Riverbend Capital, L.L.C. v. Caitlin, M/V et al

Filing 78

ORDER & REASONS: denying 57 Defendants' Motion to Compel Arbitration and Dismiss or Stay Proceedings. Signed by Judge Carl Barbier on 5/13/13. (sek, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

RIVERBEND CAPITAL, L.L.C.

CIVIL ACTION

VERSUS

NO: 11-840

CAITLIN, M/V ET AL.

SECTION: "J"(1)

ORDER AND REASONS
Before the Court is Defendants' Motion to Compel Arbitration
and Dismiss or Stay the Proceedings. (Rec. Doc. 57) Plaintiff,
Riverbend Capital L.L.C ("Riverbend"), has opposed the motion.
(Rec. Doc. 62) Defendants have replied. (Rec. Doc. 63) The Court
took the motion under advisement on April 22, 2013. In their
motion, Defendants seek an order compelling Riverbend to arbitrate
the claims asserted in this litigation based on an arbitration
clause in the parties' Business Loan/Security Agreement. Having
considered the motion, the parties’ submissions, the record, and
the applicable law, the Court finds, for reasons expressed more
fully below, that Defendants' motion should be DENIED.1

1

The Court denied Defendants' motion in open court on Wednesday, May 8,
2013 and now issues its written reasons.

PROCEDURAL HISTORY AND BACKGROUND FACTS
Plaintiff, Riverbend, is a limited liability company organized
under Louisiana law. Defendants and Plaintiffs in Counterclaim,
Royal Street Towing Co., Inc. ("Royal Street Towing"), owner of the
M/V ROYAL STREET; Faith Towing, Inc. ("Faith Towing"), owner of the
M/V FAITH; Dooh Towing Co., Inc. ("Dooh Towing"), owner of the M/V
CAITLIN; and F&S Marine, LLC ("F&S Marine"), are all businesses
organized under Louisiana law that are owned and operated by
Defendants and Plaintiffs in Counterclaim, Freddie Dufriend and
Susan Dufriend (collectively "the Dufriends").2
On

April

14,

2011,

Riverbend

filed

the

instant

action

asserting in personam claims against the Dufriends, Royal Street
Towing, Dooh Towing, Faith Towing, and F&S Marine to recover
$2,092,400.00 in allegedly unpaid principal, interest, and late
fees pursuant to a series of loan agreements and promissory notes
that the parties entered into and executed on August 15, 2006 and
June 2, 2008.3 In addition, Riverbend seeks to recover attorneys
fees, pursuant to provisions in several of the promissory notes
executed by Defendants. In its verified complaint, Riverbend also
filed in rem claims against the M/V CAITLIN, the M/V FAITH, and the

2

Susan Dufriend is now deceased and Freddie Dufriend has suffered a
stroke since the initiation of this litigation.
3

Riverbend seeks a judgment for the principal sum of $1,595,000.00,
past due interest through April 1, 2011 in the amount of $321,950.00, late
charges through February 21, 2011 in the amount of $175,450.00, and continuing
interest from April 1, 2011 until paid, additional late charges, all costs of
collection and of the instant proceedings, and reasonable attorneys' fees.

2

M/V ROYAL STREET, seeking to foreclose on three First Preferred
Ship Mortgages that Freddie Dufriend allegedly executed in his
capacity as President of Dooh Towing, Faith Towing, and Royal
Street Towing, as security for several of the loans that Riverbend
allegedly made to Defendants. On the same day that Riverbend filed
its verified complaint, it also filed an ex parte consent motion
for issuance of warrant of arrest. (Rec. Doc. 4) The Court granted
Riverbend’s motion and issued warrants of arrest for all three
vessels named in Riverbend’s complaint. (Rec. Docs. 8-10) The
warrant was executed as to the M/V ROYAL STREET on April 15, 2011
and returned unexecuted as to the CAITLIN M/V and the FAITH M/V on
May 4, 2011, as those vessels are located outside of the Eastern
District of Louisiana.4 (Rec. Docs. 21, 22)
Thereafter, Defendants filed an answer and counterclaim on May
5, 2011. (Rec. Doc. 24) In their answer, Defendants asserted as
their

third

defense

that

Riverbend

failed

to

establish

its

entitlement to execute on inter alia, any of the First Preferred
Ship

Mortgages

in

the

absence

of

evidence

substantiating

Riverbend's alleged disbursement of $1,650,000.00 to Defendants.
(Answer,

Rec.

Doc.

24,

p.

6)

In

their

counterclaim

against

Riverbend, Defendants contended that they are entitled to the
cancellation of the collateral mortgages, promissory notes, and/or

4

Riverbend filed similar complaints against those vessels in the
Western District of Louisiana and the Southern District of Texas.

3

First Preferred Ship Mortgages held by Riverbend, because, based on
the documentation available, the loan proceeds disbursed have been
repaid and the debt Defendants allegedly owed to Riverbend has been
extinguished.

(Counterclaim,

Rec.

Doc.

24,

p.

8,

¶¶

9-10)

Defendants also asserted in their Counterclaim that they are
entitled to reimbursement for any and all payments that were made
in

excess

of

monies

allegedly

disbursed

by

Riverbend.

(Counterclaim, Rec. Doc. 24, p. 8, ¶ 10) Riverbend answered
Plaintiffs’ counterclaim on May 28, 2011. (Rec. Doc. 33)
On May 25, 2011, Defendants filed a motion to vacate the
attachment of the M/V ROYAL STREET pursuant to Rule E(4)(f) of the
Supplemental Rules for Admiralty or Maritime Claims and Asset
Forfeiture Actions. (Rec. Doc. 26) Rule E(4)(f) provides that
"[w]henever property is arrested or attached, any person claiming
an interest in it shall be entitled to a prompt hearing at which
the

plaintiff

shall

be

required

to

show

why

the

arrest

or

attachment should not be vacated or other relief granted consistent
with these rules." In their motion, Defendants contended that Rule
E(4)(f) "gives the defendant or other person with an interest in
the property a right to a prompt post-seizure hearing at which it
can attack the Complaint, the arrest, the security demanded, or any
other alleged deficiency in the pleadings." (Mem. in Supp/ of Mot.
to Vacate Attach., Rec. Doc. 26-1, p. 3) In that motion, Defendants
argued that "Riverbend cannot prove it disbursed $1,650,000 to the

4

Defendants," and that "[i]f Riverbend cannot carry its burden . .
. the vessels should be released." (Mem. in Supp. of Mot. to Vacate
Attach., Rec. Doc. 26-1, p. 4) To support this argument, Defendants
relied on the verified complaint in civil action no. 680613, the
legal malpractice action that Riverbend, and others, filed in the
24th Judicial District Court for the Parish of Jefferson against
inter alia, Greg Faia ("Faia") and Security Title LLC ("Security
Title") (hereinafter "the Faia malpractice action"). Faia is the
attorney who, along with his company Security Title, handled the
closings

on

Riverbend's

loans

to

Defendants.

In

the

Faia

malpractice action, Riverbend sought records from the closings that
Faia

and

Security

Title

handled

for

Riverbend.

Specifically,

Defendants argued that Riverbend's allegation in the instant action
that the extent of its damages is $1,650,000 is directly contrary
to Riverbend's allegations in the Faia malpractice action: (a) that
Faia never provided an accounting for the closings he allegedly
performed

for

Riverbend,

and

(b)

that

Riverbend

could

articulate the full extent of its damages without obtaining

not
an

accounting and studying the files that Faia refused to tender to
Riverbend. (Mem. in Supp. of Mot. to Vacate Attach., Rec. Doc. 261, p. 5) Defendants also argued that Riverbend could not meets its
burden

of

establishing

its

maritime

lien

and

that

Riverbend

"wrongfully arrested" the M/V ROYAL STREET, because:
To the extent Riverbend entrusted Security Title with
funds earmarked for Defendants' account, the actual
5

amount "disbursed" to the Defendants cannot and has not
been proven without settlement statements and/or records
of distribution from Security Title - none of which is in
Riverbend's possession . . . Riverbend's own documents
support payments in the amount of $603,743.00. The
payments made by Defendants far exceed the amount loaned
to Defendants as evidenced by check stubs in their
possession drawn to Defendants on Security Title's
account in the amount of $472,524.93.
(Mem. in Supp. of Mot. to Vacate Attach., Rec. Doc. 26-1, p. 4)
On May 25, 2011, Defendants moved to expedite hearing on their
motion to vacate attachment and, on May 26, 2011, requested oral
argument (Rec. Doc. 29) The Court granted Defendants' motion to
expedite, setting the motion for hearing with oral argument on May
31, 2011. (Rec. Doc. 30) On May 31, 2011, Riverbend filed its
opposition to Defendants' motion to vacate attachment, and the
Court

held

a

hearing

on

the

motion,

after

which

it

denied

Defendants' motion to vacate the attachment of the M/V ROYAL STREET
(Rec. Doc. 35) At the hearing, Riverbend called several live
witnesses, including Freddie Dufriend, Michael Dazet, and Eugene
Nolan. Defendants' counsel cross-examined those witnesses, in
particular, questioning Michael Dazet about, among other things,
whether Riverbend had any records of money that Security Title paid
to Freddie Dufriend or any documents showing that Security Title
actually advanced the funds that Riverbend asked Security Title to
advance. (Transcript, Rec. Doc. 39, p. 32) Nevertheless, the Court
denied Defendants' motion to vacate attachment, stating:
[W]hile there may be some confusion about the exact
advances and payments, I find the testimony of Mr. Dazet
6

and Mr. Nolan credible, together with the spreadsheets
from their accountant that they introduced, which seems
to support that there is an unpaid principal balance of
$1.595 million . . . So it's clear to me that there is
still a large unpaid principal balance, and there are
preferred mortgages involved . . . So I'm going to deny
the motion to vacate. I think plaintiff Riverbend has
carried its burden of demonstrating that it is entitled
to serve a maritime lien, and the vessel seizure will not
be vacated.
(Hr'g Tr., Rec. Doc. 39, p. 55)
Thereafter, Defendants filed two consent motions to continue
trial of this case, one on January 3, 2012 and one on August 15,
2012, both of which the Court granted, ultimately continuing the
bench trial until May 6, 2013.5 (Rec. Docs. 42, 44, 49, 50, 52) On
April 11, 2013, one day after the parties submitted their joint
proposed pretrial order and one day before the final pretrial
conference, which the Court held on April 12, 2013, Defendants
filed an untimely motion to compel arbitration6 based on the
following arbitration clause in a Business Loan/Security Agreement
("Security Agreement"), that the parties entered into in connection
with several loans that Riverbend made to Defendants:
Arbitration. Borrower and Lender agree that any disputes,
claims and controversies between them whether individual,
joint, or class in nature, arise from this Agreement or
otherwise, Including without limitation contract and tort
disputes, shall be arbitrated pursuant to the Rules of
5

In the final pretrial conference, which the Court held on April 12,
2013, the Court continued the trial by two days until Wednesday, May 8, 2013.
(Rec. Doc. 60)
6

The parties' most recent scheduling order provided that all pretrial
motions shall be filed and served in sufficient time to permit hearing thereon
no later than Mar. 22, 2013. (Rec. Doc. 52)

7

the American Arbitration Association in effect at the
time the claim is filed, upon request of Lender. No act
to take or dispose of or foreclose upon any Collateral
shall constitute a waiver of this arbitration agreement
or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief
or a temporary restraining order, obtaining a writ of
attachment or imposition of a receiver, or exercising any
rights relating to personal property, Including taking or
disposing of such property with or without judicial
process pursuant to Article 9 of the Uniform Commercial
Code. Any disputes claims, or controversies concerning
the lawfulness of reasonableness of any act, or exercise
of any right, concerning any Collateral, including any
claim to rescind, reform, or otherwise modify any
agreement relating to the Collateral, shall also be
arbitrated, provided however that no arbitrator shall
have the right or the power to enjoin or restrain any act
of any party. Judgment upon any award rendered by any
arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude
any party from seeking equitable relief from a court of
competent jurisdiction. The statute of limitations,
estoppel, waiver, laches, and similar doctrines which may
otherwise be applicable in an action brought by a party
shall be applicable in any arbitration proceeding, and
the commencement of an arbitration proceeding shall be
deemed the commencement of an action for these purposes.
The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this
arbitration provision.7
7

In the Security Agreement, the term "Agreement" is defined as "this
Business Loan Agreement, as this Business Loan Agreement may be amended or
modified from time to time, together with all exhibits and schedules attached
or to be attached to this Business Loan Agreement from time to time."
(Security Agmt., Rec. Doc. 2-3, p. 10) The term "Lender" is defined as
"RIVERBEND CAPITAL, L.L.C., its successors and assigns, and any subsequent
holder or holders of Borrower's Loan and Note, or any interest therein."
(Security Agmt., Rec. Doc. 2-3, p. 11) The term "Borrower" is defined to mean
"any and all signors of the Note and/or this Agreement as listed on page one,
including but not limited to DOOH TOWING CO., INC., ROYAL STREET TOWING CO.,
INC., FAITH TOWING, INC., F & S MARINE, L.L.C., FREDDIE JOSEPH DUFRIEND AND/OR
SUSAN BECKWITH DUFRIEND and includes all co-signers and co-makers signing the
Note." (Security Agmt., Rec. Doc. 2-3, p. 10) The term "Note" is defined as
"the Note executed by either SUSAN BECKWITH DUFRIEND, FREDDIE JOSEPH DUFRIEND,
DOOH TOWING CO., INC., ROYAL STREET TOWING CO., INC., FAITH TOWING, INC., OR F
& S MARINE, L.L.C. in the principal amount of $1,375,000.00 dated August 15,
2006, together with all renewals, extensions, modifications, refinancings,
consolidations and substitutions of and for the note or credit agreement."

8

(Rec. Docs. 55-57; Security Agmt., Rec. Doc. 2-3, p. 8)
The Defendants also moved to expedite hearing on the Motion to
Compel Arbitration the day before the pretrial conference (Rec.
Doc. 58). Nevertheless, in the final pretrial conference, the Court
orally granted Defendants' motion to expedite hearing. (Rec. Doc.
60) The Court also established a briefing schedule, ordering
Riverbend to file any opposition to Defendants' motion on or before
April 19, 2013 and ordering Defendants to file any reply on or
before April 22, 2013. Both parties timely filed their opposition
and reply, and the Court took the instant motion under advisement
on April 22, 2013.

(Security Agmt., Rec. Doc. 2-3, p. 11) The term "Collateral" is defined as:
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether, granted directly or
indirectly, whether granted now or in the future, and whether
granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel
mortgage, collateral chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
(Security Agmt., Rec. Doc. 2-3, p. 11)
The term "Loan" is defined as "any an all loans and financial
accommodations from Lender to Borrower whether now or hereafter existing, and
however evidenced, including without limitation those loans and financial
accommodations described herein or described on any exhibit or schedule attached
to this Agreement from time to time."
(Security Agmt., Rec. Doc. 2-3, p. 11)

9

PARTIES’ ARGUMENTS
A. Defendants' Arguments
Defendants move for an order dismissing or, alternatively,
staying the instant action and compelling Riverbend to arbitrate
all of its claims against Defendants based on the arbitration
clause in the Security Agreement. First, Defendants argue that the
Federal Arbitration Act ("FAA") governs the Arbitration Agreement
in this case and mandates that Riverbend's claims be referred to
arbitration. In particular, Defendants assert that the FAA applies
where there is a contract evidencing a transaction involving
interstate commerce, and that the requisite interstate commerce
nexus required to trigger the FAA exists in this case, because the
Arbitration Agreement at issue is in a contract whereby Riverbend
loaned Defendants funds to perform "push boat" services for vessels
engaged in maritime commerce. Alternatively, Defendants point out
that the Security Agreement calls for the application of the FAA.
Second, Defendants argue that the two-part test used in the
Fifth Circuit to determine whether to enforce an arbitration
agreement is satisfied in this case. Defendants assert that the
first prong of the test — whether the parties agreed to arbitrate
the dispute in question — is satisfied in this case for two
reasons. First, they assert that the arbitration clause in the
Security

Agreement

constitutes

a

valid,

written

arbitration

agreement between the parties. Second, they assert that Riverbend's
10

claims fall within the scope of the arbitration agreement. In
particular,

Defendants

claim

that

the

arbitration

agreement,

through the use of the words "shall be arbitrated," requires
Riverbend

to

arbitrate

any

and

all

"disputes,

claims

and

controversies," although Defendants concede that the arbitration
agreement does not impede Riverbend from using the Court to seize
its

security.

According

to

Defendants,

Riverbend's

complaint

constitutes either a controversy, disagreement, or dispute that is
subject to mandatory arbitration. Defendants also assert that the
second prong of the test is satisfied, because there is no federal
policy or statute that renders any of Riverbend's claims nonarbitrable. Finally, Defendants contend that the Court should
dismiss Riverbend's claims or, alternatively, stay the action
pending arbitration. Defendants contend, relying on Alford v. Dean,
975 F.2d 1161 (5th Cir. 1992), that Riverbend's claims should be
dismissed,

because

all

of

Riverbend's

claims

are

subject

to

arbitration. Alternatively, Defendants request that the Court stay
these proceedings pursuant to Section 3 of the FAA and refrain from
further action in this suit pending arbitration. Defendants contend
that a stay is mandatory in this case, because Riverbend's claims
and allegations are subject to arbitration, and the Fifth Circuit
has held that a stay is mandatory under Section 3 of the FAA
whenever

the

issues

of

a

case

arbitration agreement.

11

are

within

the

reach

of

an

B. Riverbend's Opposition
In its opposition, Riverbend makes two arguments. First,
Riverbend argues that the first prong of the test for determining
whether to enforce the arbitration agreement — whether the parties
agreed to arbitrate the dispute in question — is not met in this
case for two reasons. First, Riverbend argues that the parties
agreed that arbitration would be at the option of the lender,
Riverbend, not the borrowers, and that Riverbend, rather than
electing to arbitrate its claims, has engaged in two years of
litigation with Defendants' unqualified participation.8 Second,
Riverbend argues, that under the parties' arbitration agreement,
arbitration was not mandatory, but was an option available to both
parties. In support of this argument, Riverbend relies on the
phrase in the arbitration agreement stating "no act to take or
dispose of or foreclose upon any Collateral shall constitute a
waiver of this arbitration agreement or be prohibited by this
arbitration agreement," which Riverbend contends applies equally to
Riverbend

and

Defendants.

Riverbend

also

contends

that

the

"condition" in the arbitration agreement that "no arbitrator shall
have the right or the power to enjoin or restrain any act of any
party," supports its interpretation of the arbitration clause as
8

In support of this argument, Riverbend relies on the language of the
arbitration agreement providing "Borrower and Lender agree that any disputes,
claims and controversies between them . . . shall be arbitrated pursuant to
the Rules of the American Arbitration Association in effect at the time the
claims is filed, upon request of Lender." (Security Agmt., Rec. Doc. 2-3, p.
8) (emphasis added).

12

providing both parties with the option to arbitrate, because "the
thrust of this condition within the arbitration clause," is that
neither lender nor borrowers could object to the other filing suit
in state or federal court based on the arbitration clause. In
addition, Riverbend asserts, based on a phrase in the arbitration
agreement

providing

that

"[n]othing

in

this

agreement

shall

preclude any party from seeking equitable relief from a court of
competent jurisdiction," that the arbitration agreement did not
prevent either party from filing suit and that Riverbend cannot
compel

arbitration

of

Defendants'

counterclaim.

According

to

Riverbend, it is clear from the language of the arbitration
agreement as a whole, that the parties viewed arbitration as a
mutually agreeable option to litigation, not a mandatory provision
required of either party before the institution of litigation.
Riverbend reaches this conclusion based on its observation that
neither party was precluded from bringing suit and that the
arbitration agreement did not give the arbitrator authority to
enjoin or restrain either party from bringing suit in federal
court.
Second,

Riverbend

argues

that

Defendants

have

waived

arbitration. In the Fifth Circuit, there is a presumption against
finding a waiver of arbitration rights, but the party asserting
waiver can overcome the presumption by showing: (1) that the other
party has substantially invoked the judicial process and (2) that

13

permitting arbitration will cause prejudice. In re Apple iPhone 3G
and 3GS MMS Mktg and Sales Practices Litig., 864 F. Supp. 2d 451,
456-57 (E.D. La. 2012). Riverbend argues that Defendants have
waived arbitration in this case, because they have: (1) invoked the
judicial process, (2) engaged in protracted litigation for the past
twenty-four months, and (3) prejudiced Riverbend by fully engaging
in the litigation process and delaying in seeking to arbitrate the
claims Riverbend has raised in the instant lawsuit. With respect to
Defendants' invocation of judicial process, Riverbend asserts that
Defendants engaged in overt acts evincing their desire to resolve
an arbitrable dispute through litigation rather than arbitration
when they: (1) filed a counterclaim against Riverbend, (2) moved to
vacate the attachment of the M/V ROYAL STREET, (3) requested oral
argument on the motion, and (4) participated in a hearing on the
motion May 31, 2011. With respect to Defendants' participation in
protracted litigation for the past twenty-four months, Riverbend
asserts that since the May 31, 2011 hearing on Defendants' motion
to

vacate

discovery

attachment,
process

by

Defendants
arranging

have
for

fully

and

engaged

taking

in

the

depositions,

demanding and producing documents, and requesting and providing
answers to interrogatories. In addition, Riverbend points out that
Defendants waited to file the instant motion to compel arbitration
until after the parties confected and filed their joint proposed
pretrial order

14

Finally, Riverbend asserts that it has been prejudiced by
Defendants' full engagement in the litigation process and delay in
seeking to arbitrate. In particular, Riverbend asserts, relying on
Republic Insurance Co. v. PAICO Receivables, L.L.C., 383 F.3d 341,
346 (5th Cir. 2004), that the following three factors are relevant
to the prejudice determination: (1) whether pre-trial activity was
related to all of the parties' claims, including those that were
conceded

to

be

arbitrable,

(2)

whether

the

party

opposing

arbitration incurred the time and expense of defending against a
motion for summary judgment, and (3) whether a party failed to
timely assert its right to arbitrate. Riverbend argues that all
three of these factors favor a finding that Riverbend will be
prejudiced

if

arbitration.

the

As

to

Court
the

grants
first

Defendants

factor,

motion

Riverbend

to

compel

asserts

that

pretrial activity in this case was related to all claims between
Riverbend and Defendants, thereby implying that pretrial activity
was related to at least some arbitrable claims. With respect to the
second factor, Riverbend asserts that although Defendants never
forced Riverbend to incur the time and expense associated with
defending against a motion for summary judgment, they did require
Riverbend to defend its arrest of the M/V ROYAL STREET at the
hearing

held

circumstance

on

May

weighs

31,
in

2011.
favor

Riverbend
of

contends

finding

that

that

this

compelling

arbitration, at this stage of the litigation, would result in

15

prejudice. With respect to the third factor, Riverbend asserts that
Defendants
because,

did
after

not

timely

invoke

participating

in

the
all

arbitration
aspects

of

agreement,
litigation,

including filing a counterclaim, holding an in-court hearing,
noticing depositions, and confecting the proposed joint pretrial
order,

for

mentioned

twenty-four
the

months,

arbitration

during

clause

in

which
the

time

Security

they

never

Agreement,

Defendants moved to compel arbitration very close to the trial
date.
C. Defendants' Reply
In

their

reply,

Defendants

take

issue

with

Riverbend's

contentions that arbitration was at the option of the lender and
that the parties intended arbitration to be optional in all cases.
Defendants contend that the language in the arbitration clause
providing that "any disputes, claims, and controversies . . . shall
be arbitrated pursuant to the Rules of the American Arbitration
Association in effect at he time the claim is filed, upon request
of Lender," should be interpreted to provide that the use of the
American Arbitration Association rules — not arbitration generally
—

is

at

the

request

of

the

lender.

Defendants

contend

that

Riverbend's contention that arbitration was at the option of the
lender and intended to be optional in all cases, does not make
sense in light of the subsequent language in the arbitration clause
providing that "[a]ny disputes, claims, or controversies concerning

16

the lawfulness or reasonableness of any act, or exercise of any
right, concerning any Collateral, including any claim to rescind,
reform,

or

Collateral,

otherwise
shall

also

modify

agreement

arbitrated

be

any

.

.

.

relating
."

to

According

the
to

Defendants, Louisiana law applies to the interpretation of the
arbitration

provision.

Defendants

further

contend

that

under

Louisiana law, the arbitration clause must be interpreted in light
of the entire provision, not simply the first sentence, and that
any ambiguity in the arbitration clause must be construed against
the

drafter

of

the

Security

Agreement,

Riverbend.

Defendants

maintain that if the parties intended that arbitration be optional,
the drafter — Riverbend — could have clearly articulated this and
avoided using mandatory words such as "any disputes, claims and
controversies . . . shall be arbitrated," and "[a]ny disputes,
claims,

or

controversies

.

.

.

shall

also

be

arbitrated."

Defendants contend that the only type of claim that is clearly
exempted from arbitration is a claim by any party seeking equitable
relief. Defendants maintain that they filed a counterclaim seeking
the dismissal of the arrest of the vessels, which Defendants
characterize as a request for equitable relief, but that this
"issue" is no longer pending as Riverbend has released the vessels.
Defendants assert that their claims that: (1) they did not receive
loan proceeds due to illegal loan charges for attorneys fees and
closing costs and (2) that the payments Defendants made were not

17

properly credited are "disputes, claims or controversies concerning
the lawfulness or reasonableness of any act, or exercise of any
right," which must be arbitrated pursuant to the terms of the
parties' arbitration agreement.
In response to Riverbend's waiver argument, Defendants point
out that while the right to arbitrate a dispute is subject to
waiver, the party asserting waiver bears a heavy burden, because
there is a strong presumption against finding waiver. Defendants
argue that Riverbend cannot meet its burden. Defendants contend
that Riverbend "initiated this litigation with the arrest and
seizure of defendants's vessels," in response to which Defendants
filed a counterclaim "asking that the seizure be dismissed."
(Def.'s

Reply,

Rec.

Doc.

63,

p.

5)

Defendants

contend

that

Riverbend had the right to arrest and seize the Defendants' vessels
and that Defendants had the right to file a counterclaim "asking
that the seizure be dismissed," because both parties' actions
sought equitable relief and were, therefore, permissible under the
provision of the arbitration agreement which states that "[n]othing
in this Agreement shall preclude any party from seeking equitable
relief from a court of competent jurisdiction." (Def.'s Reply, Rec.
Doc. 63, p. 5) Defendants further contend that after "initiat[ing]
this litigation with the arrest and seizure of defendants' vessels
. . . [Riverbend] then released all vessels and now seeks a money
judgment — which is prohibited under the arbitration clause."

18

(Def.'s Reply, Rec. Doc. 63, p. 5) In addition, Defendants contend
that Riverbend cannot show that Defendants have "substantially
invoked"

the

"prohibited

judicial
by

the

process

to

arbitration

obtain

any
or

clause,"

relief
that

that

is

permitting

arbitration would cause Riverbend prejudice. Defendants appear to
reason that Riverbend will not be prejudiced if the Court permits
arbitration

at

this

late

stage

of

the

proceedings,

because

Riverbend initially "filed for the arrest and seizure of its
collateral — then released the vessels," and is "now seeking to
violate the arbitration clause it placed in the contract in
question

by

seeking

something

other

than

equitable

relief."

According to Defendants, by "now seeking" something other than
equitable

relief,

Riverbend

is

now

seeking

to

violate

the

arbitration clause that Riverbend placed in the Security Agreement.
DISCUSSION
As a preliminary matter, the Court declines to address the
parties' arguments relative to the proper interpretation and scope
of the arbitration clause. Accepting the Defendants' interpretation
of the clause as correct for the sake of argument and assuming that
Defendants, at one time, had a right pursuant to the arbitration
clause in the Security Agreement to compel Riverbend to arbitrate
its claim for money damages and Defendants' counterclaim, the Court
finds that at this advanced stage of the litigation, Defendants
have waived any rights that they may have had to compel arbitration

19

of Riverbend's in personam claims for money damages and their
counterclaim.
"The right to arbitrate, like all contract rights, is subject
to waiver." Nicholas v. KBR, Inc., 565 F.3d 904, 907 (5th Cir.
2009) (citation omitted). The Fifth Circuit has recently given the
following synopsis of the law regarding waiver of the right to
compel arbitration:
Waiver will be found when the party seeking arbitration
substantially invokes the judicial process to the
detriment or prejudice of the other party. There is a
strong presumption against finding a waiver of
arbitration, and the party claiming that the right to
arbitrate has been waived bears a heavy burden. To invoke
the judicial process, ‘[t]he party must, at the very
least, engage in some overt act in court that evinces a
desire to resolve the arbitrable dispute through
litigation rather than arbitration.’ Further, “a party
only invokes the judicial process to the extent it
litigates a specific claim that it subsequently seeks to
arbitrate . . . In addition to the invocation of the
judicial process, there must be prejudice to the party
opposing arbitration before we will find that the right
to arbitrate has been waived. ‘[F]or purposes of a waiver
of an arbitration agreement: prejudice . . . refers to
the inherent unfairness in terms of delay, expense, or
damage to a party’s legal position that occurs when the
party’s opponent forces it to litigate an issue and later
seeks to arbitrate that same issue.” Ultimately, however,
“[t]he question of what constitutes a waiver of the right
of arbitration depends on the facts of each case.
Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344-46
(5th Cir. 2004) (internal citations and quotations omitted).
In order to analyze the waiver issue in this case, and in
particular,

the

question

of

whether

Defendants

have

forced

Riverbend to litigate the claims that Defendants now claim are

20

subject to mandatory arbitration, the Court must first disentangle
Defendants' arguments, which mischaracterize the procedural history
and the parties’ claims in this case. First, Defendants make
assertions that Riverbend “initiated this litigation with the
arrest and seizure of defendant’s vessels,” in response to which
Defendants filed a counterclaim “seeking the dismissal of the
arrest of the vessels,” or “asking that the seizure be dismissed.”
They also assert that after “initiat[ing] this litigation with the
arrest and seizure of defendants’ vessels . . . [Riverbend] then
released all vessels and now seeks a money judgment,” and that
Riverbend initially “filed for the arrest and seizure of its
collateral – then released the vessels,” and is “now seeking to
violate the arbitration clause it placed in the contract in
question by seeking something other than equitable relief.” (Def.'s
Reply, Rec. Doc. 63, p. 5) (emphasis added) Third, Defendants
contend

that

Riverbend

had

the

right

to

arrest

and

seize

Defendants’ vessels and that Defendants had the right to file a
counterclaim “asking that the seizure be dismissed,” because both
parties actions sought equitable relief, which, Defendants contend,
is the only type of claim not subject to mandatory arbitration
under the arbitration agreement.
Defendants' assertions as to how Riverbend initiated this
litigation and when Riverbend began seeking a money judgment
against

Defendants

are

factually

21

incorrect.

First,

Riverbend

initiated the instant litigation, on April 14, 2011, as all civil
litigation is initiated, by filing its complaint, not by arresting
and seizing Defendants’ vessels. Riverbend filed an an ex parte
consent motion for issuance of warrant of arrest for the vessels
(Rec. Doc. 4) after it initiated the instant litigation by filing
its verified complaint. Second, Defendants' implicit assertion that
Riverbend began seeking a money judgment after it began its efforts
to

seize

Defendants'

vessels

is

also

factually

incorrect.

Riverbend's original verified complaint, which it never amended,
included both an in personam claim against Defendants seeking a
money judgment in the amount of $2,092,400.00 for unpaid loans and
in rem claims against the M/V ROYAL STREET, the M/V CAITLIN, and
the M/V FAITH, seeking to foreclose on the ship mortgages that
provided security for the unpaid loans (Compl, Rec. Doc. 1, pp. 78). Thus, if Riverbend is now violating the arbitration agreement
by seeking a money judgment or "something other than equitable
relief,"as

Defendants

contend,9

it

has

been

violating

the

arbitration agreement since it filed its original complaint seeking
a money judgment against Defendants for the allegedly unpaid loan
balance in the amount $ 2,092,400.00. Thus, Defendants' insinuation
that their failure to file their motion to compel arbitration until
the day before the final pretrial conference should be excused
because Riverbend only recently started violating the arbitration

9

(Def.'s Reply, Rec. Doc. 63, p. 5)

22

clause is meritless. Considering Defendants' interpretation of the
arbitration clause and the nature of the claims in Riverbend's
complaint, Defendants should have moved to compel arbitration
immediately after Riverbend filed its complaint, or in their answer
and counterclaim. Defendants' delay in doing so is not attributable
to any wrongdoing by Riverbend.
Moreover,

when

Defendants'

counterclaim

is

accurately

characterized, it becomes apparent that Defendants have also been
violating

the

arbitration

agreement,

according

to

their

own

interpretation of the arbitration agreement, the validity of which
the Court assumes for the sake of argument, since they filed their
counterclaim asserting that they are entitled to something other
than non-equitable relief, namely reimbursement for any amounts
they paid in excess of what they owed Riverbend, without pleading
that both Riverbend's in personam claims and their counterclaims
for

reimbursement

Defendants'

were

counterclaim

subject
did

not,

to
as

mandatory
they

arbitration.10

contend,

seek

the

“dismissal” of the arrest of the vessels or ask that the seizure be
"dismissed."

(Counterclaim,

Rec.

10

Doc.

24,

p.

7-8)

In

their

The Court also notes that it is similarly confused by Defendants'
contention that their claims that they did not receive loan proceeds due to
illegal loan charges, charges for attorneys fees, and closing costs and that
the payments they made were not properly credited constitute “disputes, claims
or controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right,” which must be arbitrated. As far as the Court can
tell, Defendants never amended their pleadings to make allegations that they
never received loan proceeds due to illegal loan charges, charges for
attorneys’ fees, and closing costs.

23

counterclaim, Defendants alleged, among other things, that the
entities that handled the closing for Riverbend failed to provide
an accounting of the funds disbursed on behalf of Riverbend to
Defendants and that Riverbend did not have supporting documentation
sufficient to prove that Riverbend actually disbursed monies to
Defendants in the sum of $1,650,000.00. (Counterclaim, Rec. Doc.
24, p. 7, ¶¶ 4-7) In addition, Defendants alleged (a) that they
repaid

all

loan

proceeds

borrowed

from

Riverbend,

thereby

extinguishing their debt, and (b) that they were entitled to: (1)
cancellation

of

all

promissory

notes

and

mortgages

and

(2)

reimbursement of all amounts that they paid Riverbend in excess of
the amounts that were allegedly disbursed to them. (Counterclaim,
Rec. Doc. 24, p. 8, ¶¶ 8-10) Thus, Defendants did not take any
action with respect to the arrest of the vessels until May 25, 2011
when they filed their motion to vacate the attachment of the M/V
ROYAL STREET pursuant to Rule E(4)(f) of the Supplemental Rules for
Admiralty or Maritime Claims and Asset Forfeiture Actions (Rec.
Doc. 26). Thus, because Defendants alleged that they not only
repaid the loans, but that they overpaid on the loans and were
entitled to reimbursement, they have been violating the arbitration
agreement, as they interpret it, since the day they filed their
counterclaim seeking something other than equitable relief, without
simultaneously asserting, as they do now, that both parties' claims
for money damages were subject to mandatory arbitration.

24

Having dispensed with this preliminary matter, the Court will
now analyze the waiver issue. As to the first inquiry, the Court
agrees with Riverbend that Defendants have substantially invoked
the judicial process. "To invoke the judicial process, '[t]he party
must, at the very least, engage in some overt act in court that
evinces

a

desire

to

resolve

the

arbitrable

dispute

through

litigation rather than arbitration.'" Republic Ins. Co., 383 F.3d
at 344 (quoting Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324,
326 (5th Cir. 1999)). Moreover, "in order to invoke the judicial
process, a party must have litigated the claim that the party now
proposes to arbitrate." Subway Equip. Leasing Corp., 169 F.3d at
329. The term invoke "describe[s] the act of implementing or
enforcing the judicial process." Id. Here, Defendants invoked the
judicial process with respect to the claims that they now seek to
compel Plaintiffs to arbitrate, as well as other claims that are
subject to mandatory arbitration under Defendants' interpretation
of the arbitration agreement. First, inconsistent with its claimed
right to arbitrate, Defendants answered Riverbend's complaint, the
entirety

of

which

it

now

argues

is

subject

to

mandatory

arbitration, without invoking the arbitration agreement and thereby
limiting the issues in the case to whether the parties had agreed
to arbitrate the dispute. Defendants also filed a counterclaim
seeking monetary relief, which, under Defendants' interpretation of
the

arbitration

agreement,

would

25

be

subject

to

mandatory

arbitration, without invoking the arbitration agreement.
In addition, Defendants invoked the judicial process by filing
the motion to vacate the attachment of the M/V ROYAL STREET, in
which, the Court finds, Defendants litigated a dispute concerning
the lawfulness or reasonableness of the exercise of Riverbend's
rights concerning the collateral for its loans, a type of dispute
that Defendants have argued in their reply is subject to mandatory
arbitration.

In

their

reply,

Defendants

attacked

Riverbend's

argument that arbitration was at the option of the lender and
optional based the use of the mandatory term "shall" in the
provision in the arbitration agreement stating: "[a]ny disputes,
claims,

or

controversies

concerning

the

lawfulness

or

reasonableness of any act, or exercise of any right, concerning any
Collateral, including any claim to rescind, reform, or otherwise
modify any agreement relating to the Collateral, shall also be
arbitrated . . ." (Def.'s Reply, Rec. Doc. 63, p. 3) Defendants
have tried to argue that the filing of the motion to vacate the
attachment

was

permissible

under

their

interpretation

of

the

arbitration agreement by characterizing it as a motion seeking
equitable

relief.

However,

typical

equitable

relief

includes

injunctions and specific performance, and Defendants sought neither
in their motion. The Court finds that the motion is more properly
characterized as a dispute about the lawfulness of Riverbend's
exercise of its right to seize the Collateral for the loans, a type

26

of

dispute

that

Defendants

concede

is

arbitrable

under

the

aforementioned provision of the arbitration agreement. The Court
elects to treat the motion this way, because in the motion,
Defendants contended that vessel was "wrongfully arrested," because
Riverbend could not prove that it disbursed $1,650,000.00 to
Defendants. Thus, in their motion to vacate the attachment of the
M/V ROYAL STREET, Defendants were essentially using the same
allegations in their counterclaim to dispute the lawfulness of
Riverbend's seizure of its collateral,11 which prompted Riverbend
to call several live witnesses to establish the amount of the
unpaid balance it sought to recover in its in personam claims
against Defendants. Notably a great deal of the evidence adduced at
the hearing on the motion bears on Riverbend's in personam claims
against Defendants and Defendants' counterclaims against Riverbend.
In addition, after the hearing on May 31, 2011, Defendants
moved

to

continue

the

trial

twice

and

fully

engaged

in

the

discovery process with respect to Riverbend's in personam claim and
its counterclaim by arranging and taking depositions, demanding and
producing

documents,

requesting

11

and

providing

answers

to

In their counterclaim, Defendants alleged, among other things, that
the entities that handled the closing for Riverbend failed to provide an
accounting of the funds disbursed on behalf of Riverbend to Defendants and
that Riverbend did not have supporting documentation sufficient to prove that
Riverbend actually disbursed monies to Defendants in the amount alleged
($1,650,000.00) (Counterclaim, Rec. Doc. 24, p. 7, 4-7). Similarly, in the
motion to vacate attachment, Defendants argued that "Riverbend cannot prove it
disbursed $1,650,000 to the Defendants," and that "[i]f Riverbend cannot carry
its burden . . . the vessels should be released." (Mem. in Support of Mot. to
Vacate Attachment, Rec. Doc. 26-1, p. 4)

27

interrogatories,

and

participating

in

the

preparation

of

the

parties' joint proposed pretrial order. Based on these facts, the
Court finds that Defendants substantially invoked the judicial
process with respect to the claims it now seeks to arbitrate.
As to the second inquiry, the Court agrees that Riverbend
would suffer prejudice if the Court ordered arbitration at this
stage in the proceedings. Republic Ins. Co., 383 F.3d at 346. As
the Fifth Circuit has explained, the three factors that are
relevant to a prejudice determination are: (1) whether the pretrial
activity was related to all of the parties’ claims, including those
that were arbitrable, (2) whether a party incurred the time and
expense of defending against a motion for summary judgment, and (3)
whether the party failed to timely assert its right to arbitrate a
dispute. Although the failure to demand arbitration alone does not
give rise to waiver, it bears on the question of prejudice and
affects the burden on the party asserting waiver. Republic Ins.
Co.,

383

F.3d

at

346-47.

“[W]here

a

party

fails

to

demand

arbitration . . ., and, in the meantime engages in pretrial
activity inconsistent with an intent to arbitrate, the party later
opposing a motion to compel arbitration may more easily show that
its position has been compromised, i.e., prejudiced.” Id. at 347.
The Court agrees with Riverbend that all pertinent factors
point in favor of a finding that compelling arbitration at this
stage would prejudice Riverbend. First, the pretrial activity in

28

this case was related to all of the parties’ claims, including
those that Defendants now seek to arbitrate. Second, although
Riverbend did not incur the time and expense of defending against
a motion for summary judgment, it did incur the time and expense of
defending against a motion to vacate the attachment, a situation
that the Court finds analogous in this case. To successfully defend
against Defendants' motion to vacate attachment, Riverbend, had to
call live witnesses to present evidence of the amount of the unpaid
loan. In addition, the same reasoning that supports a finding of
prejudice where a party moves to compel arbitration after the Court
has ruled on a motion for summary judgment or a motion to dismiss
supports a finding of prejudice in this case. In In re Apple iPhone
3G and 3GS MMS Marketing and Sales Practices Litigation, 864 F.
Supp. 2d 451 (E.D. La. 2012), this Court noted that the rationale
for denying motions to compel arbitration filed after the district
court ruled on a motion to dismiss or motion for summary judgment
was preventing a party from ascertaining how a case was proceeding
before seeking arbitration. Id. at 457. The Court found that the
concern was not present in that case, because, at the time the
motion to compel arbitration was filed, the Court had not rendered
any ruling on the motion. By contrast, in this case, Defendants did
not file their motion to compel arbitration until after they had an
opportunity to gauge the Court's reaction to their theory that
Riverbend could not prove the amount of the debt absent documents
showing the exact amount that Security Title actually advanced to
Defendants. The Court denied Defendants' motion to vacate the

29

attachment of the M/V ROYAL STREET stating:
[W]hile there may be some confusion about the exact
advances and payments, I find the testimony of Mr. Dazet
and Mr. Nolan credible, together with the spreadsheets
from their accountant that they introduced, which seems
to support that there is an unpaid principal balance of
$1.595 million . . . So it's clear to me that there is
still a large unpaid principal balance, and there are
preferred mortgages involved . . . So I'm going to deny
the motion to vacate. I think plaintiff Riverbend has
carried its burden of demonstrating that it is entitled
to serve a maritime lien, and the vessel seizure will not
be vacated.
(Hr'g Tr., Rec. Doc. 39, p. 55)
Also, in this case, unlike In re Apple iPhone, the litigation
was in a very advanced stage when Defendants filed their motion to
compel arbitration. Third, Defendants certainly failed to timely
assert

any

arbitration

rights

they

may

have

had

given

that

Defendants filed their motion to compel arbitration nearly two
years after Riverbend filed this action, after the motion deadline
in their latest scheduling order, and only one day before the final
pretrial conference. Considering these circumstances, the Court
finds that Riverbend's position has been prejudiced by Defendants'
nearly

two

year

delay

in

seeking

to

compel

arbitration.

Accordingly,
IT IS ORDERED that Defendants' Motion to Compel Arbitration
and Dismiss or Stay Proceedings (Rec. Doc. 57) is DENIED.
New Orleans, Louisiana this 13th day of May, 2013.

CARL J. BARBIER
UNITED STATES DISTRICT COURT
30