Commercial Lubricants, LLC v. Safety-Kleen Systems, Inc.
Filing
59
MEMORANDUM AND ORDER: The Court grants Defendant's motion for summary judgment as to Plaintiff's claim for breach of the Waste Oil Agreement. Ordered by Judge Margo K. Brodie on 10/17/2018. (Brucella, Michelle)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------------------------------COMMERCIAL LUBRICANTS, LLC,
Plaintiff,
v.
MEMORANDUM & ORDER
14-CV-7483 (MKB)
SAFETY-KLEEN SYSTEMS, INC.,
Defendant.
--------------------------------------------------------------MARGO K. BRODIE, United States District Judge:
Plaintiff and Counterclaim-Defendant Commercial Lubricants, LLC commenced the
above-captioned action against Defendant and Counterclaim-Plaintiff Safety-Kleen Systems,
Inc., alleging that Defendant breached certain contracts relating to the distribution of recycled
oil. (Compl., Docket Entry No. 1.) On August 13, 2015, Plaintiff filed a Second Amended
Complaint (“SAC”), asserting claims for, inter alia, breach of a “Used Oil Incentive Agreement”
governing the disposal of waste oil (the “Waste Oil Agreement”). (SAC ¶¶ 141–43, Docket
Entry No. 14.)
Currently before the Court is Defendant’s motion for summary judgment as to Plaintiff’s
claim for breach of the Waste Oil Agreement. (Def. Mot. for Partial Summ. J. (“Def. Mot.”),
Docket Entry No. 39; Def. Mem. in Supp. of Def. Mot. (“Def. Mem.”), Docket Entry No. 39-1;
Def. Suppl. Mem. in Supp. of Def. Mot. (“Def. Suppl. Mem.”), Docket Entry No. 54.) For the
reasons discussed below, the Court grants Defendant’s motion.
I.
Background
The Court assumes the parties’ familiarity with the underlying facts and procedural
history of the case as set forth in its prior decision, see Commercial Lubricants, LLC v. Safety-
Kleen Sys., Inc., No. 14-CV-7483, 2017 WL 3432073, at *1 (E.D.N.Y. Aug. 8, 2017), and
provides only a summary of the relevant facts and procedural history below.
a. Factual background
The facts are undisputed unless otherwise noted. 1 Defendant is a used oil-refiner, and
Plaintiff is a distributor of recycled oil products in the New York metropolitan area. (Def. 56.1
¶¶ 1–2.) On April 11, 2012, Defendant and a company called New York Commercial Lubricants
(“NYCL”) entered into a contract governing NYCL’s distribution of Defendant’s recycled oil
product (the “Distributor Agreement”). (Id. ¶¶ 3, 11.) Under the terms of the Distributor
Agreement, NYCL was obligated to purchase an annual minimum amount of Defendant’s
product, together with such additional product as NYCL may order. (Distributor Agreement ¶ 2,
annexed to Def. Mot. as Ex. F, Docket Entry No. 39-8.) NYCL then resold the product to its
own customers. (See Def. CC. 56.1 ¶¶ 13–16; Pl. CC 56.1 ¶¶ 13–16.)
On July 17, 2013, through an asset purchase agreement, Plaintiff purchased the assets of
NYCL. (Aff. of Gary Stetz in Opp’n to Def. Mot. ¶ 2, Docket Entry No. 43.) The assets
included the contractual rights to the Waste Oil Agreement. Under the Waste Oil Agreement,
Plaintiff agreed to provide Defendant with the waste oil from Plaintiff’s various customers in
exchange for payment from Defendant. (See Waste Oil Agreement 2, annexed to Decl. of Scott.
E. Reynolds in Opp’n to Def. Mot. (“Reynolds Decl.”) as Ex. N, Docket Entry No. 44-5.) The
Waste Oil Agreement had an expiration date of December 31, 2014 and consisted of two main
1
For ease of reference, the Court refers to the filings as follows: Def. Statement of
Material Facts Pursuant to Local R. 56.1 in Supp. of Def. Mot. for Partial Summ. J. (“Def.
56.1”), Docket Entry No. 39-2; Pl. Response to Def. 56.1 (“Pl. 56.1”), Docket Entry No. 45; Def.
Statement of Material Facts Pursuant to Local R. 56.1 in Supp. of Def. Mot. for Summ. J. on
Counter-claims (“Def. CC 56.1”), Docket Entry No. 38-2; Pl. Response to Def. CC 56.1 (“Pl. CC
56.1”), Docket Entry No. 46.
2
components: (1) a per-gallon commission paid to Plaintiff and (2) an “oil payment” paid either
directly to the customer or to Plaintiff. (Id. at 1–2.) The Waste Oil Agreement permitted either
party to terminate the contract upon sixty days’ prior written notice and provided that during the
sixty-day period, “both parties will maintain customer services and billing.” (Id.) In addition,
the Waste Oil Agreement provided that “[i]f a dispute arises . . . the matter in dispute shall be
referred to binding arbitration in Erie County, New York in accordance with the rules of the
American Arbitration Association . . . .” (Id. at 2.)
On December 16, 2014, Defendant sent a letter (the “Pay-For-Oil Rate Reduction
Letter”) addressed to “Dear Valued Customer,” stating that “[e]ffective December 21st or as
contracts allow, all pay-for-oil rates will be moved to $0.00/gallon. Other terms and conditions
of our oil collection service are unchanged.” (Pay-For-Oil Rate Reduction Letter, Annexed to
Reynolds Decl. as Ex. O, Docket Entry No. 44-5; Pl. 56.1 ¶ 20.) Defendant states that the PayFor-Oil Rate Reduction Letter terminated the Waste Oil Agreement, (Def. 56.1 ¶ 20); Plaintiff
states that the Waste Oil Agreement was not terminated because the letter expressly states that
“[o]ther terms and conditions of our oil collection service are unchanged,” (Pl. 56.1 ¶ 20). In
addition, Plaintiff asserts that the Waste Oil Agreement remained in effect because (1) “the word
‘terminated’ is noticeably absent” from the Pay-For-Oil Rate Reduction Letter, and (2)
Defendant “acknowledges that it has continued to collect used oil from [Plaintiff’s] customers . .
. .” 2 (See Pl. Letter dated Oct. 12, 2016, Docket Entry No. 36.) Nevertheless, Gary Stetz,
2
Although Plaintiff’s argument regarding the “other terms and conditions” language in
the Pay-For-Oil-Rate Reduction Letter appears in Plaintiff’s Rule 56.1 response, (see Pl. 56.1 ¶
21), Plaintiff did not argue in its opposition to Defendant’s motion that the Pay-For-Oil Rate
Reduction Letter did not terminate the Waste Oil Agreement because (1) it did not contain the
word “terminated,” or (2) Defendant continued to collect used oil from Plaintiff’s customers,
(see Pl. Mem. in Opp’n to Def. Mot. (“Pl. Opp’n”), Docket Entry No. 41). Instead, Plaintiff
3
president and owner of Commercial Lubricants, acknowledged in his deposition that he
understood the letter to terminate the Waste Oil Agreement because Plaintiff would not refer its
clients to Defendant without a per-gallon commission. (Gary Stetz Dep. 224–25, Docket Entry
No. 39-4.)
b. Procedural background
Plaintiff filed this action on December 23, 2014, and filed an Amended Complaint on
February 26, 2015. (See Compl.; Am. Compl., Docket Entry No. 7.)
i.
Initial discovery dispute
On June 25, 2015, in the course of discovery, Plaintiff requested that Defendant produce
“[a]ny and all communications and documents relating to waste oil received by Defendant from .
. . Plaintiff’s customers since September 1, 2014.” (Pl. Letter dated Oct. 4, 2016 at 1, Docket
Entry No. 34.) 3 Defendant responded to this request by denying possession of any such
documents. (Id.)
Plaintiff filed the SAC on August 13, 2015. In the SAC, Plaintiff added a claim for
breach of the Waste Oil Agreement, alleging that Defendant breached that agreement by failing
to pay commissions due to Plaintiff, and by wrongfully attempting to repudiate the agreement
through the Pay-For-Oil Rate Reduction Letter. (SAC ¶¶ 142–43.)
By letter dated November 5, 2015, Plaintiff’s counsel followed up on its prior request for
raised these arguments in an October 12, 2016 letter to Judge Mann in connection with Plaintiff’s
motion to compel discovery. (Pl. Reply dated Oct. 12, 2016, Docket Entry No. 36.)
3
The Court relies on Plaintiff’s October 4, 2016 letter-motion to Judge Mann to compel
discovery for the factual summary above. (Pl. Letter dated Oct. 4, 2016, Docket Entry No. 34.)
Defendant did not dispute these facts in its letter in opposition to Plaintiff’s motion to compel
discovery, (see Def. Letter dated October 10, 2016, Docket Entry No. 35), nor has it disputed
them in any other submissions filed with the Court.
4
waste oil documents between Defendant and Plaintiff’s customers. (Pl. Letter dated Oct. 4, 2016
at 1–2.) In the letter, Plaintiff’s counsel conveyed its belief that Defendant “continued to collect
waste oil from [Plaintiff’s] customers post-September 2014 . . . .” (Id.)
After additional follow-up requests, on March 10, 2016, and “contrary to its prior
position that it did not have documents responsive to [Plaintiff’s] request,” Defendant produced
responsive documents for the period between August of 2014 through December of 2014, and
January of 2015 through February of 2015. (Id. at 2.)
On March 15, 2016, Defendant filed a pre-motion conference letter expressing its
intention to, inter alia, file a motion for summary judgment and compel arbitration of Plaintiff’s
claim for breach of the Waste Oil Agreement. (Def. Pre-Motion Conference Letter, Docket
Entry No. 28.) The Court held a pre-motion conference on June 14, 2016 and set a briefing
schedule for Defendant’s motion for summary judgment as to some of Plaintiff’s claims, and
Plaintiff’s motion for summary judgment as to Defendant’s cross-claims. (Minute Order dated
June 14, 2016.)
On September 8, 2016, prompted by the deposition testimony of Defendant’s rebuttal
expert witness, Plaintiff’s counsel requested that Defendant “clarify whether it is in possession of
documents responsive to [Plaintiff’s] prior requests for documents relating to used oil collections
for the period February 2015 to present . . . .” (Pl. Letter dated Oct. 4, 2016 at 2.) Defendant’s
counsel did not respond to the request. (Id.) Plaintiff’s counsel renewed their request on
September 16, 2016. (Id.) Defendant’s counsel replied that same day, stating that he hoped to
provide a response later in the day. (Id.) Defendant’s counsel never provided a response. (Id.)
On September 28, 2016, Plaintiff’s counsel sent another request. (Id.) Defendant’s counsel
responded, stating that if Plaintiff believed the information sought was “relevant and should be
5
produced,” Plaintiff could seek the Court’s intervention by filing a motion. (Id.) Plaintiff filed a
letter-motion on October 4, 2016, seeking to compel production of the documents.
On October 19, 2016, Judge Mann held a telephone conference to discuss the issue. (See
Min. Entry dated Oct. 19, 2016.) At the conference, Judge Mann granted Plaintiff’s motion to
compel discovery, and that same day, issued a written order (the “October 19, 2016 Order”).
(October 19, 2016 Order, Docket Entry No. 37.) In the October 19, 2016 Order, Judge Mann
“express[ed] [her] displeasure that [Defendant], in violation of Fed. R. Civ. P. 34, failed to make
clear that it was withholding documents relating to waste oil received from Plaintiff’s customers
after February of 2015.” (Id.) Judge Mann ruled, however, that production of the documents
would be deferred until the Court ruled on Defendant’s motions for summary judgment. (Id.)
ii.
Defendant’s motions for summary judgment
Defendant filed its motions for summary judgment on October 31, 2016. (See generally
Def. Mot.; Def. Mem.; Def. CC Mot., Def. CC Mem.) As relevant here, Defendant argued in its
motion for partial summary judgment as to Plaintiff’s claims that the Court lacks jurisdiction
over any claims for damages arising from the Waste Oil Agreement in light of the Waste Oil
Agreement’s arbitration clause. (Def. Mem. 13.) In the alternative, Defendant argued that
Plaintiff cannot recover for any damages incurred on or after February 14, 2015, because the
Waste Oil Agreement permits termination by either party with sixty days’ notice, and
Defendant’s December 14, 2014 Pay-For-Oil Reduction Letter acted as a notice of termination.
(Id. at 14.)
In response, Plaintiff argued that Defendant waived its right to arbitrate the Waste Oil
Agreement claim because Defendant has filed responsive pleadings, deposed several witnesses
and conducted extensive document discovery since Plaintiff first asserted a claim for breach of
6
the Waste Oil Agreement in the SAC. (Pl. Mem. in Opp’n to Def. Mot. (“Pl. Opp’n”) 23–25,
Docket Entry No. 41.) In its Rule 56.1 statement, Plaintiff contends that the Pay-for-Oil Rate
Reduction Letter was not a notice to terminate the Waste Oil Agreement because the letter states
that “[o]ther terms and conditions of our oil collection service are unchanged,” and denies that
Plaintiff’s representatives acknowledged at deposition that the Pay-for-Oil Rate Reduction Letter
terminated the Waste Oil Agreement. (Pl. 56.1 ¶¶ 20–21.) Plaintiff’s opposition brief does not
respond to Defendant’s argument that the letter acted as sixty days’ notice to terminate the
agreement, or address the evidence cited by Defendant indicating that Plaintiff’s representatives
understood the letter to do so. Plaintiff nevertheless asserts in its opposition brief that Judge
Mann “determined that [Defendant] surreptitiously continued to collect waste oil from
[Plaintiff’s] customers” after February of 2015, and “it is more than likely that [Plaintiff] is
entitled to additional payments for waste oil” after February of 2015. (Pl. Opp’n 24–25.)
iii. The Court’s August 8, 2017 decision
By Memorandum and Order dated August 8, 2017, the Court granted in part and denied
in part Defendant’s motion for partial summary judgment as to Plaintiff’s claims, and denied
Defendant’s motion for summary judgment as to Defendant’s counterclaims (the “August 2017
Decision”). See generally Commercial Lubricants, LLC, 2017 WL 3432073. As relevant here,
in considering the parties’ arguments regarding waiver of arbitration, the Court reserved
judgment on Plaintiff’s claim for breach of the Waste Oil Agreement. Id. at *18–19. In order to
determine whether Defendant had waived its right to arbitrate Plaintiff’s breach of the Waste Oil
Agreement, the Court ordered the parties to submit supplemental briefing addressing:
the nature of the discovery [the parties] exchanged between August
of 2015 and March of 2016, whether it related to the Waste Oil
Agreement, whether such discovery would be available to them in
arbitration, and what prejudice, if any, Plaintiff would suffer should
7
the Court decide to sever the Waste Oil Agreement claim and refer
it to arbitration.
Id. at *19.
iv. The parties’ supplemental briefing
In its August 25, 2017 supplemental brief, Plaintiff makes five arguments in support of its
assertion that Defendant has waived its right to arbitration. (Pl. Suppl. Mem. in Opp’n to Def.
Mot. (“Pl. Suppl. Mem.”), Docket Entry No. 53.) First, after Plaintiff filed the SAC on August
13, 2015 and added the claim for breach of the Waste Oil Agreement, Defendant “actively
participated in the [c]ase including as to issues related to the Waste Oil Agreement,” for seven
months until March 15, 2016, when Defendant raised the arbitration issue. (Pl. Suppl. Mem. 2.)
Second, in light of the resources spent “litigating [Defendant’s] improper conduct before
Magistrate Judge Mann and briefing the arbitration matter in connection with summary
judgment,” permitting Defendant to sever the Waste Oil Agreement claim after wrongfully
withholding documents would “essentially . . . reward[]” Defendant for its conduct and
“effectively . . . nullif[y]” Judge Mann’s October 19, 2016 Order granting Plaintiff’s motion to
compel production of the documents. (Id. at 2–4.) Third, “there is no guarantee that an
arbitration would require [Defendant]” to produce the documents Plaintiff is owed. (Id. at 4.)
Fourth, severing the claim for breach of the Waste Oil Agreement risks the possibility that “a
decision will be rendered in this action before a decision is rendered in the arbitration,” which
could “irretrievably damage” Plaintiff’s financial condition if Defendant were to seek collection
on any judgment before Plaintiff has “the opportunity to prevail in arbitration.” (Id. at 4–5.)
Finally, severing the claim for breach of the Waste Oil Agreement would deprive both “the trier
of fact in this [c]ase” and the arbitral forum to which this dispute would be relocated of “the
benefit of understanding the full extent of the parties’ relationship,” including “the course of
8
dealings” and “the multifaceted, strategic alliance” between Plaintiff and Defendant. (Id. at 5.)
On September 4, 2017, Defendant responded to each of Plaintiff’s arguments. (Def.
Suppl. Mem.) As to the seven-month delay in raising the arbitration issue, Defendant argues that
delay, without more, is insufficient to find that Plaintiff has been prejudiced. (Id. at 2.)
Although not addressing directly Plaintiff’s argument that ordering arbitration would reward
Defendant for its allegedly improper conduct before Judge Mann during the seven-month period,
Defendant argues that Plaintiff cannot argue prejudice based on the discovery taken during this
seven-month period, because:
[i]t is plain that all five of the depositions [that took place during this
period] would have taken place regardless of the existence of the
Waste Oil Agreement as each deponent was a current or former
employee of [Defendant] or [Plaintiff] and each had knowledge of
facts pertaining to the twelve other claims [in this litigation], none
of which are subject to arbitration.
(Id. at 2.) Third, in response to Plaintiff’s argument that “there is no guarantee” it would be
entitled to the disputed documents in arbitration, Defendant argues that this is insufficient to
establish prejudice because Plaintiff’s request for additional documents “can be made and
fulfilled in the arbitral forum,” where “the modern trend . . . is to permit litigation-like
discovery,” and “[t]he mere fact the discovery conducted might be unavailable at arbitration is
insufficient to establish prejudice.” (Id. at 3.) Fourth, in response to Plaintiff’s argument
regarding the risk that Defendant could prevail and seek collection of a judgment in this action
before the conclusion of arbitration, Defendant argues that this does not establish prejudice
because each of the alleged remaining breaches “arise from separate and distinct agreements,”
and Plaintiff “is not entitled to offset” the $243,429 it is allegedly owed from “the more than one
million dollars it owes” Defendant as a result of its breach of other agreements. (Id. at 3–4.)
Finally, Defendant argues that neither the Court nor any arbitral forum requires a full
9
understanding of the business relationship between Defendant and Plaintiff to resolve the
remaining disputed issues in this case. (Id. at 4.)
v.
Renewed motion to compel
On November 10, 2017, Plaintiff filed a letter-motion to compel before Judge Mann,
arguing that Defendant refused to comply with her October 19, 2016 Order. (Pl. Letter dated
Nov. 10, 2017, Docket Entry No. 55.) As Plaintiff explained in its letter, after the Court issued
the August 2017 Decision, Plaintiff demanded that Defendant produce the waste oil documents
for February of 2015 to the present. (Id. at 2.) Defendant responded that it was not required to
produce any such documents because the Court had not yet ruled on the Waste Oil Agreement
claim. (Id.) Plaintiff “disagree[d] with [Defendant’s] interpretation” of Judge Mann’s October
19, 2016 Order, “given the prejudice to [Plaintiff] in the event [the Court] orders the Waste Oil
Agreement claim to arbitration,” and requested that Judge Mann order the documents produced.
(Id.)
In its November 14, 2017 response, Defendant argued that because Judge Mann’s
October 19, 2016 Order stated that production of the relevant documents was “deferred until
after the District Court rules on the summary judgment motion,” Defendant was not yet required
to produce the documents since the Court reserved judgment on the Waste Oil Agreement claim.
(Def. Letter dated Nov. 14, 2017 at 2, Docket Entry No. 56.) Defendant also asserted that “any
documents related to the collection of Waste Oil after February 2015 are irrelevant as
[Defendant] terminated the Waste Oil Agreement with [Plaintiff] effective February 14, 2015.”
(Id.)
10
vi. Judge Mann’s December 28, 2017 Memorandum and Order
By Memorandum and Order dated December 28, 2017, Judge Mann denied Plaintiff’s
motion to compel without prejudice, pending a decision from the Court on Plaintiff’s claim for
breach of the Waste Oil Agreement (the “December 2017 Decision”). (Mem. and Order dated
Dec. 28, 2017, Docket Entry No. 58.)
In the December 2017 Decision, Judge Mann discussed the October 19, 2016 telephone
conference and her October 19, 2016 Order. (Id. at 1–2.) During the conference, Judge Mann
“concluded that [D]efendant had violated Rule 34 of the Federal Rules of Civil Procedure by
failing to make clear in responding to [P]laintiff’s discovery demands that it was withholding
responsive information that postdated February 2015,” and “without ruling on admissibility . . .
granted plaintiff’s motion to compel, finding that the documents were discoverable,
notwithstanding the parties’ as-yet unresolved dispute as to whether the Waste Oil Agreement
had been terminated.” (Id.) Judge Mann noted that she nevertheless deferred production of
these documents until after the Court ruled on the summary judgments motions, in light of (1)
“the burden entailed in collecting the demanded information,” and (2) “[P]laintiff’s
acknowledgment that the disputed documents, which related to damages, were not needed in
connection with the summary judgment motions . . . .” (Id.)
In light of this procedural history, Judge Mann “swiftly rejected” Plaintiff’s motion and
stated:
While the . . . Minute Entry . . . deferred [D]efendant’s production
of the damages-related documents “until after the District Court
rules on the summary judgment motions,” the intent of that ruling,
as expressly acknowledged by both parties during that proceeding,
was to await a decision by the District Court with respect to the
purported termination of the Waste Oil Agreement. As Judge
Brodie has reserved decision on defendant’s challenges to [the
Waste Oil Agreement claim], the event that was to trigger
11
defendant’s obligation to produce the challenged documents has not
yet occurred.
(Id. (alteration and internal citation omitted)). Judge Mann further rejected Plaintiff’s argument
that it would be “irreparably prejudiced” if the claim were referred to arbitration before
Defendant is required to produce the relevant documents, reasoning that: (1) “[P]laintiff failed to
raise [this argument] a year ago in agreeing to defer production of the documents,” and (2)
Plaintiff raised the risk of prejudice to the Court in its supplemental briefing. (Id. at 4.)
II. Discussion
a. Standard of review
Summary judgment is proper only when, construing the evidence in the light most
favorable to the non-movant, “there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); Wandering Dago, Inc. v.
Destito, 879 F.3d 20, 30 (2d Cir. 2018); see also Cortes v. MTA NYC Transit, 802 F.3d 226, 230
(2d Cir. 2015). The role of the court “is not to resolve disputed questions of fact but only to
determine whether, as to any material issue, a genuine factual dispute exists.” Rogoz v. City of
Hartford, 796 F.3d 236, 245 (2d Cir. 2015) (first quoting Kaytor v. Elec. Boat Corp., 609 F.3d
537, 545 (2d Cir. 2010); and then citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249–50
(1986)). A genuine issue of fact exists when there is sufficient “evidence on which the jury
could reasonably find for the plaintiff.” Anderson, 477 U.S. at 252. The “mere existence of a
scintilla of evidence” is not sufficient to defeat summary judgment. Id. The court’s function is
to decide “whether, after resolving all ambiguities and drawing all inferences in favor of the
nonmoving party, a rational juror could find in favor of that party.” Pinto v. Allstate Ins. Co.,
221 F.3d 394, 398 (2d Cir. 2000).
12
b.
Plaintiff’s claim for breach of the Waste Oil Agreement is covered by the
arbitration provision
The parties do not dispute that Plaintiff’s claim for damages from Defendant’s alleged
breach of the Waste Oil Agreement is covered by the arbitration clause in the agreement. 4 In
light of the clause’s plain language, the Court finds that neither party could raise a serious
dispute as to this issue. See Holick v. Cellular Sales of New York, LLC, 802 F.3d 391, 395 (2d
Cir. 2015) (“In light of the strong federal policy in favor of arbitration, the existence of a broad
agreement to arbitrate creates a presumption of arbitrability which is only overcome if it may be
said with positive assurance that the arbitration clause is not susceptible of an interpretation that
covers the asserted dispute. Doubts should be resolved in favor of coverage.” (quoting
Smith/Enron Cogeneration Ltd. P’ship v. Smith Cogeneration Int’l, 198 F.3d 88, 99 (2d Cir.
1999))). Accordingly, the Court finds that the Waste Oil Agreement’s arbitration clause does
cover the dispute as to the breach of the Waste Oil Agreement. The Court must therefore order
arbitration of Plaintiff’s claim on this basis unless Defendant has waived the right to arbitrate the
claim.
c.
Defendant has waived arbitration
Plaintiff asserts that Defendant has waived arbitration and Plaintiff would be prejudiced
by Defendant’s gamesmanship if the Court were to reach a contrary conclusion. (Pl. Mem. 23–
4
The Waste Oil Agreement’s arbitration provision provides:
[i]f a dispute arises between Safety-Kleen and Metro Lube that the
parties involved in the matter are unable to resolve, then the matter
in dispute shall be referred to binding arbitration in Erie Count, New
York in accordance with the rules of the American Arbitration
Association, and the judgment upon the award rendered by the
Arbitrator may be entered in any court having jurisdiction thereof.
(Waste Oil Agreement 2.)
13
25; Pl. Suppl. Mem.) Defendant contends that Plaintiff cannot establish prejudice, a necessary
prerequisite to finding waiver. (Def. Suppl. Mem.)
“Federal policy strongly favors arbitration and waiver of a right to arbitrate is not lightly
inferred.” Tech. in P’ship, Inc. v. Rudin, 538 F. App’x. 38, 39 (2d Cir. 2013). “This preference
for arbitration ‘[h]as led to its corollary that any doubts concerning whether there has been a
waiver are resolved in favor of arbitration.’” PPG Indus., Inc. v. Webster Auto Parts, Inc., 128
F.3d 103, 107 (2d Cir. 1997) (quoting Leadertex Inc. v. Morganton Dyeing & Finishing Corp.,
67 F.3d 20, 25 (2d Cir. 1995)). Nevertheless, a party waives its right to arbitration “when it
engages in protracted litigation that prejudices the opposing party.” Tech. in P’ship, 538 F.
App’x at 39 (quoting In re Crysen/Montenay Energy Co., 226 F.3d 160, 162 (2d Cir. 2000)).
The question of whether a party’s pretrial conduct amounts to waiver of the defense of
arbitration is a legal question to be decided by the court. Leadertex, 67 F.3d at 25; see Rush v.
Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985) (“[T]he question of waiver of arbitration
is one of law . . .”).
“In determining whether a party has waived its right to arbitration by expressing its intent
to litigate the dispute in question,” courts 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.”
Sutherland v. Ernst & Young, LLP, 600 F. App’x 6, 7–8 (2d Cir. 2015) (internal quotation marks
omitted) (quoting La Stadium & Expo. Dist. v. Merrill Lynch, Pierce, Fenner & Smith Inc., 626
F.3d 156, 159 (2d Cir. 2010)). “There is no rigid formula or bright-line rule for identifying when
a party has waived its right to arbitration; rather, the above factors must be applied to the specific
context of each particular case.” Id. (quoting La Stadium & Expo. Dist., 626 F.3d at 159).
14
“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.” Id. at 8 (quoting Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102,
105 (2d Cir. 2002)); see also Leadertex, 67 F.3d at 25 (“Although litigation of substantial
material issues may amount to waiver, delay in seeking arbitration does not create a waiver
unless it prejudices the opposing party.” (citation omitted)). The Second Circuit has recognized
“two types of prejudice: substantive prejudice and prejudice due to excessive cost and time
delay.” Sutherland, 600 F. App’x at 7–8 (citing Thyseen, 310 F.3d at 105). “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.” Id. at 8 (quoting Kramer v. Hammond, 943 F.2d
176, 179 (2d Cir. 1991)). In contrast to substantive prejudice, prejudice may also “be found
when a party too long postpones his invocation of his contractual right to arbitration, and thereby
causes his adversary to incur unnecessary delay or expense.” Id. (quoting Kramer, 943 F.2d at
179); S&R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 80, 83–84 (2d Cir. 1998)
(“Prejudice results ‘when a party seeking to compel arbitration engages in discovery procedures
not available in arbitration, makes motions going to the merits of an adversary’s claims, or
delays invoking arbitration rights while the adversary incurs unnecessary delay or expense.’”
(quoting Cotton v. Slone, 4 F.3d 176, 179 (2d Cir. 1993))); see also NV Petrus SA, No. 14-CV3138, 2017 WL 1831096, at *2–3 (E.D.N.Y. May 4, 2017) (“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.’” (quoting Doctor’s Assocs., Inc. v. Distajo, 107 F.3d 126, 134 (2d Cir. 1997))). A court
will not find waiver where “delay in trial proceedings was not accompanied by substantial
15
motion practice or discovery.” Sutherland, 600 F. App’x at 8 (quoting Thyssen, Inc., 301 F.3d at
105).
Guided by these considerations, the Court finds that Defendant has waived its right to
arbitrate the Waste Oil Agreement claim.
i.
Seven-month delay
While Plaintiff argues that Defendant waited seven months from the time Plaintiff
filed the SAC to raise the arbitration issue, (Pl. Suppl. Mem. 2), it is well established that delay,
standing alone, cannot support a finding of waiver of the right to arbitrate. 5 See Rush, 779 F.2d
at 887 (“It is beyond question that defendants’ delay in seeking arbitration during approximately
eight months of pretrial proceedings is insufficient by itself to constitute a waiver of the right to
arbitrate . . . .” (citing Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir. 1968))); see also
Thyssen, Inc., 310 F.3d at 105 (“This Circuit has refused to find waiver in a number of cases
where delay in trial proceedings was not accompanied by substantial motion practice or
discovery.” (collecting cases)); cf. Leadertex, 67 F.3d at 26 (seven-month delay, during which
defendant vigorously pursued discovery, “strongly implies [the party] forfeited its contractual
right to compel arbitration”). Rather, the extent of delay must be considered “in conjunction
with (1) the amount of litigation that occurred” during the delay, and “(2) any proof that [the
5
The Court notes that Defendant’s pre-motion conference letter raising the arbitration
issue states that Plaintiff “recently identified” the Waste Oil Agreement “during discovery.”
(Def. Pre-motion Conference Letter dated Mar. 15, 2016.) To the extent Defendant is suggesting
that Plaintiff’s “recent[] identfi[cation]” of the Waste Oil Agreement caused Defendant’s delay
in raising this issue, this argument is meritless, as Defendant is a party to the Waste Oil
Agreement and is therefore presumed to have had knowledge of the agreement’s contents,
including the arbitration clause. See Tech. in P’ship, Inc. v. Rudin, 894 F. Supp. 2d 274, 279
(S.D.N.Y. 2012) (finding that the defendants “had access to and knowledge of [the relevant]
documents and was on notice of the arbitration clause” and rejecting the defendants’ argument
that delay was caused by the need to confirm the agreement counterparty’s understanding of the
contract), aff’d 538 F. App’x 38 (2d Cir. 2013).
16
party opposing arbitration] was prejudiced by [the other party’s] conduct during that period.”
PPG Indus., Inc., 128 F.3d at 108 (citing Leadertex, 67 F.3d at 25); Matter of Arbitration
Between S & R Co. of Kingston & Latona Trucking, Inc., 984 F. Supp. 95, 103 (N.D.N.Y. 1997)
(“Although delay alone is generally insufficient to deny a petition to arbitrate, it is a relevant in
determining whether a party has been prejudiced.” (first citing Rush, 779 F.2d at 887); and then
citing Demsey & Ass. Inc. v. S.S. Sea Star, 461 F.2d 1009, 1018 (2d Cir. 1972); and then citing
Cotton, 4 F.3d at 179)), aff’d sub nom. S & R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d
80 (2d Cir. 1998).
ii.
Amount of litigation to date
In assessing the amount of litigation for purposes of a waiver analysis, courts find
relevant, inter alia, any motion practice engaged in by the parties, and the extent of discovery the
parties have exchanged. See, e.g., Tech. in P’ship, Inc., 538 F. App’x at 39 (affirming district
court’s finding of waiver where the party asserting waiver “had to defend two substantive
motions to dismiss, then produce its witness for deposition, comply with an extensive document
request, and participate in extended discovery disputes”); S & R Co. of Kingston, 159 F.3d at 83
(observing that the waiver analysis includes consideration of “the amount of litigation (including
exchanges of pleadings, any substantive motions, and discovery)”).
Since filing the SAC, 6 Defendant has filed an answer, 7 and the parties have exchanged
6
Because Plaintiff did not put Defendant on notice of its claim for breach of the Waste
Oil Agreement until it filed the SAC in August of 2015, the Court’s assessment of litigation
activity starts with the filing of the SAC, as Plaintiff’s claim for breach of the Waste Oil
Agreement is the only arbitrable claim in the litigation, and Defendant could not seek to arbitrate
a claim that did not exist prior to August of 2015.
7
Plaintiff asserts that Defendant’s answer “did not reference the arbitration clause.” (Pl.
Suppl. Mem. 2.) This fact alone is insufficient to establish waiver. See Rush v. Oppenheimer &
17
document and interrogatory requests and responses. (Joint Status Report, Docket Entry No. 26.)
The parties also engaged in extensive settlement negotiations which were ultimately
unsuccessful, and participated in court-annexed mediation, which also failed. (Id.)
Since the filing of the SAC Plaintiff took three depositions of Defendant’s current and
former employees before Defendant raised the issue of arbitration, and took two additional
depositions after Defendant raised the issue of arbitration. (See Pl. Suppl. Mem. 2; Def. Suppl.
Mem. 3.) For its part, Defendant has taken two depositions: Joe Ioia, former owner of NYCL,
and Stetz, Commercial Lubricants’ president and owner. (Id.)
Defendant argues that Plaintiff was not prejudiced by the discovery taken during the
seven-month period because Plaintiff’s first three depositions revealed information that “did not
pertain to the Waste Oil Agreement but was relevant to the other claims pending in this
litigation,” and although Plaintiff’s two additional depositions involved questions regarding the
arbitration issue, these depositions are nevertheless “irrelevant” to the Court’s waiver analysis,
because they took place after Plaintiff was on notice of Defendant’s efforts to compel arbitration
of the Waste Oil Agreement claim. (Def. Suppl. Mem. 2–3.)
Plaintiff argues it was prejudiced because, inter alia, Stetz “was deposed at length
concerning [the] claim for breach of the Waste Oil Agreement.” (Pl. Suppl. Mem. 2.) Defendant
contends that it had to take the depositions of Ioia and Stetz “in order to discover information”
pertinent to other claims in this litigation. (Def. Suppl. Mem. 2.) Defendant further asserts that
Co., 779 F.2d 885, 889 (2d Cir. 1985) (“Nor does defendants’ service of an answer that
contained thirteen affirmative defenses but failed to raise the agreement to arbitrate, constitute a
waiver of arbitration. Absent a demonstration of prejudice by [the plaintiff], the bare fact that
the defendants filed an answer is inadequate by itself to support a claim of waiver of arbitration.”
(citing ITT World Commc’ns, Inc. v. Commc’n Workers of Am., AFL–CIO, 422 F.2d 77, 82 (2d
Cir. 1970))); see also Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 105–06 (2d
Cir. 2002) (same).
18
“although [it] inquired into the Waste Oil Agreement at Ioia’s and Stetz’s depositions, the
majority of the testimony elicited about the Waste Oil Agreement took place during Stetz’s
second deposition, on July 19, 2016,” four months after Defendant indicated that it would seek to
arbitrate the claim. (Id. at 2–3.)
1.
Substantive motion practice
The lack of substantive motion practice weighs against a finding of waiver. See Tech. in
P’ship, Inc., 538 F. App’x at 39. Although Plaintiff protests that it was forced to “brief[] the
arbitration issue along with the underlying merits of the Waste Oil Agreement claim in
opposition to [Defendant’s] motion for summary judgment,” (Pl. Suppl. Mem. 3), the Court is
not persuaded by this argument because (1) Plaintiff did not brief the merits of the claim for
breach of the Waste Oil Agreement, and (2) Plaintiff’s opposition to Defendant’s request to
compel arbitration was served nine months after Defendant indicated its intent to enforce the
arbitration provision.
Plaintiff’s opposition brief contains no briefing of the “underlying merits of the Waste
Oil Agreement claim.” (See Pl. Opp’n 23–25.) In addition, Plaintiff did not respond to
Defendant’s argument that it terminated the Waste Oil Agreement with its Pay-For-Oil Rate
Reduction Letter — the only merits-based argument relating to the Waste Oil claim addressed in
Defendant’s motion.
As to Plaintiff’s argument that it was forced to brief the arbitration issue, Plaintiff’s
opposition was served December 14, 2016, nine months after Defendant indicated its intent to
invoke the arbitration clause. (See Docket Entry Nos. 41–46.) During the telephone conference
before Judge Mann on October 19, 2016, Plaintiff’s counsel expressly represented that “the
disputed documents . . . were not needed in connection with the summary judgment motions.”
(Mem. and Order dated Dec. 28, 2017 at 2.) Plaintiff therefore cannot now rely on the summary
19
judgment motion practice to support its argument that the litigation activity in this case militates
in favor of finding waiver.
2.
Discovery and other litigation activity
Nevertheless, the Second Circuit has expressly rejected any rule “that a party must
have made dispositive motions on the merits in order to be deemed to have waived arbitration,”
finding “no case that supports the argument that such motions are required before waiver can be
found.” S & R Co. of Kingston, 159 F.3d at 84. Aside from Defendant’s summary judgment
motions, the litigation in this case “was hardly dormant” during the seven-month period between
the filing of the SAC and Defendant’s pre-motion conference letter raising the issue of
arbitration. See Louisiana Stadium & Exposition Dist., 626 F.3d at 159–60 (observing that no
discovery took place during eleven-month delay, but “the litigation was hardly dormant” and the
“facts demonstrate[d] that the parties spent a significant amount of time and expense litigating”
before arbitration was sought). During this period, the parties “propounded and responded to
various discovery requests,” which discovery was “largely complete,” according to the parties’
status report submitted one month before Defendant raised the arbitration issue. (Joint Status
Report 2.) As discussed above, the parties also engaged in active settlement negotiations, 8 took
several depositions when such negotiations failed, and participated in court-annexed mediation, 9
8
See S & R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 80, 84 (2d Cir. 1998)
(affirming district court’s finding of waiver based on, inter alia, “extensive discovery requests”
and “two settlement conferences”); Satcom Int’l Grp. PLC v. Orbcomm Int’l Partners, L.P., 49
F. Supp. 2d 331, 340 (S.D.N.Y.) (considering settlement conference in assessing amount of
litigation), aff’d, 205 F.3d 1324 (2d Cir. 1999).
9
See NV Petrus SA v. LPG Trading Corp., No. 14-CV-3138, 2017 WL 1831096, at *3
(E.D.N.Y. May 4, 2017) (considering, inter alia, the parties’ participation in court-sponsored
mediation and concluding that the defendants “actively engaged in ‘protracted litigation’”).
20
all in the span of a few months. The discovery conducted by the parties was, by Defendant’s
own description, “significant.” 10 (See Joint Mot. for Protective Order, Docket Entry No. 27.)
Defendant’s description is consistent with the information currently before the Court; Defendant
may not now attempt to retreat from its description of the status of discovery in order to argue
that it has not waived arbitration. This factor therefore weighs in favor of finding that Defendant
waived its right to arbitrate this dispute.
iii. Prejudice
Notwithstanding the above, the first two factors of the Court’s analysis do not resolve the
issue, because “[t]he key to a waiver analysis is prejudice”; without prejudice, there can be no
waiver of the right to arbitrate a dispute. Sutherland, 600 F. App’x at 8 (quoting Thyssen,
Inc., 310 F.3d at 105); see In re Enron Corp., 364 B.R. 489, 511 (Bankr. S.D.N.Y. 2007) (“[I]t is
the presence or absence of prejudice that is determinative of the issue of waiver.” (citing Lubrizol
Int’l, S.A. v. M/V Stolt Argobay, 562 F. Supp. 565, 573 (S.D.N.Y. 1982))). Moreover,
“[p]rejudice is not presumed based on the timing of [an] arbitration demand and . . . participation
in litigation [by the party seeking arbitration] — i.e., the first two prongs of the three-part waiver
inquiry-standing alone.” Nat’l Union Fire Ins. Co. of Pittsburgh, P.A. v. NCR Corp., 376 F.
App’x 70, 72 (2d Cir. 2010). Rather, “[p]rejudice results ‘when a party seeking to compel
arbitration engages in discovery procedures not available in arbitration, makes motions going to
the merits of an adversary’s claims, or delays invoking arbitration rights while the adversary
10
In its briefing, Defendant insists that such discovery pertained overwhelmingly to the
non-arbitrable claims at issue in this case, but while this argument is relevant to the question of
whether Plaintiff suffered prejudice as a result of such discovery, it does not negate the fact that
the discovery took place. See Kramer v. Hammond, 943 F.2d 176, 180 (2d Cir. 1991)
(discussing in the context of “prejudice in terms of expense or delay” prior decisions where “the
number of non-arbitrable issues more than justified the litigation that preceded the demand for
arbitration”).
21
incurs unnecessary delay or expense.’” S&R Co. of Kingston, 159 F.3d at 83–84 (quoting
Cotton, 4 F.3d at 179). Stated differently, “[p]rejudice . . . 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.” Nat’l Union
Fire Ins. Co. of Pittsburgh, P.A., 376 F. App’x at 72 (quoting In re Crysen, 226 F.3d at 162–63).
“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.” Sutherland, 600 F. App’x at 8
(quoting Kramer, 943 F.2d at 179).
Although Defendant’s efforts do not reflect an attempt to relitigate a motion on the
merits, severing the arbitration claim would damage Plaintiff’s legal position and cause
substantive prejudice. After repeated follow-up requests, and motion practice before Judge
Mann, Plaintiff has established its entitlement 11 to documents in Defendant’s possession relating
to waste oil received from Plaintiff’s customers after February of 2015. 12 In view of this,
11
The Court acknowledges Judge Mann’s observation that her October 19, 2016 Order
did not “rul[e] on [the] admissibility” of these documents. (Dec. 28, 2017 Order.)
12
The fact that the actual motion to compel production of these documents was not made
until after Defendant raised the issue of arbitration is of no avail in view of the fact that the issue,
raised a mere five days after Defendant revealed the existence of additional withheld documents,
suggests that Defendant may well have anticipated further dispute, and — judging from its
unpersuasive arguments in opposition to Plaintiff’s motion to compel — an adverse ruling for its
failure to produce the documents in the first instance. (See Def. Letter dated Oct. 10, 2016
(opposing Plaintiff’s motion to compel by arguing that “[t]he discovery deadline in this matter
has expired” while not disputing that the initial request was made within the discovery deadline,
and further opposing the “unduly burdensome” production of the purportedly “irrelevant”
information, despite having failed to assert such objections during discovery)); cf. LG Elecs., Inc.
v. Wi-Lan USA, Inc., 623 F. App’x 568, 569 (2d Cir. 2015) (finding lack of prejudice where “[a]t
the time of the arbitration demand, no rulings on [the plaintiff’s] substantive motions had been
issued or foreshadowed, nor has [the plaintiff] shown that the demand compromised its legal
position in any way” (emphasis added)); Anwar v. Fairfield Greenwich Ltd., 863 F. Supp. 2d
346, 349 (S.D.N.Y. 2012) (finding lack of prejudice where “there is no indication that this is ‘an
22
Defendant should not be permitted to now, after violating the Federal Rules of Civil Procedure,
invoke the arbitration clause to negate a ruling in Plaintiff’s favor. See Tech. in P’ship, Inc., 538
F. App’x at 39–40 (affirming district court’s finding of waiver considering, inter alia, “the
prejudice to [the plaintiff] in moving to the arbitration forum while awaiting reciprocal discovery
from the [defendants]”); Burns v. Imagine Films Entm’t, Inc., 165 F.R.D. 381 (W.D.N.Y. 1996)
(“Plaintiffs will suffer economic and substantive prejudice by Defendants’ delay in seeking
arbitration. . . . Defendants should not be able to avoid the effects of the sanction already
imposed, nor should they be able to avoid any future sanctions by resorting to arbitration.”
(citing Kramer, 943 F.2d at 179)); cf. Bank of Am., N.A. v. Ocean Performance, Inc., No. 10CV-1829, 2013 WL 943743, at *3 (D. Conn. Mar. 11, 2013) (finding prejudice from undue delay
and expense in light of, inter alia, the defendant’s “fail[ure] to respond to Plaintiff’s discovery
requests, necessitating Plaintiff’s filing of a motion to compel discovery” (citing Cotton, 4 F.3d
at 180)). 13
Defendant argues that severing the claim before producing the disputed documents would
instance in which a party sensing an adverse court decision [is, in effect, allowed] a second
chance in another forum’” or “any indication of bad faith” (quoting Rush v. Oppenheimer & Co.,
779 F.2d 885, 890 (2d Cir. 1985))).
13
The Second Circuit has held that arbitration is not waived where a party moves to
dismiss a complaint containing both arbitrable and nonarbitrable claims, and, after the motion is
denied, subsequently seeks to compel arbitration of the arbitrable claims. See Sweater Bee by
Banff, Ltd. v. Manhattan Indus., Inc., 754 F.2d 457, 463 (2d Cir. 1985) (concluding that the
defendant did not waive arbitration by filing a motion to dismiss “an intricate complaint, setting
forth numerous claims outside the scope of, though partially related to, the arbitrable claims”
where “most” of the twenty-eight claims were nonarbitrable). In contrast to these cases,
however, Defendant’s conduct which the Court finds constitutes waiver — its failure to provide
discoverable waste oil documents and Judge Mann’s adverse ruling — relates predominantly, if
not exclusively, to a single, arbitrable claim.
23
cause no prejudice to Plaintiff because, “[e]ven if the rules of arbitration do not specifically
permit discovery, the modern trend in arbitration is to provide for depositions and the exchange
of documents just as in litigation,” and the fact that such documents “might be unavailable at
arbitration” is insufficient to establish prejudice. (Def. Suppl. Mem. 3.) Defendant also argues
that “[t]o the extent [Plaintiff] alleges that [Defendant] must produce additional documents, such
a request can be made and fulfilled in the arbitral forum.” (Id.)
These arguments are not persuasive. Defendant offers little authority and no analysis of
the rules of the American Arbitration Association to support its claim that “the modern trend” in
arbitration is to permit litigation-like discovery. 14 Regardless, these contentions ignore the fact
that Plaintiff’s entitlement to the additional documents is not, as Defendant asserts, an
“allegation” — Judge Mann has ordered Defendant to produce the documents but stayed the
order pending a decision from the Court on the issue of arbitration. (October 19, 2016 Order.) 15
14
Relatedly, the Court notes that neither party has adequately responded to the Court’s
directive to brief whether the discovery that has been exchanged in this case “would be available
to them in arbitration.” Commercial Lubricants, LLC, 2017 WL 3432073, at *19. Moreover,
there is at least some authority suggesting that the Court should not simply assume that discovery
in the arbitral forum would be sufficiently similar to discovery in this litigation. See Nino v.
Jewelry Exch., Inc., 609 F.3d 191, 212 (3d Cir. 2010) (“It is well recognized that ‘discovery
generally is more limited in arbitration than in litigation,’ and that, as an ‘important
counterweight, arbitrators are not bound by the rules of evidence.’” (first quoting In re Cotton
Yarn Antitrust Litig., 505 F.3d 274, 286 (4th Cir. 2007); and then quoting Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991))).
15
The parties agreed to defer production of the documents. As Judge Mann stated in her
December 28, 2017 Order, “[d]efense counsel conceded [during the October 19, 2016
conference] that if the District Court rejected defendant’s position as to the termination date,
defendant would have no basis to object to plaintiff’s document demand.” (Mem. and Order
dated Dec. 28, 2017 at 2.) However, the Court cannot decide the question of whether and when
Defendant terminated the Waste Oil Agreement without first deciding whether Defendant
waived arbitration, because whether the agreement has been terminated is a question that, under
the broad wording of the Waste Oil Agreement’s arbitration clause, would be properly reserved
for the arbitrator. See Rochdale Vill., Inc. v. Pub. Serv. Emp. Union, Local No. 80, Int’l Bhd. of
24
Moreover, the question before the Court is not whether the appropriate forum does or does not
provide a particular tool of discovery, but whether depriving a party that has already
demonstrated — in this forum — its entitlement to documents from the benefit of that victory
would “damage” the party’s “legal position” such that it would reflect “inherent unfairness.” See
Nat’l Union Fire Ins. Co. of Pittsburgh, P.A., 376 F. App’x at 72 (quoting In re Crysen, 226 F.3d
at 162–63; Doctor’s Assocs., Inc., 107 F.3d at 134. The Court concludes that it would.
The Court is mindful that “[t]here is no rigid formula or bright-line rule for identifying
when a party has waived its right to arbitration,” and the above factors must be applied “to the
specific context” of each case. Sutherland, 600 F. App’x at 7–8 (quoting La Stadium & Expo.
Dist., 626 F.3d at 159). Considering the prejudice Plaintiff would suffer if the parties are
required to arbitrate this claim, in addition to the extensive discovery discussed above, the Court
finds that Defendant has waived the right to arbitrate the dispute regarding its purported breach
Teamsters, Chauffeurs, Warehousemen & Helpers of Am., 605 F.2d 1290, 1295 (2d Cir. 1979)
(“If a court finds that the parties have agreed to submit to arbitration disputes ‘of any nature or
character,’ or simply ‘any and all disputes,’ all questions, including those regarding termination,
will be properly consigned to the arbitrator . . . .” (citations omitted)); E & B Giftware, LLC v.
Kinsbourne, No. 14-CV-4709, 2015 WL 2330469, at *2 (S.D.N.Y. May 12, 2015) (“When the
parties’ agreement contains a broad arbitration clause, the arbitrator resolves any questions with
respect to contract termination.” (first citing Peerless Imps., Inc. v. Wine, Liquor & Distillery
Workers Union Local One, 903 F.2d 924, 929 (2d Cir. 1990); and then citing McAllister Bros.,
Inc. v. A & S Transp. Co., 621 F.2d 519, 522 (2d Cir. 1980); and then citing Conn. Gen. Life Ins.
Co. v. Houston Scheduling Servs., Inc., 2013 WL 4647252, at *10 (D. Conn. Aug. 29, 2013)));
see also Litho Prestige, Div. of Unimedia Grp., Inc. v. News Am. Pub., Inc., 652 F. Supp. 804,
811 (S.D.N.Y. 1986) (“To hold that defendant could not withdraw from this relationship because
such conduct would breach the termination clause would be contrary to the rule in this circuit
requiring that an arbitrator decide all breach of contract questions where the contract contains a
broad arbitration clause.” (citations omitted)). Therefore, for purposes of its prejudice analysis,
the Court does not consider Defendant’s assertion that the disputed documents are irrelevant
because they post-date the Waste Oil Agreement’s termination, as doing so within the context of
a waiver analysis would assume the conclusion that Defendant has waived the right to have the
issue as to the termination date decided by the arbitral forum.
25
of the Waste Oil Agreement.
d.
The Waste Oil Agreement was terminated effective February 14, 2015
Defendant argues in the alternative that the Pay-for-Oil-Reduction Letter served as notice
of termination of the Waste Oil Agreement, and the Waste Oil Agreement was therefore
terminated effective February 14, 2015, precluding Plaintiff’s claims to damages after this date. 16
(Def. Mem. 14.) Although not addressing the argument in its opposition brief, in its other
filings, Plaintiff has denied that its representatives acknowledged the Waste Oil Agreement’s
termination; and argued that the Waste Oil Agreement was not terminated because (1) the PayFor-Oil Rate Reduction Letter states that “[o]ther terms and conditions of [Defendant’s] oil
collection service are unchanged,” (2) “the word ‘terminated’ is noticeably absent” from the PayFor-Oil Rate Reduction Letter, and (3) Defendant “acknowledges that it has continued to collect
used oil from [Plaintiff’s] customers even though it purportedly ‘terminated’ the Waste Oil
Agreement.” (See Pl. 56.1 ¶¶ 20–21; Pl. Letter dated Oct. 12, 2016.)
“When interpreting a contract, the intention of the parties should control, and the best
evidence of intent is the contract itself.” Cont’l Ins. Co. v. Atl. Cas. Ins. Co., 603 F.3d 169, 180
(2d Cir. 2010) (quoting Rothstein v. Am. Int’l Grp., Inc., 837 F.3d 195, 205 (2d Cir. 2016)); see
also Biremis, Corp. v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 11-CV-4934, 2012 WL
760564, at *5 (E.D.N.Y. Mar. 8, 2012) (“As with any issue of contract interpretation, the court
begins with the language of the contracts at issue.”); Dittman v. Dyno Nobel, Inc., No. 97-CV1724, 2000 WL 151950, at *2 (N.D.N.Y. Feb. 10, 2000) (“Contract interpretation begins with
the plain language of the contract.”). There is no dispute that the Waste Oil Agreement
16
Because the Court has concluded that Defendant waived arbitration, the Court may
consider Defendant’s termination argument. See supra n.18; Rochdale Vill., Inc., 605 F.2d at
1295; E & B Giftware, LLC, 2015 WL 2330469, at *2; see also Litho Prestige, Div. of Unimedia
Grp., Inc., 652 F. Supp. at 811.
26
permitted either party to terminate the contract upon sixty days’ prior written notice. (Waste Oil
Agreement 1.)
The Court finds that the Pay-For-Oil Rate Reduction Letter served as notice of
termination of the Waste Oil Agreement, and that the Waste Oil Agreement was therefore
terminated effective February 14, 2015. Stetz testified at his deposition that he understood the
Pay-For-Oil Rate Reduction Letter to terminate the Waste Oil Agreement:
COUNSEL: So, is it your understanding that there is some other
language that you were relying on, which requires [sixty] days
notice to change the pricing?
STETZ: No, that’s where we make — lead me to believe that you
have to give me [sixty] days — Safety-Kleen has to give me [sixty]
day notice.
COUNSEL: But this says “termination,” right?
STETZ: Correct.
COUNSEL: Did you take the letter . . . as an act of terminating the
contract?
STETZ: I do.
COUNSEL: You do?
STETZ: I do. There’s no more consideration.
(Gary Stetz Dep. 224–25.)
Plaintiff failed to address this issue in its opposition brief and has arguably waived any
claim for damages after February 14, 2015. See Jackson v. Fed. Exp., 766 F.3d 189, 198 (2d Cir.
2014) (“[I]n the case of a counseled party, a court may, when appropriate, infer from a party’s
partial opposition that relevant claims or defenses that are not defended have been abandoned.”).
None of Plaintiff’s arguments support the conclusion that the Waste Oil Agreement
remained in force sixty days after Defendant served the Pay-For-Oil Rate Reduction Letter. As
an initial matter, while Plaintiff’s 56.1 statement denies that Stetz acknowledged that the Pay27
For-Oil Rate Reduction Letter terminated the Waste Oil Agreement, (see Pl. 56.1 ¶ 21),
Plaintiff’s denial cannot refute the uncontroverted testimony of Stetz acknowledging that he
understood the Pay-For-Oil Rate Reduction Letter to terminate the Waste Oil Agreement.
Moreover, the documents Plaintiff relies on to dispute Stetz’s acknowledgment —
Defendant’s Answer to the Amended Complaint and Counterclaims — do not relate to the Waste
Oil Agreement and therefore cannot support its argument. (Pl. Resp. to Def. 56.1 ¶ 21, Docket
Entry No. 45 (citing Def. Answer and Counterclaims to Am. Compl. and Counterclaims,
annexed to Reynolds Decl. as Ex. LL, Docket Entry Nos. 45-11 and 45-12).) As discussed
supra, Plaintiff’s Amended Complaint did not contain a claim for breach of the Waste Oil
Agreement, and Defendant’s Answer consequently includes no information relevant to this issue.
Similarly, Defendant’s Counterclaim and the attached documents relate to breach of the
Distributor Agreement and contain no relevant information about the Waste Oil Agreement. See
Potash v. Fla. Union Free Sch. Dist., 972 F. Supp. 2d 557, 564 (S.D.N.Y. 2013) (observing that
the plaintiff’s Rule 56.1 statement was “deficient” because, inter alia, it “purport[s] to deny facts
properly set forth by Defendants’ 56.1 Statement with a citation to evidence that does
not support Plaintiff’s purported denial”).
In addition, Plaintiff’s argument that the Pay-For-Oil Rate Reduction Letter did not serve
as notice of termination because it does not contain the word “termination” is also unpersuasive,
as the Waste Oil Agreement does not prescribe a specific process or term to comply with the
notice requirement. See Brockhaus v. Gallego Basteri, 188 F. Supp. 3d 306, 317 (S.D.N.Y.
2016) (“[W]here the contract does not require any particular language in the notice of
termination, there are no magic words that need to be uttered as long as the notice evinces clear
intent to terminate.” (citing G.B. Kent & Sons, Ltd. v. Helena Rubinstein, Inc., 47 N.Y.2d 561,
28
561 (1979))); Nat’l Gear & Piston, Inc. v. Cummins Power Sys., LLC, 861 F. Supp. 2d 344, 362
(S.D.N.Y. 2012) (“[T]he Second Circuit has declined ‘to construe the notice provision as if it
were a common law pleading requirement under which every slip would be fatal.’” (first quoting
Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918, 925 (2d Cir. 1977); and then
citing RBFC One, LLC v. Zeeks, Inc., 367 F. Supp. 2d 604, 617 (S.D.N.Y. 2005))).
Lastly, while the Pay-For-Oil Rate Reduction Letter states that “[o]ther terms and
conditions of our oil collection service are unchanged,” Plaintiff does not point to any other
“terms and conditions” it believes were still in effect after February 14, 2015. As noted above,
Stetz testified expressly that he understood the Pay-For-Oil Rate Reduction Letter to terminate
“the contract.” 17 (Gary Stetz Dep. 224–25.)
Because the Pay-For-Oil Rate Reduction Letter served as the sixty-days notice to
terminate the Waste Oil Agreement, the Waste Oil Agreement was terminated effective February
14, 2015.
However, notwithstanding the Court’s conclusion that the Waste Oil Agreement was
terminated effective February 14, 2015, the Court cannot conclude as a matter of law that
Plaintiff may not recover any post-termination damages. Defendant’s argument that Plaintiff is
not entitled to damages after February 14, 2015 is based on the Waste Oil Agreement’s
17
Plaintiff also asserts that Judge Mann “determined that [Defendant] surreptitiously
continued to collect waste oil from [Plaintiff’s] customers” after February of 2015. (Pl. Opp’n
24–25.) However, this is a mischaracterization of Judge Mann’s October 19, 2016 Order, where
Judge Mann concluded that Defendant violated Rule 34 of the Federal Rules of Civil Procedure
by failing to make clear that it was withholding otherwise discoverable documents. To the extent
Plaintiff is attempting to argue that the Waste Oil Agreement remained in force under a theory of
contract ratification, see Allen v. Riese Org., Inc., 965 N.Y.S.2d 437, 440 (App. Div. 2013)
(“Ratification occurs when a party accepts the benefits of a contract and fails to act promptly to
repudiate it.” (citations omitted)), the argument fails, because — assuming this theory is
applicable to the facts of this case — the Pay-For-Oil Rate Reduction Letter constituted a
repudiation of the Waste Oil Agreement prior to any purportedly ratifying conduct.
29
termination; however, whether Plaintiff may be able to pursue damages on alternative legal
theories other than based on the contract is not before the Court.
III. Conclusion
For the foregoing reasons, the Court grants Defendant’s motion for summary judgment as
to Plaintiff’s claim for breach of the Waste Oil Agreement.
SO ORDERED:
s/ MKB
MARGO K. BRODIE
United States District Judge
Dated: October 17, 2018
Brooklyn, New York
30
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?