RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 10a0191p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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JAMES B. HURLEY and BRANDI HURLEY,
Plaintiffs-Appellees, --
jointly and severally,
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No. 09-1964
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>
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v.
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DEUTSCHE BANK TRUST COMPANY
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AMERICAS, f/k/a Bankers Trust Company, as
Trustee and Custodian by SAXON MORTGAGE -
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COMPANY SERVICES, INC., f/k/a Meritech
Defendants-Appellees, -
Mortgage Services, Inc.,
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DAVID C. LOHR and ORLANS ASSOCIATES,
Defendants-Appellants. -
P.C.,
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Appeal from the United States District Court
for the Western District of Michigan at Grand Rapids.
No. 08-00361—Gordon J. Quist, District Judge.
Argued: April 27, 2010
Decided and Filed: July 1, 2010
*
Before: CLAY and GILMAN, Circuit Judges; ZATKOFF, District Judge.
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COUNSEL
ARGUED: Ernest Raymond Bazzana, PLUNKETT COONEY, Detroit, Michigan, for
Appellants. Frank B. Melchiore, LAW FM, Saint Petersburg, Florida, Matthew R.
Cooper, SCHUITMAKER COOPER SCHUITMAKER CYPHER & KNOTEK, P.C.,
Paw Paw, Michigan, for Appellees. ON BRIEF: Donald H. Dawson, Jr., Kathleen A.
Clark, DAWSON & CLARK, P.C., Detroit, Michigan, for Appellants. Frank B.
Melchiore, LAW FM, Saint Petersburg, Florida, Frederick J. Boncher, SCHENK,
BONCHER & RYPMA, Grand Rapids, Michigan, Matthew R. Cooper,
*
The Honorable Lawrence P. Zatkoff, United States District Judge for the Eastern District of
Michigan, sitting by designation.
1
No. 09-1964 Hurley v. Deutsche Bank Trust Co. Americas, et al. Page 2
SCHUITMAKER COOPER SCHUITMAKER CYPHER & KNOTEK, P.C., Paw Paw,
Michigan, Daniel G. Romano, Southfield, Michigan, for Appellees.
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OPINION
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CLAY, Circuit Judge. Defendants, David C. Lohr and Orlans Associates, P.C.,
appeal from the district court’s order denying Defendants’ motion to compel arbitration
on the basis that Defendants waived their right to enforce an arbitration clause against
Plaintiffs. For the reasons set forth below, we AFFIRM the district court’s order.
STATEMENT OF FACTS
On May 2, 2007, Plaintiffs, James B. Hurley and Brandi Hurley,1 filed this
lawsuit against Defendants, Deutsche Bank Trust Company Americas f/k/a Bankers
Trust Company, as Trustee and Custodian by Saxon Mortgage Company Services, Inc.,
f/k/a Meritech Mortgage Services, Inc. (“Deutsche Bank”), David C. Lohr and Orlans
Associates, P.C. (“Orlans”), alleging violations of the Servicemembers’ Civil Relief Act
(“SCRA”), 50 U.S.C. § 501, and state law claims of infliction of emotional distress,
fraud, and conversion.
Plaintiffs brought this suit after Defendants foreclosed on Plaintiffs’ home. Since
September 7, 1984, James Hurley has been a member of the Michigan Army National
Guard and is currently a sergeant. On September 26, 1994, Sergeant Hurley purchased
a residence in Hartford, Michigan (“the Property”). On September 30, 2003, Sergeant
Hurley received a loan in the amount of $95,200 and executed a mortgage on the
Property as security for the loan. As part of the mortgage documents, Hurley executed
a rider entitled Arbitration of Disputes stating:
All disputes, claims, or controversies arising from or related to the loan
evidenced by the Note (“the Loan”), including statutory claims, shall be
resolved by binding arbitration, and not by court action, except as
1
Plaintiffs James B. Hurley and Brandi Hurley are married.
No. 09-1964 Hurley v. Deutsche Bank Trust Co. Americas, et al. Page 3
provided under [specified exclusions]. This arbitration agreement is
made pursuant to a transaction involving interstate commerce, and shall
be governed by the Federal Arbitration Act (9 U.S.C. §§ 1-14).
(Dist. Ct. R.E. 81 Ex. 1 at 18).
On July 2, 2004, the Michigan Department of Military and Veterans Affairs
ordered Sergeant Hurley to active duty at Camp Roberts, California for training from
July 21, 2004 through August 20, 2004, plus allowable travel time. While Sergeant
Hurley was training in California, he fell behind in his mortgage payments. According
to Plaintiffs, Sergeant Hurley had to spend all of his family’s income preparing for his
deployment to Iraq on items such as socks, underwear, personal hygiene products, and
tools for use in Iraq.
Sergeant Hurley returned to Michigan in September 2004. On September 9,
2004, the U.S. Army ordered Sergeant Hurley’s National Guard Unit to active duty in
support of Operation Iraqi Freedom for an initial period of 18 months beginning on
October 1, 2004. On October 12, 2004, the Michigan Department of Military and
Veterans Affairs ordered Sergeant Hurley to active duty as a member of his Reserve
Component Unit in support of Operation Iraqi Freedom. These orders required Sergeant
Hurley to report to his home station in Greenville, Michigan on October 25, 2004 and
be mobilized out of Fort Dix, New Jersey on October 28, 2004 for a period of active duty
not to exceed 730 days.
On October 14, 2004, following notice by publication, Defendants held a
sheriff’s sale of the Property. Deutsche Bank placed the highest bid of $70,000 and
obtained a sheriff’s deed to the Property that was to become operative after six months.
For the sale to occur, David C. Lohr, one of Defendants herein, signed an affidavit
saying:
The undersigned, being first duly sworn, states that upon investigation he
is informed and believes that none of the persons named in the notice
attached to the sheriff’s deed of mortgage foreclosure, nor any person
upon whom they or any of them were dependent, were in the military
No. 09-1964 Hurley v. Deutsche Bank Trust Co. Americas, et al. Page 4
service of the United States at the time of sale or for six months prior
thereto; nor the present grantee(s).
The undersigned further states that this affidavit is made for the purpose
of preserving a record and clearing title by virtue of the Soldiers’ and
Sailors’ Relief Act of 1940 [predecessor to the SCRA], as amended.
(Dist. Ct. R.E. 81 Ex. 2 at 3).
On May 3, 2005, Defendants initiated eviction proceedings against Sergeant
Hurley and all other occupants, which required Sergeant Hurley to appear in the Van
Buren County District Court in South Haven, Michigan on May 13, 2005. On the May
6, 2005 proof of service for the eviction action, the process server wrote: “according to
spouse, Hurley is in the military in Iraq.” (Dist. Ct. R.E. 43 Ex. 18). The May 13, 2005
hearing was adjourned to June 6, 2005. Sergeant Hurley’s mother, Valla Hurley, who
was living at the Property, claims that she made an appearance at the second hearing to
inform the court that Sergeant Hurley was in Iraq. According to Ms. Hurley,
Defendants’ counsel took her to a conference room and told her that she must vacate the
Property and that Defendants would pay her $1,000 if she left voluntarily. Ms. Hurley
alleges that Defendants’ counsel told her that the matter would be adjourned for 30 days,
at which time she could come back and discuss the matter with the judge. Ms. Hurley
left the courthouse without appearing before a judge; she was under the impression that
a hearing had been rescheduled for 30 days later and that Defendants’ counsel would
relay this information to the judge.
On June 14, 2005, the court entered a default judgment against Sergeant Hurley.
According to Judge Clark, who was presiding over the eviction proceedings:
[A]t no time during the eviction proceedings do I recall being informed
that an individual was present in the courthouse on behalf of James
Hurley and claiming to be an occupant of the house . . . As a result that
neither Sergeant Hurley nor any other occupants of the house came
forward to express their questions and/or concerns, I signed a Default
Judgment, which contained the provision that “for a defendant on active
military duty, default judgment shall not be entered except as provided
by [the SCRA].”
No. 09-1964 Hurley v. Deutsche Bank Trust Co. Americas, et al. Page 5
(Dist. Ct. R.E. 43 Ex. 20).
On July 14, 2005, the Deputy Sheriff attempted to execute a Writ of Resolution
to remove Plaintiffs and other occupants from the Property but found the house to be
totally empty. Plaintiffs allege that they left the Property based on the belief that they
would be compensated and out of fear of being forcibly removed. On November 10,
2005, Deutsche Bank sold the Property to a bona fide purchaser for $76,000.
Plaintiffs filed their complaint on May 2, 2007 in the Eastern District of
Michigan. Defendants filed their answers, and the court held a Rule 16 scheduling
conference on September 20, 2007. Plaintiffs subsequently filed an amended complaint,
and Defendants again filed answers. On December 10, 2007, Defendant Orlans filed a
motion to dismiss and for partial summary judgment. On February 12, 2008, the district
court granted in part and denied in part Orlans’ motion to dismiss. On March 3, 2008,
Defendant Deutsche Bank filed a motion to change venue, in which Defendant Orlans
joined. On April 1, 2008, while the Bank’s motion to change venue was pending,
Plaintiffs filed their own motion for summary judgment. On April 17, 2008, the court
granted Defendants’ motion and transferred the case to the Western District of Michigan.
After the transfer, Defendants filed motions for summary judgment, a motion to
strike Plaintiffs’ expert, a motion for sanctions, and several other motions. On
September 30, 2008, the district court ruled on each of these motions, granting in part
and denying in part both Plaintiffs’ and Defendants’ motions for summary judgment.
On March 13, 2009, after denying Plaintiffs’ motion for reconsideration, the court sua
sponte reconsidered its September 30, 2008 order. On April 21, 2009, the court denied
Defendant Deutsche Bank’s motion for reconsideration.
On May 21, 2009, Defendant Orlans filed a motion to compel arbitration. On
June 23, 2009, the district court denied the motion, holding that Defendants had waived
their right to enforce the arbitration clause by sleeping on their arbitration rights for 26
months while Plaintiffs incurred the costs of this litigation. On July 22, 2009, Defendant
Orlans timely filed a notice of appeal. Defendant Deutsche Bank has not joined this
appeal.
No. 09-1964 Hurley v. Deutsche Bank Trust Co. Americas, et al. Page 6
DISCUSSION
We review a district court’s denial of a motion to compel arbitration de novo.
Albert M. Highly Co. v. N/S Corp., 445 F.3d 861, 863 (6th Cir. 2006).
“This Court examines arbitration language in a contract in light of the strong
federal policy in favor of arbitration, resolving any doubts as to the parties’ intentions
in favor of arbitration.” Id. (citing Great Earth Cos., Inc. v. Simons, 288 F.3d 878 (6th
Cir. 2002)). Because of the presumption in favor of arbitration under the Federal
Arbitration Act,2 we will not lightly infer a party’s waiver of its right to arbitration. O.J.
Distrib, Inc. v. Hornell Brewing Co., 340 F.3d 345, 355 (6th Cir. 2003) (quoting Cotton
v. Slone, 4 F.3d 176, 179 (2d Cir. 1993)). However, a party may waive an agreement to
arbitrate by engaging in two courses of conduct: (1) taking actions that are completely
inconsistent with any reliance on an arbitration agreement; and (2) “delaying its assertion
to such an extent that the opposing party incurs actual prejudice.” Id. at 356 (quoting
Germany v. River Terminal Ry. Co., 477 F.2d 546, 547 (6th Cir. 1973) (per curiam) and
citing Doctor’s Assocs., Inc. v. Distajo, 107 F.3d 126, 131 (2d Cir. 1997)); see also
Manasher v. NECC Telecom, 310 F. App’x 804, 806 (6th Cir. 2009); Gen. Star Nat’l Ins.
Co. v. Administratia Asigurarilor de Stat, 289 F.3d 434, 438 (6th Cir. 2002).
We find that both factors indicating waiver are present in this case. With regard
to the first factor, Defendants have taken actions that are completely inconsistent with
any reliance on an arbitration agreement. Over the course of more than two years
between when Plaintiffs initiated this lawsuit and when Defendants submitted their
2
Section 3 of the Federal Arbitration Act sets forth the presumption in favor of arbitration as
follows:
If any suit or proceeding be brought in any of the courts of the United
States upon any issue referable to arbitration under an agreement in
writing for such arbitration, the court in which such suit is pending,
upon being satisfied that the issue involved in such suit or proceeding
is referable to arbitration under such an agreement, shall on
application of one of the parties stay the trial of the action until such
arbitration has been had in accordance with the terms of the
agreement, providing the applicant for the stay is not in default in
proceeding with such arbitration.
9 U.S.C. § 3.
No. 09-1964 Hurley v. Deutsche Bank Trust Co. Americas, et al. Page 7
motion to compel arbitration, Defendants have consistently and actively litigated this
action in court. See Manasher, 310 F. App’x at 806 (holding that the defendant had
waived its right to arbitrate “by actively participating in litigation for almost a year
without asserting that it had a right to arbitration”). Defendants have not only responded
to actions taken by Plaintiffs, but they have filed multiple dispositive and non-dispositive
motions of their own, including motions to dismiss, motions for summary judgment, and
a motion to change venue. By filing a motion to change venue, Defendants proactively
selected the forum in which they wished to defend against Plaintiffs’ claims. As the
district court found:
Although this case has been pending in this district for about fifteen
months, it dates back to May 2, 2007, when Plaintiffs filed suit in the
Eastern District of Michigan. Thus, it has been pending 26 months,
during which time Orlans filed two dispositive motions, joined in
Deutsche Bank’s motion for change of venue, attended a Rule 16
scheduling conference and a settlement conference, and filed numerous
other motions and documents in defense of Plaintiffs’ claims. Although
Orlans had the mortgage documents since the inception of the lawsuit, it
took no action to assert its alleged right to arbitrate until after the Court
issued an unfavorable decision in its March 13, 2009, Opinion and Order.
(Dist. Ct. R.E. 189 at 3-4).
In three recent cases, we have held that each defendant waived its right to
arbitrate by failing to assert that right in a timely fashion and instead participating in
litigation-related activities. In General Star National Insurance Co. v. Administratia
Asigurarilor de Stat, this Court held that the defendant waived its right to arbitrate after
waiting 17 months before attempting to enforce the arbitration clause. 289 F.3d at 438.
The defendant was asserting its purported right to arbitrate in the context of moving to
set aside the default judgment that had been entered against the defendant for failing to
respond to the complaint. In finding that the defendant had waived its right to arbitrate,
we noted that “for 17 months, [the defendant] remained idle while [the plaintiff] incurred
the costs associated with this action. [The defendant], moreover, sought arbitration only
after the district court had entered a default judgment against it.” Id.
No. 09-1964 Hurley v. Deutsche Bank Trust Co. Americas, et al. Page 8
In O.J. Distributing, Inc. v. Hornell Brewing Co., this Court held that the
defendant waived its right to arbitrate by engaging in negotiations with the plaintiff for
approximately 15 months–while at the same time denying the existence of the agreement
which contained the arbitration provision–before asserting its right to arbitrate. 340 F.3d
at 357. See also Manasher, 310 F. App’x at 806 (holding that the defendant had waived
its right to arbitrate by engaging in discovery and motion practice for a year before filing
a motion to compel arbitration).
In the instant case, Defendants have waited even longer than the defendants in
each of those three cases to assert their purported right to arbitrate and have engaged in
significantly more dispositive motion practice and litigation-related activities. Likewise,
Defendants did not attempt to enforce their arbitration rights until after the district court
entered an unfavorable decision. Cf. Rush v. Oppenheimer & Co., 779 F.2d 885, 890 (2d
Cir. 1985) (holding that the defendant had not waived its arbitration right in part because
“[t]his is not an instance in which ‘a party sensing an adverse court decision [is, in effect,
allowed] a second chance in another forum’”).
Defendants encourage us to ignore the governing Sixth Circuit precedent and rely
exclusively on the Second Circuit case of Rush. According to Defendants, the nature of
the case changed on March 13, 2009, when the district court sua sponte reconsidered its
denial of Plaintiffs’ motion for summary judgment, reinstating Plaintiffs’ SCRA claims
and inferring a private cause of action for punitive damages. Defendants argue that, like
in Rush, the inclusion of remedies that were previously unavailable altered the scope of
the case. However, Defendants mischaracterize the posture and scope of this case.
Unlike the claims at issue in Rush, Plaintiffs’ claims under the SCRA survived
Defendants’ motion to dismiss and remained in the case until September 30, 2008–after
Defendants moved to transfer the case to the Western District of Michigan. Defendants
actively litigated this case in two different federal courts for nearly 17 months, while the
possibility loomed that they may have to pay punitive damages, without attempting to
enforce their arbitration rights. Thus, even if this Court were to look to non-binding
Second Circuit law–which arguably conflicts with binding Sixth Circuit precedent–it
No. 09-1964 Hurley v. Deutsche Bank Trust Co. Americas, et al. Page 9
would not dictate the result that Defendants seek. Defendants’ actions are completely
inconsistent with any reliance on an arbitration agreement.
With regard to the second factor, Defendants have delayed asserting their right
to arbitrate to such an extent that they have actually prejudiced Plaintiffs. For more than
two years before Defendants attempted to compel arbitration, Plaintiffs incurred the
costs of active litigation in two federal courts. Plaintiffs have employed four attorneys,
undergone extensive discovery, argued four summary judgment motions, and been
subjected to a change in venue at Defendants’ request. See Doctor’s Assocs., 107 F.3d
at 131 (recognizing that a party waives the right to arbitrate when it delays invoking that
right such that the opposing party incurs “unnecessary delay or expense”). As the
district court found:
To paraphrase O.J. Distributing, Orlans slept on its rights for twenty-six
months while Plaintiffs incurred costs to pursue their claims in this forum
and suffered prejudice. In fact, this case is in its late stages and, but for
the parties’ agreement to facilitative mediation, would have been set for
trial within the next few months. If there were no waiver under these
circumstances, it would be difficult to imagine when a waiver might
occur.
(Dist. Ct. R.E. 189 at 4).
Accordingly, Defendants took actions inconsistent with any reliance on the
waiver provision, and Plaintiffs have suffered actual prejudice as a result of Defendants’
delay.
CONCLUSION
Because Defendants have waived their right to arbitrate, we AFFIRM the district
court’s order denying Defendants’ motion to compel arbitration.