Summary
This Second Circuit opinion addresses whether defendants waived their right to compel arbitration under the Federal Arbitration Act after participating in district court litigation. Applying the Supreme Court’s decision in Morgan v. Sundance, Inc., the court holds that prejudice is no longer required to find waiver, focusing instead on whether the party knowingly relinquished the right by acting inconsistently with it. The court concludes that the defendants’ substantive motion to dismiss without mentioning arbitration constituted such inconsistent conduct, thereby affirming the district court’s denial of the motion to compel arbitration.
Topics
Practice areas
Questions Presented
- Whether the UBS Defendants waived their right to compel arbitration under the Federal Arbitration Act.
Holdings
- The UBS Defendants waived their right to compel arbitration by seeking dismissal of the claims in district court, and the district court's denial of the motion to compel arbitration is affirmed.
Key quotations
“We conclude that the UBS Defendants waived the right to seek arbitration by seeking dismissal of the claims against them in the District Court. Accordingly, the District Court’s denial of the UBS Defendants’ motion to compel arbitration is AFFIRMED.” (at 25)
“The Supreme Court held that courts may not impose a “prejudice requirement” when evaluating whether a party has waived enforcement of an arbitration agreement.” (at 419)
Factual background
The trustees of the Peter and Elizabeth C. Tower Foundation sued UBS Financial Services and Jay S. Blair alleging breach of fiduciary duties under the Investment Advisers Act and New York law. The parties executed an arbitration clause in the UBS Agreement, but the defendants first sought dismissal of the case and only later moved to compel arbitration.
Procedural history
The district court denied the defendants' motion to dismiss, then denied their motion to compel arbitration, finding the validity of the arbitration agreement was a factual issue. The defendants appealed that denial.