors,

Louis

Dreyfus

Inc.,

523

Negoce

F.3d

S.A.

v.

224,

233

Blystad

(3d

Shipping

Trading Inc.,

252 F.3d 218, 229 (2d Cir. 2001);

Enters.,

v.

Inc.

Merrill

Lynch,

Pierce,

Fenner

Inc., 738 F. Supp. 515, 518 (S.D. Ga. 1990);

Cir.

&

&

Realco
Smith

Masthead Mac

Drilling Corp. v. Fleck, 549 F. Supp. 854, 856 (S.D.N.Y.

3

1982); Marlin Oil Corp. v. Colorado Interstate Gas Co., 700
F. Supp. 1076, 1080 (W.D. Ok. 1988).
Potter argues, based on Sixth Circuit precedent, that
“[b]ringing

suit

for

damages

arbitration

provision,

with

without

relying

the

pleading

defendant

on
to

the

merits would constitute. . . a waiver” without requiring
any showing of actual prejudice to the party arguing that
waiver has occurred.

Am. Locomotive Co. v. Chem. Research

Corp., 171 F.2d 115, 121 (6th Cir. 1948); Central Trust Co.
NA v. Anemostat Products Div., 621 F.Supp. 44, 46 (S.D. Oh.
1985) (“The filing of a complaint is notice to a defendant
that the plaintiff is refusing to arbitrate.”)

In other

words, Potter argues that the filing of a complaint so far
exceeds a defendant’s actions in filing an answer, or even
filing a counterclaim against a plaintiff, once suit has
already

been

necessary.

initiated,

that

actual

prejudice

is

not

Thus, Potter argues that waiver occurred in

this case upon the filing of the suit and that this Court
need

not

However,

address
this

argument,

that

KenAmerican’s
arbitration

whether

Court
it

agrees

did,

delay

provision.

Potter

in

in

with
fact,

its

Potter’s
suffer

efforts

Therefore,

4

suffered

this

to

prejudice.
alternative

prejudice

by

enforce

the

Court

need

not

reach

the

question

of

whether

the

filing

the

complaint

alone would suffice to waive the arbitration provision.
Potter asserts that it was prejudiced based on the
time, money and energy spent removing the action to this
court, engaging in dispositive motion practice by filing a
motion

to

dismiss

two

of

KenAmerican’s

KenAmerican’s

informal

claims,
requests

and

responding

to

for

discovery.

“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

invocation

found
of

his

when

a

party

contractual

too

right

long
to

postpones

his

arbitration,

and

thereby causes his adversary to incur unnecessary delay or
expense.” Johnson Assoc. Corp. v. HL Operating Corp., 680
F.3d

713,

719-20

(6th

Cir.

2012)

(quoting

Hammond, 943 F.2d 176, 179 (2nd Cir. 1991)).

Kramer

v.

While only

three months had passed from the commencement of the action
until

KenAmerican

scheduling

order

tried
had

to

mediation

entered,

been

compel

Potter

and

no

undertook

substantial activity in this matter by removing the case,
responding to informal discovery requests, and preparing
dispositive

motions.

Potter

would

not

have

undertaken

these activities if arbitration had been contemplated from
the outset.

Consequently, KenAmerican’s delay in asserting

5

its right to arbitration directly caused Potter to suffer
“unnecessary delay or expense.”

Gen. Star Nat’l Ins. Co.,

289 F.3d at 438.
Moreover,
tactical

KenAmerican’s

advantage.

arbitration

clause

delay

also

KenAmerican

after

the

suit

resulted

only
was

in

asserted

removed

from

a
the
its

chosen forum and after it had the benefit of review of
Potter’s arguments against its claims.
Because

KenAmerican

waived

its

right

to

compel

arbitration, the Court need not reach Potter’s alternative
argument

that

Count

II

is

outside

of

the

scope

of

IT

IS

ORDERED

the

arbitration clause.
For

the

KenAmerican’s

foregoing
Motion

to

reasons,
Stay

and

Arbitration [DE 8] is DENIED.
This the 4th day of January, 2013.

6

Motion

to

that
Compel