Ehleiter v. Grapetree Shores Inc

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit

4-6-2007

Ehleiter v. Grapetree Shores Inc
Precedential or Non-Precedential: Precedential

Docket No. 06-2542

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 PRECEDENTIAL

IN THE UNITED STATES COURT
OF APPEALS
FOR THE THIRD CIRCUIT

NO. 06-2542

JACK EHLEITER

v.

GRAPETREE SHORES, INC.
Appellant

On Appeal From the District Court
of the Virgin Islands,
Division of St. Croix
(D.C. Civil Action No. 05-cv-00056)
District Judge: Hon. Raymond L. Finch
District Judge: Hon. Stanley S. Brotman
Superior Court Judge: Hon. Audrey L. Thomas

Argued December 4, 2006

BEFORE: McKEE, BARRY and STAPLETON,
Circuit Judges
 (Opinion Filed April 6, 2007)

Joel H. Holt (Argued)
2132 Company Street, Suite 2
Christiansted, St. Croix
USVI 00820
Attorney for Appellee

Charles E. Engeman (Argued)
Simone R.D. Francis
Ogletree, Deakins, Nash, Smoak & Stewart
1336 Beltjen Road, Suite 202
Charlotte Amalie, St. Thomas
USVI 00802
Attorneys for Appellant

OPINION OF THE COURT

STAPLETON, Circuit Judge:

After litigating this case before the Superior Court of the
Virgin Islands (“Superior Court”) for nearly four years,
Appellant Grapetree Shores, Inc. (“GSI”) moved to stay the

2
court proceedings pending arbitration pursuant to Section 3 of
the Federal Arbitration Act (“FAA”). The Superior Court
denied the motion, finding that GSI had waived any right it may
have had by actively litigating the plaintiff’s claims. The
Appellate Division of the District Court of the Virgin Islands
(“Appellate Division”) affirmed the decision of the Superior
Court on appeal.

This interlocutory appeal presents three principal issues.
First, we must examine the contours of appellate jurisdiction
under the FAA to determine whether the Appellate Division had
jurisdiction over GSI’s appeal from the Superior Court’s denial
of its Section 3 motion, and whether we, in turn, have
jurisdiction to review the Appellate Division’s order affirming
the Superior Court’s ruling. We conclude that Section
16(a)(1)(A) of the FAA conferred appellate jurisdiction on the
Appellate Division to review the Superior Court’s decision, and
also provides the basis for our jurisdiction over GSI’s appeal
from the Appellate Division’s decision. Second, we must
determine if the issue of whether a party seeking arbitration has
waived its right thereto by litigating the case in court remains a
question for the trial court, rather than an arbitrator, to decide in
the wake of Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79
(2002), and Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444
(2003) (plurality opinion). We conclude that it does. Third, we
must consider whether the Superior Court correctly found on the
merits that GSI waived any right it had to arbitrate by actively
litigating this case before that court. We agree with both the
Superior Court and the Appellate Division that a finding of
waiver is compelled under the facts and circumstances of this
case. Accordingly, we will affirm the judgment of the Appellate

3
Division.

I.

Appellant GSI is the owner of real property in the Virgin
Islands which it leased to Treasure Bay VI Corp. (“TBVI”). At
all times here relevant, TBVI operated a casino known as the
Divi Carina Bay Casino (“the Casino”) on the GSI-owned
property. Appellee Jack Ehleiter was employed with TBVI as
a card dealer and at the commencement of his employment,
entered an Hourly Employment Agreement (“the Agreement”)
with TBVI, setting forth the terms and conditions of his
employment.

Ehleiter allegedly slipped and fell while walking down an
employee stairway of the casino. In April 2001, he filed a
complaint against GSI in the Superior Court (then known as the
Territorial Court of the Virgin Islands), seeking damages for
personal injuries he allegedly sustained as a result of the fall.
GSI filed an answer to the complaint with affirmative defenses
and, over approximately the next four years, the parties engaged
in extensive discovery. Both parties submitted and responded
to several sets of interrogatories and requests for production of
documents, took numerous depositions,1 and submitted several
expert reports. On May 13, 2003, while discovery was still
ongoing and in response to a court order, the parties submitted

1
It appears from the record that a total of nineteen depositions
were taken by the parties. Although it is unclear how many were
taken by each party respectively, there is no dispute that both
parties took depositions in this case.
4
a joint stipulation certifying their readiness for trial by
December 1, 2004. The parties participated in a mediation
session on November 16, 2004, but were unable to resolve the
dispute. On December 2, 2004, in response to a motion filed by
Ehleiter requesting a trial date, the Superior Court entered an
order scheduling trial for February 14, 2005 and requiring all
discovery be completed by January 5, 2005. Five days later, on
December 7, 2004, GSI moved to continue the trial date, noting
that the date that had been set by the Superior Court conflicted
with a previously scheduled trial involving GSI’s counsel. In
the motion, GSI requested a new trial date in March or April
2005. On December 10, 2004, the Superior Court granted GSI’s
request, and rescheduled the trial for March 31, 2005.

Over the course of the next six weeks, GSI filed a motion
for summary judgment and a motion to implead a third party
defendant, and Ehleiter filed a motion to amend his complaint to
include a claim for punitive damages against GSI. All three
motions had been fully briefed and were pending decision by the
Superior Court when, on February 17, 2005, the final day for
filing motions and only one day before the parties’ joint final
pretrial statement and proposed jury instructions were due, GSI
filed a motion to stay the case pending arbitration pursuant to
Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3. In its
motion, GSI asserted, for the first time, that, as an affiliated
company of TBVI, it was entitled to have the dispute arbitrated
pursuant to the arbitration provisions in the Agreement entered
into by Ehleiter and TBVI. Under the terms of that Agreement,
Ehleiter agreed to arbitrate, inter alia, all claims against
“affiliated companies” of TBVI arising from his employment.
In response, Ehleiter contended that GSI was not entitled

5
to invoke the arbitration provisions of the Agreement because it
was not an “affiliated company” of TBVI and that, in any event,
GSI had waived whatever arbitration rights it had under the
Agreement by actively litigating the matter for nearly four years.
Over GSI’s objections, the Superior Court concluded that the
question whether GSI had waived any arbitration rights it had
under the Agreement was for the court, rather than an arbitrator,
to decide. Without resolving whether GSI was an “affiliate” of
TBVI under the Agreement, the Superior Court denied GSI’s
motion, agreeing with Ehleiter that GSI had waived any right it
had to arbitration by actively litigating the case.

GSI appealed the Superior Court’s decision to the
Appellate Division, and the Appellate Division affirmed. GSI
timely filed this appeal, and we thereafter granted GSI’s
emergency motion to stay the proceedings in the Superior Court
pending our resolution of the appeal.

II.

Although the parties have not raised the issue, a court of
appeals has both the inherent authority and a continuing
obligation to assess whether it has jurisdiction over a case or
controversy before rendering a decision on the merits. Lazy Oil
Co. v. Witco Corp., 166 F.3d 581, 585 (3d Cir. 1999); Shendock
v. Director, Office of Workers’ Compensation Programs, 893
F.2d 1458, 1461 (3d Cir. 1990) (en banc). We must therefore
determine as a threshold matter whether we have jurisdiction to
consider the merits of this appeal from an order of the Appellate
Division affirming the Superior Court’s interlocutory order
denying a motion to stay the court proceedings before it pending

6
arbitration. As a predicate to that determination, we inquire also
into the jurisdiction of the Appellate Division to review the
Superior Court’s interlocutory order. We conclude that Section
16(a)(1)(A) of the FAA conferred appellate jurisdiction on both
courts. 9 U.S.C. § 16(a)(1)(A).

GSI sought to stay the proceedings before the Superior
Court pursuant to Section 3 of the FAA, which provides 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 the
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. § 3.2 Section 16(a)(1)(A) provides that “[a]n appeal
may be taken from an order refusing a stay of any action under

2
We have held that the FAA applies to local matters litigated
in the Superior Court of the Virgin Islands. See Gov’t of the
Virgin Islands v. United Indus. Workers, N.A., 169 F.3d 172,
175-78 (3d Cir. 1999).
7
section 3 of this title.” 9 U.S.C. § 16(a)(1)(A).3

3
Section 16 provides in full as follows:

(a) An appeal may be taken from -

(1) an order -
(A) refusing a stay of any action under
section 3 of this title,
(B) denying a petition under section 4 of
this title to order arbitration to proceed,
(C) denying an application under section
206 of this title to compel arbitration,
(D) confirming or denying confirmation of
an award or partial award, or
(E) modifying, correcting, or vacating an
award;

(2) an interlocutory order granting, continuing,
or modifying an injunction against an arbitration
that is subject to this title; or

(3) a final decision with respect to an arbitration
that is subject to this title.

(b) Except as otherwise provided in section
1292(b) of title 28, an appeal may not be taken
from an interlocutory order -

(1) granting a stay of any action under section 3
of this title;
8
 We first examine whether Section 16(a)(1)(A) authorized
the Appellate Division to exercise jurisdiction over GSI’s appeal
of the Superior Court’s order denying its Section 3 motion.
GSI’s stay motion in the Superior Court alleged that the claim
at issue in that suit was within the scope of a written agreement
to arbitrate and claimed entitlement to a stay mandated by
Section 3. Its motion thus alleged a prima facie case of
entitlement to a Section 3 stay. That motion was denied. It
follows, from a literal reading of Section 16(a)(1)(A) and our
interpretive case law, we conclude, that that section conferred
jurisdiction on the Appellate Division to review the Superior
Court’s denial of a stay.

In reaching this conclusion, we are mindful of the facts
that Section 3's mandatory stay provision applies only where the
claims at issue are “referable to arbitration under an agreement
in writing for such arbitration,” 9 U.S.C. § 3, and that the
Appellate Division, like the Superior Court, did not resolve
whether GSI was an “affiliate” of TBVI, an essential predicate
to a finding that Ehleiter’s claims were referable to arbitration

(2) directing arbitration to proceed under section
4 of this title;

(3) compelling arbitration under section 206 of
this title; or

(4) refusing to enjoin an arbitration that is
subject to this title.

9 U.S.C. § 16.
9
under an agreement in writing. Instead, the Appellate Division,
like the Superior Court, found that GSI had waived any right it
may have had to arbitrate and did not reach the “affiliate” issue.
An affirmative finding on that issue was not, however, essential
to the jurisdiction of the Appellate Division.

Sandvik AB v. Advent Int’l Corp., 220 F.3d 99 (3d Cir.
2000), and E.I. DuPont de Nemours & Co. v. Rhone Poulenc
Fiber & Resin Intermediates, S.A.S., 269 F.3d 187 (3d Cir.
2001), hold that Section 16(a)(1)(B) confers appellate
jurisdiction to review a denial of a petition for an order
compelling arbitration that alleges a prima facie case of
entitlement thereto under Section 4 of the FAA and, by analogy,
indicate that Section 16(a)(1)(A) confers such jurisdiction to
review the denial of a motion alleging prima facie entitlement to
a stay under Section 3.4

In Sandvik, the appellee contended that the appeal fell
“outside the FAA’s interlocutory appeal provisions because the
District Court[, although denying a petition for an order
compelling arbitration under Section 4, had] not reached a final
conclusion on the validity of the arbitration clause.” 220 F.3d
at 100. We rejected this contention and exercised jurisdiction

4
Like Section 3 of the FAA, Section 4 applies only where the
parties have entered a written arbitration agreement. See 9
U.S.C. § 4 (providing in part that “[a] party aggrieved by the
alleged failure, neglect, or refusal of another to arbitrate under
a written agreement for arbitration may petition . . . for an order
directing that such arbitration proceed in the manner provided
for in such agreement”).
10
over the appeal pursuant to Section 16(a)(1)(B). Id. at 102-04.
In DuPont, the district court had denied the defendant’s motion
to compel arbitration based on its finding that the plaintiff, a
non-signatory to the arbitration agreement, was not bound by the
agreement under third-party beneficiary, agency, or equitable
estoppel principles. 269 F.3d at 194. Citing Sandvik for
support, we exercised jurisdiction over the appeal pursuant to
Section 16(a)(1)(B) and affirmed the district court’s ruling on
the merits. Id. at 194, 194 n.3, 205.

Given the parallel objectives of Sections 3 and 4 of the
FAA, we are confident that Section 16(a)(1)(A) confers
appellate jurisdiction to review a denial of a motion for a stay
pending arbitration which alleges a prima facie case of
entitlement thereto under Section 3 of the FAA. As we have
indicated, GSI has clearly alleged a prima facie case of
entitlement, as an “affiliate” of TBVI under the Agreement, to
a stay pending arbitration pursuant to Section 3. It follows that
Section 16(a)(1)(A) conferred jurisdiction upon the Appellate
Division to review the denial of a stay even though it made no
determination as to whether there was an agreement in writing
entitling GSI to arbitrate.

Having concluded that the Appellate Division properly
exercised jurisdiction under Section 16(a)(1)(A), we now turn
to our own jurisdiction. Strictly speaking, the Appellate
Division’s decision might be viewed not as “an order refusing
a stay of an[] action under section 3,” 9 U.S.C. § 16(a)(1)(A),
but as an order affirming “an order refusing a stay of an[] action
under section 3.” As a substantive matter, however, the
Appellate Division’s order is identical in all material respects to

11
the Superior Court’s order refusing a stay pending arbitration.
On appeal to the Appellate Division, GSI sought the same
ultimate relief (i.e., a stay pending arbitration) as it did before
the Superior Court. Likewise, the Appellate Division’s order
affirming the Superior Court’s denial of GSI’s motion for a stay
pursuant to Section 3 had the same ultimate effect (i.e., denial of
a stay pending arbitration) as the Superior Court’s order. Had
the Appellate Division determined that the instant dispute was
arbitrable, it would have reversed the Superior Court’s decision
and directed the Superior Court to enter an order staying the
case pending arbitration. In our view, the procedural posture in
which the Appellate Division’s decision was rendered does not
make it any less “an order refusing a stay” than the order of the
Superior Court from which GSI appealed.

In an analogous situation, we have recognized as much
in relying on Section 16(a)(1)(B) to exercise second-level
appellate review of a bankruptcy court order denying a petition
to compel arbitration. See In re Mintze, 434 F.3d 222, 227 (3d
Cir. 2006) (citing § 16(a)(1)(B) as one basis for jurisdiction over
district court’s order affirming the bankruptcy’s court denial of
motion to compel arbitration); see also MBNA Am. Bank, N.A.
v. Hill, 436 F.3d 104, 107 (2d Cir. 2006) (exercising §
16(a)(1)(A) jurisdiction over “district court’s order denying
arbitration” where district court affirmed bankruptcy court’s
refusal to stay adversary proceeding pending arbitration)
(emphasis added); In re Gandy, 299 F.3d 489, 493-94 (5th Cir.
2002) (“This court’s appellate jurisdiction to review the
bankruptcy court’s refusal to stay an adversary proceeding
pending arbitration is founded upon section 16(a)(1)(A) of the
Federal Arbitration Act . . . .”); In re Nat’l Gypsum Co., 118

12
F.3d 1056, 1061 (5th Cir. 1997) (same).

Moreover, only this construction of Section 16(a)(1)(A)
will fulfill the proarbitration purposes of the statute. In no
uncertain terms, Section 16 “makes clear that any order favoring
litigation over arbitration is immediately appealable and any
order favoring arbitration over litigation is not.” Ballay v. Legg
Mason Wood Walker, Inc., 878 F.2d 729, 732 (3d Cir. 1989);
see n.3, supra. By prohibiting interlocutory appeals of orders
favoring arbitration, Section 16 “relieves the party entitled to
arbitrate of the burden of continuing to litigate the issue while
the arbitration process is on-going, and it entitles that party to
proceed immediately to arbitration without the delay that would
be occasioned by an appeal of the District Court’s order to
arbitrate.” Lloyd v. Hovensa, LLC, 369 F.3d 263, 270 (3d Cir.
2004). At the same time, the availability of interlocutory review
under Section 16 of decisions favoring litigation avoids the
possibility that a litigant seeking to invoke his arbitration rights
will have to “endur[e] a full trial on the underlying controversy
before [he] can receive a definitive ruling on whether [he] was
legally obligated to participate in such a trial in the first
instance.” Sandvik, 220 F.3d at 104.

Were we to conclude that Section 16(a)(1)(A) does not
permit us to exercise jurisdiction over an interlocutory appeal of
a decision by the Appellate Division affirming a Superior
Court’s denial of a motion to stay pursuant to Section 3, a party
wrongfully denied a stay would be forced to litigate the
underlying dispute exhaustively before being able to secure

13
vindication of his right to avoid litigation.5 Upon entry of a final
judgment by the Superior Court, the litigant could seek appellate
review of the entire case, including the Superior Court’s order
refusing to stay the proceedings pending arbitration. While the
Appellate Division would likely be bound by its prior
determination of the issue under the law of the case doctrine,
nothing would preclude us from considering the merits of the
Superior’s Court order denying the stay. Were we to ultimately
conclude that the motion to stay pending arbitration had been
improperly denied, the final judgment of the Superior Court
would be vacated and the case would be remanded to the
Superior Court with directions to stay the proceedings pending
arbitration.

Under this worst case scenario, vindication of the
litigant’s contractual right to arbitrate would come only after he
had been forced to expend substantial time and expense fully
litigating the matter in court, which is precisely what he sought
to avoid in the first place by bargaining for the speedy and

5
Other than under Section 16(a)(1)(A), there is no basis for
exercising jurisdiction over an interlocutory appeal in these
circumstances. See Medtronic AVE, Inc. v. Advanced
Cardiovascular Sys., Inc., 247 F.3d 44, 52 (3d Cir. 2001) (order
denying a stay of court proceedings pending arbitration “should
not be regarded as appealable as an order denying an
interlocutory injunction under [28 U.S.C. §] 1292(a)(1)”);
Queipo v. Prudential Bache Sec., Inc., 867 F.2d 721, 722 (1st
Cir. 1989) (denial of stay pending arbitration is not appealable
under the collateral order doctrine because such orders are “not
effectively unreviewable on appeal from a final judgment”).
14
efficient dispute resolution procedure that the arbitral forum
offers. Even where, as here, the Superior Court and the
Appellate Division have found that the appealing party waived
its right to arbitrate by substantially litigating the dispute in
court, we believe the FAA’s strong policy favoring arbitration
will still be best served, at least in cases where the appeal is not
frivolous or forfeited, by allowing the party to obtain a definitive
ruling on the denial of its Section 3 motion by way of
interlocutory appeal to this Court, rather than requiring it to
continue litigating the case to final judgment before obtaining a
full round of appellate review on the waiver issue.

Exercising jurisdiction under Section 16(a)(1)(A) of the
FAA, we will now consider the merits of GSI’s appeal.6 We

6
As noted above, we previously entered an order granting
GSI’s motion to stay the proceedings before the Superior Court
pending our resolution of this appeal. There is a circuit split on
the question of whether the filing of an interlocutory appeal
pursuant to Section 16(a) of the FAA automatically deprives the
trial court of jurisdiction to proceed until such time as the appeal
is fully litigated or determined to be frivolous or forfeited.
Compare McCauley v. Halliburton Energy Servs., Inc., 413 F.3d
1158, 1162-63 (10th Cir. 2005) (automatic divestiture of trial
court jurisdiction unless appeal is frivolous or forfeited); Blinco
v. Greentree Servicing, LLC, 366 F.3d 1249, 1253 (11th Cir.
2004) (automatic divestiture of trial court jurisdiction unless
appeal is frivolous); Bradford-Scott Data Corp. v. Physician
Computer Network, Inc., 128 F.3d 504, 505 (7th Cir. 1997)
(endorsing automatic divestiture rule, reasoning that
“[c]ontinuation of proceedings in the district court largely
15
review the decision of the Superior Court using the same
standard of review applied by the Appellate Division. Tyler v.
Armstrong, 365 F.3d 204, 208 (3d Cir. 2004); Gov't of the
Virgin Islands v. Albert, 241 F.3d 344, 347 n.3 (3d Cir. 2001);
Semper v. Santos, 845 F.2d 1233, 1235-36 (3d Cir. 1988). We
exercise plenary review of the Superior Court’s denial of GSI’s
motion to stay proceedings pending arbitration, Hoxworth v.
Blinder, Robinson & Co., Inc., 980 F.2d 912, 925 (3d Cir.
1992), but only review the Superior Court’s findings of fact for
clear error. Medtronic AVE, Inc. v. Advanced Cardiovascular
Sys., Inc., 247 F.3d 44, 53 (3d Cir. 2001).

III.

Relying on the Supreme Court’s recent pronouncements
on the division of labor between courts and arbitrators in
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), and
Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003) (plurality
opinion), GSI insists that the waiver defense raised by Ehleiter
was within the exclusive province of an arbitrator to decide.
GSI also argues that the arbitration provisions of the Agreement
reserve resolution of waiver by litigation issues for the

defeats the point of the appeal and creates a risk of inconsistent
handling of the case by two tribunals”), with Motorola Credit
Corp. v. Uzan, 388 F.3d 39, 53-54 (2d Cir. 2004) (no automatic
stay); Britton v. Co-op Banking Group, 916 F.2d 1405, 1412
(9th Cir. 1990) (same). In our order granting GSI’s motion to
stay, we expressed our agreement with the majority rule of
automatic divestiture where the Section 16(a) appeal is neither
frivolous nor forfeited.
16
arbitrator.

A.

In Howsam, the Supreme Court granted certiorari to
resolve a disagreement among the Courts of Appeals over
whether the application of a National Association of Securities
Dealers (“NASD”) rule imposing a time limit on submission of
disputes for arbitration was a matter presumptively for the court
or for the NASD arbitrator. 537 U.S. at 82-83. The Court
acknowledged that “[t]he question whether the parties have
submitted a particular dispute to arbitration, i.e., the question of
arbitrability, is an issue for judicial determination unless the
parties clearly and unmistakably provide otherwise,” id. at 83
(citations and internal alteration omitted), and framed the issue
before it as “whether application of the NASD time limit
provision falls into the scope of this . . . interpretive rule.” Id.

The Court first examined the role of judges in resolving
issues related to arbitration. The Court stated that “questions of
arbitability,” which are presumptively for the court to decide,
are limited to gateway disputes that the “contracting parties
would likely have expected a court to have decided . . . , where
they are not likely to have thought that they had agreed that an
arbitrator would do so, and, consequently, where reference of
the gateway dispute to the court avoids the risk of forcing the
parties to arbitrate a matter that they may well not have agreed
to arbitrate.” Id. at 83-84. The Court noted that disputes about
“whether the parties are bound by a given arbitration clause,”
and disagreements over “whether an arbitration clause in a
concededly binding contract applies to a particular type of

17
controversy” are two types of “question[s] of arbitrability” to be
decided by the court. Id. at 84.

By contrast, “procedural questions which grow out of the
dispute and bear on its final disposition are presumptively not
for the judge, but for an arbitrator, to decide.” Id. at 84 (citation
and emphasis omitted). As an example, the Court cited John
Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964), where it
held that an arbitrator should decide whether the party seeking
arbitration had properly completed a grievance procedure that
served as a prerequisite to arbitration under the parties’
agreement. Id. (citing John Wiley, 376 U.S. at 557). “So, too,”
the Court continued, “the presumption is that the arbitrator
should decide ‘allegation[s] of waiver, delay, or a like defense
to arbitrability.’” Id. (quoting Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). The Court
observed that these are the types of questions that parties would
“likely expect” to be entrusted to an arbitrator for resolution. Id.

The Court summarized its analysis of the division of
labor between judge and arbitrator by quoting Section 6 of
Revised Uniform Arbitration Act of 2000 (“RUAA”),7 and a
comment thereto: “[an] arbitrator shall decide whether a
condition precedent to arbitrability has been fulfilled,” and “in
the absence of an agreement to the contrary, issues of
substantive arbitrability . . . are for a court to decide and issues

7
The Court noted that the RUAA “incorporate[s] the holdings
of the vast majority of state courts and the law that has
developed under the [Federal Arbitration Act].” Id. at 84-85
(internal quotation marks omitted).

18
of procedural arbitrability, i.e., whether prerequisites such as
time limits, notice, laches, estoppel, and other conditions
precedent to an obligation to arbitration have been met, are for
the arbitrators to decide.” Id. at 85 (quoting RUAA § 6(c) &
cmt. 2, 7 U.L.A. 12-13 (Supp. 2002) (emphasis in Howsam)).

The Court concluded that the applicability of the NASD
time limit rule was an issue presumptively for the arbitrator,
rather than the court, to decide because: (a) “[t]he time limit rule
closely resembles the gateway questions that this Court has
found not to be ‘questions of arbitrability,’” id., such as
questions of “‘waiver, delay, or a like defense,’” id. (quoting
Moses H. Cone, 460 U.S. at 24-25), and “seems ‘an aspect of the
controversy which called the grievance procedures into play,’”
id. (quoting John Wiley, 376 U.S. at 559) (internal alterations
omitted); (b) “the NASD arbitrators, comparatively more expert
about the meaning of their own rule, are comparatively better
able to interpret and to apply it,” and thus “it is reasonable to
infer that the parties intended the agreement to reflect that
understanding,” id.; and (c) “for the law to assume an
expectation that aligns (1) decisionmaker with (2) comparative
expertise will help better secure a fair and expeditious resolution
of the underlying controversy - a goal of arbitration systems and
judicial systems alike.” Id.

Having determined that the NASD time limit rule was
presumptively for the arbitrator to interpret and apply, the Court
next rejected the appellee’s contention that the language of the
parties’ agreement reflected their intent to have the issue
resolved by the court prior to arbitration. The Court reiterated
that “parties to an arbitration agreement would normally expect

19
a forum-based decisionmaker to decide forum-specific
procedural gateway matters,” and found that the agreement did
not reflect a contrary intent of the parties. Id. at 86.

In Green Tree, the Court held that the question of
whether the parties’ agreement prohibited the use of class
arbitration procedures was an issue for the arbitrator because
“[i]t concerns contract interpretation and arbitration
procedures,” rather than “judicial procedures.” 539 U.S. at 452-
53. The Court reaffirmed the general division of labor
articulated in Howsam, noting that the issues which relate to
“what kind of arbitration proceeding the parties agreed to” are
presumptively for the arbitrator to decide, while issues related
to “whether they agreed to arbitrate a matter,” are presumptively
entrusted to the court for resolution. Id. at 452 (emphasis
omitted).

B.

We begin our analysis by observing that our Court has
long decided questions of waiver based on litigation conduct
instead of referring the issue to an arbitrator, see, e.g., Wood v.
Prudential Ins. Co. of Am., 207 F.3d 674, 680 (3d Cir. 2000);
Great Western Mortgage Corp. v. Peacock, 110 F.3d 222, 233
(3d Cir. 1997); PaineWebber Inc. v. Faragalli, 61 F.3d 1063,
1068-69 (3d Cir. 1995); Hoxworth, 980 F.2d at 925-27; Gavlik
Constr. Co. v. H.F. Campbell Co., 526 F.2d 777, 783-84 (3d
Cir. 1975), as have our sister circuits. See generally 2 I.R.
Macneil et al., Federal Arbitration Law § 21.3 (Supp. 1999). In
the wake of Howsam and Green Tree, we have continued to
resolve waiver claims based on litigation conduct, see Palcko v.

20
Airborne Express, Inc., 372 F.3d 588, 596-98 (3d Cir. 2004),
albeit without analysis, and the district courts in our Circuit
appear to have unanimously followed suit. See, e.g., Yanes v.
Minute Maid Co., No. Civ. A. 02-2712, 2006 WL 521541, at *2-
*5 (D.N.J. March 2, 2006); Expofrut S.A. v. M/V ACONCAGUA,
280 F. Supp. 2d 374, 376-77 (E.D. Pa. 2003), aff’d, 110 Fed.
Appx. 224 (3d Cir. Sept. 28, 2004) (unpublished). But see
Bellevue Drug Co. v. Advance PCS, 333 F. Supp. 2d 318, 323-
25 (E.D. Pa. 2004) (citing Palcko as authority for deciding
question of waiver based on litigation conduct after Howsam,
but expressing reservations).

Finding persuasive the First Circuit’s analysis in Marie
v. Allied Home Mortgage, 402 F.3d 1 (1st Cir. 2005), one of the
few post-Howsam/Green Tree cases that has squarely addressed
the issue before us, we conclude the Supreme Court did not
intend its pronouncements in Howsam and Green Tree to upset
the “traditional rule” that courts, not arbitrators, should decide
the question of whether a party has waived its right to arbitrate
by actively litigating the case in court.

The precise question before the First Circuit in Marie was
whether “waiver of the right to arbitrate due to inconsistent
activity in another litigation forum remains an issue for the court
even after the Howsam and Green Tree holdings,” 402 F.3d at
3, which the court answered in the affirmative.8 The First

8
In Marie, the district court found that the defendant had
waived its right to arbitrate by, among other things, participating
in the administrative proceedings underlying the parties’
dispute. Id. at 11.

21
Circuit started its analysis by noting that, under the FAA, a court
is only required to stay an action pending arbitration if “the
applicant for the stay is not in default in proceeding with such
arbitration,” 9 U.S.C. § 3 (emphasis added), and observed that
courts have generally interpreted the term “default” to mean
“waiver” in this context, citing several cases in which courts
determined that a party seeking arbitration had “waived” its
entitlement to a stay under Section 3 by actively litigating the
dispute in court. Marie, 402 F.3d at 13 (citing Patten Grading
& Paving, Inc. v. Skanska USA Building, Inc., 380 F.3d 200,
204-05 (4th Cir. 2004); Ivax Corp. v. B. Braun of Am., Inc., 286
F.3d 1309, 1316 n.17 (11th Cir. 2002); MicroStrategy, Inc. v.
Lauricia, 268 F.3d 244, 249 (4th Cir. 2001); County of
Middlesex v. Gevyn Constr. Corp., 450 F.2d 53, 56 n.2 (1st Cir.
1971)). The court opined that the “default” language in Section
3 “would seem to place a statutory command on courts, in cases
where a stay is sought, to decide the waiver issue themselves.”
Id.

Recalling that the Supreme Court in Howsam had
“relie[d] heavily” on a comment from Section 6 of the RUAA in
its discussion of the division of labor between judges and
arbitrators, the Marie court went on to observe that another
comment within the same section of the RUAA provides that
“[w]aiver is one area where courts, rather than arbitrators, often
make the decision as to enforceability of an arbitration clause,”
id. (quoting RUAA § 6, cmt. 5, 7 U.L.A. 16 (Supp. 2004)), and
cites cases involving waiver based on litigation conduct as
support for this proposition. See RUAA § 6, cmt. 5, 7 U.L.A. 16
(Supp. 2004).

22
 Turning finally to the “comparative expertise
considerations” that informed the Supreme Court’s resolution of
the “who decides” question in Howsam and Green Tree, the
Marie court observed that the trial judge, having been directly
involved in the entire course of the legal proceedings, is better
positioned to determine whether the belated request for
arbitration is a thinly veiled attempt to forum shop. Id. at 13.
More fundamentally, because the inquiry into whether a party
has waived its right to arbitrate by litigating the case in court
“heavily implicates ‘judicial procedures,’” id. (quoting Green
Tree, 539 U.S. at 452-53), Marie emphasized that the court
should remain free to “control the course of proceedings before
it and to correct abuses of those proceedings,” rather than being
required to defer to the findings an arbitrator with no previous
involvement in the case. Id.; see also RUAA § 6 cmt. 5, 7
U.L.A. 16 (Supp. 2004) (observing that, as a matter of judicial
economy, “a party . . . who pursues an action in a court
proceeding but [then] later claims arbitrability . . . [should] be
held to a decision of the court on waiver”).

We find the First Circuit’s thorough analysis convincing,
and GSI fails to persuade us otherwise.9 Viewed in isolation,

9
To date, the First Circuit’s analysis in Marie has been
expressly adopted by at least one state supreme court, see
Ocwen Loan Servicing, LLC v. Washington, 939 So.2d 6, 12-14
(Ala. 2006), as well as several federal district courts in other
Circuits. See, e.g., Reidy v. Cyberonics, Inc., No. 1:06-CV-249,
2007 WL 496679, at *3-*4 (S.D. Ohio Feb. 8, 2007); Vega v.
Contract Cleaning Maintenance, No. 03 C 9130, 2006 WL
1554383, at *5 (N.D. Ill. June 1, 2006).

23
the Supreme Court’s statement in Howsam that “the
presumption is that the arbitrator should decide ‘allegations of
waiver, delay, or a like defense to arbitrability,’” 537 U.S. at 84
(quoting Moses H. Cone, 460 U.S. at 25) (internal alteration
omitted), certainly provides general support for GSI’s position
here.10 Properly considered within the context of the entire

10
As noted, the above-quoted passage from Howsam includes
an excerpt from Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1 (1983). In Moses H. Cone, the
Supreme Court was called upon to decide whether the district
court had erred in staying the action pending resolution of an
ongoing state proceeding involving the same issue, viz., the
arbitrability of the plaintiff’s claims. The Court concluded that
the district court abused its discretion in staying the case, relying
in part on the fact that federal law (the FAA), rather than state
law, governed the arbitrability issue. In the course of its
discussion of the FAA, the Court commented that “[t]he
Arbitration Act establishes that, as a matter of federal law, any
doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration, whether the problem at hand is
the construction of the contract language itself or an allegation
of waiver, delay, or a like defense to arbitrability.” Id. at 24-25
(emphasis added). In our view, Moses H. Cone established only
that arbitrability defenses such as waiver should be “addressed
with a healthy regard for the federal policy favoring arbitration,”
id. at 24, not that these defenses should presumptively be
resolved by an arbitrator. In fact, in Germany v. River Terminal
Ry. Co., 477 F.2d 546 (6th Cir. 1973), one of the cases cited by
Moses H. Cone as support for the proposition in question, the
court resolved of a claim of waiver based on litigation conduct.

24
opinion, however, we believe it becomes clear that the Court
was referring only to waiver, delay, or like defenses arising from
non-compliance with contractual conditions precedent to
arbitration, such as the NASD time limit rule at issue in that
case, and not to claims of waiver based on active litigation in
court. As the Appellate Division recognized, this latter type of
waiver implicates “courts’ authority to control
judicial procedures or to resolve issues . . . arising from judicial
conduct,” JA at 543, which we believe parties would expect the
court to decide itself.

Contrary to GSI’s suggestion, we do not find the Eighth
Circuit’s decision in Nat’l Am. Ins. Co. v. Transamerica
Occidental Life Ins. Co., 328 F.3d 462 (8th Cir. 2003) helpful
here. Transamerica involved a dispute arising out of two
separate reinsurance contracts between Transamerica and
NAICO. After the dispute had been pending in arbitration
before a panel of three arbitrators for over a year, one of the
arbitrators assigned to the case resigned. Pursuant to Section 5
of the FAA, NAICO petitioned a federal district court for an
order naming an arbitrator to fill the vacancy left by the
resignation. See 9 U.S.C. § 5 (authorizing parties to arbitration
proceedings to petition a court for designation and appointment
of arbitrators in certain circumstances). Notwithstanding the
parties’ active participation in arbitration, Transamerica filed a

See id. at 547-48 (finding no waiver where party first raised
arbitration in an amended pleading because the right to arbitrate
may only be waived “by the actions of a party which are
completely inconsistent with any reliance” on the arbitration
agreement).

25
counterclaim asserting that NAICO had waived its right to
arbitrate by, as described by the Eighth Circuit on appeal,
“engag[ing] in arbitration with three other insurance companies
in 1994 concerning four reinsurance contracts, two of which
involved Transamerica and are the subject of the present
dispute.” Id. at 464; see id. at 463 (“Transamerica
counterclaimed that NAICO had waived the right to arbitrate
because the disputed contract was subject of a prior
arbitration.”); id. at 463-64 (“Transamerica argued before the
district court that NAICO had waived the right to arbitrate
because the 1990 reinsurance contracts were the subject of prior
arbitration.”). The district court appointed a new arbitrator
pursuant to Section 5 and declined to rule on Transamerica’s
counterclaim, concluding that the issue of waiver should be
decided by the arbitration panel.

The Eighth Circuit affirmed on appeal, addressing
Transamerica’s waiver argument in the following brief
discussion:

Finally, Transamerica contends that NAICO has
waived the right to arbitrate because NAICO
pursued litigation in the Oklahoma courts on
reinsurance contracts to which Transamerica is a
party. However, the United States Supreme Court
has recently reiterated [in Howsam] that the
presumption is that the arbitrator should decide
allegations of waiver, delay, or a like defense to
arbitrability. Therefore, once the panel is
reconstituted with the arbitrator appointed by the
district court, the issue of waiver may be

26
 presented for the panel’s consideration.

Id. at 466 (internal citation and alteration omitted).

We confess to some uncertainty about the nature of the
waiver conduct at issue in Transamerica. Although the Eighth
Circuit described Transamerica’s waiver argument in this last
passage as being based on NAICO’s pursuit of “litigation in the
Oklahoma courts,” on three different occasions, as noted above,
the court described Transamerica’s waiver argument as being
based exclusively on NAICO’s participation in a prior
arbitration proceeding involving the underlying dispute between
the parties, which perhaps suggests that any prior court action
brought by NAICO had been referred to, and resolved in,
arbitration. To the extent that Transamerica may be understood
as a case involving waiver by prior arbitration conduct, rather
than by prior litigation conduct, the case is plainly
distinguishable from ours on this basis.

To the extent that Transamerica may be fairly read as
involving a claim of waiver based on litigation conduct, we
believe the result reached by the Eighth Circuit can be explained
by the rather unique procedural circumstances of that case. In
a typical waiver case, such as the one before us, a party
opposing arbitration urges the trial court to deny a motion made
under Section 3 or Section 4 of the FAA on the ground that his
opponent waived its right to arbitrate by actively participating
in the underlying proceedings before that court. As noted
above, considerations of comparative expertise and judicial
economy, among others, dictate that a waiver defense raised in
this context be decided by the court, rather than being referred

27
to an arbitrator with no prior involvement with the case.11

In Transamerica, by contrast, the district court was
asked, in the course of considering a petition to appoint a new
arbitrator to an arbitration panel that had been presiding over
proceedings on the parties’ underlying dispute for more than a
year, to decide whether the petitioner had waived its right to
arbitrate by previously litigating the same contractual dispute in
a case brought before another court. In these circumstances,
referring the waiver issue to an arbitration panel that already has
intimate familiarity with the parties’ underlying dispute would
be preferable to having it decided by a trial judge with no prior
involvement in the case. In short, whether viewed as a case
involving a claim of waiver based on arbitration conduct or a
claim of waiver based on litigation conduct, we believe the
Eighth Circuit’s decision in Transamerica does not support
GSI’s position here.

We now make explicit that which is implicit in our
decision in Palcko; we hold that waiver of the right to arbitrate
based on litigation conduct remains presumptively an issue for
the court to decide in the wake of Howsam and Green Tree.

C.

We must still consider GSI’s argument that the

11
We note that the Eighth Circuit has continued to decide
typical claims of waiver based on litigation conduct in cases
since Transamerica. See, e.g., Kelly v. Golden, 352 F.3d 344,
348-50 (8th Cir. 2003).

28
Agreement provides for resolution of the waiver defense raised
here by an arbitrator, notwithstanding any presumption to the
contrary.12 An issue that is presumptively for the court to decide
will be referred to the arbitrator for determination only where
the parties’ arbitration agreement contains “clear and
unmistakable evidence” of such an intent. First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (quoting
AT&T Technologies, Inc. v. Communications Workers of Am.,
475 U.S. 643, 649 (1986)) (alterations omitted). The Agreement
in this case fails to satisfy this onerous standard.13

GSI primarily relies on the following arbitration

12
As noted above, the arbitration provision in the Agreement
not only encompasses any claims Ehleiter has against his
employer, TBVI, but also his claims against “affiliated
companies” of TBVI. Like the Superior Court and the Appellate
Division, we will assume for purposes of this appeal that GSI is
an affiliate of TBVI and was therefore entitled to avail itself of
the arbitration provisions in the Agreement.
13
We share the First Circuit’s concern about the
enforceability of arbitration agreements that expressly authorize
the arbitrator to resolve claims of waiver based on litigation
conduct. See Marie, 402 F.3d at 14 n. 10 (“The ‘default’
language in Section 3 of the FAA, which as we noted includes
waiver, perhaps gives courts a duty, which cannot be shifted by
contract between the parties, to determine whether waiver has
occurred.”). Because we are not confronted with such an
agreement in this case, however, we do not resolve this question
here.

29
provision in the Agreement:

17. MATTERS ARBITRABLE

All claims or matters arising out of or
relating in any fashion to this Agreement, to the
breach of this Agreement, or to Employee’s
dealings with Employer, Employee’s employment
or the suspension or termination of Employee’s
employment with Employer shall be considered
arbitrable. Arbitrable matters include, but are not
limited to, the following: claims for wrongful or
retaliatory discharge or wrongful treatment under
Virgin Islands or Federal law, including, but not
limited to, the Civil Rights Acts of 1866, 1871,
1964, and 1992, Title VII, the Equal Employment
Opportunity Act, the Equal Pay Act, the Fair
Labor Standards Act, the Age Discrimination in
Employment Act, the Americans with Disabilities
Act, the Family and Medical Leave Act, and
Titles 10 and 24 of the Virgin Islands Code;
claims for employment discrimination under
Virgin Islands law or Federal law; defamation,
infliction of emotional distress, and all other
matters sounding in tort; claims relating to
Employee benefits; and the issue of arbitrability
of any claim or dispute.

JA at 202-03 (emphasis added).

While it is clear from this provision that the parties

30
intended to have an arbitrator determine the gateway question of
whether the underlying substantive dispute between them is
arbitrable, whether it be a Title VII claim, a common law tort
action, or any other legal claim for relief, we do not believe that
this provision similarly evinces a clear and unmistakable intent
to have an arbitrator decide procedural questions of arbitrability
that arise only after the parties have bypassed a gateway
determination of substantive arbitrability by the arbitrator and
actively litigated the underlying dispute in court. There are no
references to waiver of arbitration in this or any other provision
of the Agreement. We cannot interpret the Agreement’s silence
regarding who decides the waiver issue here “as giving the
arbitrators that power, for doing so . . . [would] force [an]
unwilling part[y] to arbitrate a matter [he] reasonably would
have thought a judge, not an arbitrator, would decide.” First
Options, 514 U.S. at 945. Litigants would expect the court, not
an arbitrator, to decide the question of waiver based on litigation
conduct, and the Agreement here does not manifest a contrary
intent.

IV.

Finally, GSI argues that, even if the Superior Court had
authority to resolve the waiver issue, it erred in finding that GSI
had waived any right it may have had to arbitrate Ehleiter’s
claim.14

14
As noted above, we assume for purposes of this appeal that
GSI is an affiliate of TBVI and was therefore entitled to avail
itself of the arbitration provisions in the Agreement. Because it
is otherwise undisputed that Ehleiter’s claims against GSI are

31
 In Hoxworth, we observed that “prejudice is the
touchstone for determining whether the right to arbitrate has
been waived” by litigation conduct. 980 F.2d at 925. After
surveying the case law of our court and other circuits, we
compiled a nonexclusive list of factors relevant to the prejudice
inquiry: “[1] the timeliness or lack thereof of a motion to
arbitrate . . . [; 2] the degree to which the party seeking to
compel arbitration [or to stay court proceedings pending
arbitration] has contested the merits of its opponent’s claims; [3]
whether that party has informed its adversary of the intention to
seek arbitration even if it has not yet filed a motion to stay the
district court proceedings; [4] the extent of its non-merits motion
practice; [5] its assent to the [trial] court’s pretrial orders; and
[6] the extent to which both parties have engaged in discovery.”
Id. at 926-27 (internal citations omitted).15 Under the Hoxworth

arbitrable under the Agreement, the only remaining question
before us is whether GSI has waived its right to arbitrate.
15
In Hoxworth, we found that the defendants waived their
right to arbitration based on the following litigation conduct: (a)
participating in numerous pretrial proceedings during the more
than eleven months before moving to compel arbitration; (b)
filing a motion to dismiss the complaint for failure to state a
claim and a motion to disqualify plaintiffs’ counsel; (c) taking
the deposition of each of the named plaintiffs, depositions that
would not have been available in arbitration; (d) taking a
deposition which prompted plaintiffs to file a motion to protect
their right to depose that deponent in the future; (e) submitting
inadequate responses to plaintiffs’ discovery requests, which
prompted the plaintiffs to file two motions to compel, which the

32
test, “[w]aiver will normally be found only ‘where the demand
for arbitration came long after the suit commenced and when
both parties had engaged in extensive discovery.’” Faragalli,
61 F.3d at 1068-69 (quoting Gavlik., 526 F.2d at 783).
Although waiver “is not to be lightly inferred,” Great Western,
110 F.3d at 233 (citing Faragalli, 61 F.3d at 1068), we will “not
hesitate[] to hold that the right to arbitrate has been waived”
where a sufficient showing of prejudice has been made by the
party seeking to avoid arbitration. Hoxworth, 980 F.2d at 926.

Each of the Hoxworth factors strongly weigh in favor of
a finding of waiver in this case. Although delay alone does not
constitute sufficient prejudice to support waiver, we first
observe that GSI’s delay of nearly four years before invoking its
right to arbitrate far exceeds the eleven month time lapse at issue
in Hoxworth, and dwarfs the delay involved in cases where we
have found no waiver. See Palcko, 372 F.3d at 598 (38 days);
Wood, 207 F.3d at 680 (1 ½ months); Faragalli, 61 F.3d at 1069
(two months); Gavlik, 526 F.2d at 783-84 (defendant moved for
stay pending arbitration “immediately” after removing the action
to federal court); accord Restoration Pres. Masonry, Inc. v.
Grove Europe Ltd., 325 F.3d 54, 61 (1st Cir. 2003) (while
“[t]here are no per se rules as to the length of delay necessary to

defendants opposed; (f) filing of a motion to stay discovery; (g)
consenting to the district court’s first pretrial order; and (h)
filing of a lengthy memorandum in opposition to plaintiffs’
motion for class certification. Id. at 925-26. “Only . . . after
defendants’ motion to dismiss the complaint was denied and
plaintiffs’ motion to compel discovery was granted, did [one of
the defendants] file its motion to compel arbitration.” Id. at 926.

33
amount to waiver, . . . . the four years’ delay . . . , encompassing
a period of active . . . litigation, greatly exceeds that found
acceptable in this circuit”).

During the intervening four-year period, the parties
engaged in extensive discovery, with both sides exchanging
several sets of interrogatories, requests for production of
documents, and expert witness reports, as well as participating
in the depositions of numerous witnesses. After the parties
were unable to resolve the case in mediation, GSI filed a motion
for summary judgment, requiring Ehleiter to defend his claims
on the merits and inviting final resolution of the case in a
judicial forum. GSI engaged in substantial non-merits motion
practice as well, including filing a motion to implead a third
party defendant.

GSI scrupulously assented to the trial court’s procedural
orders. At the court’s request, GSI and Ehleiter submitted a
joint stipulation certifying their readiness for trial by a certain
date. When the court later scheduled the case for trial, GSI
promptly sought a continuance and proposed new trial dates, yet
again reaffirming its amenability to judicial resolution of the
parties’ dispute.

Courts have not hesitated to find waiver under similar
(and arguably less egregious) circumstances. See, e.g.,
Restoration Pres., 325 F.3d at 61-62 (waiver where, over four-
year period, parties were involved in numerous depositions and
pretrial conferences and trial was less than two months away);
Com-Tech Assocs. v. Computer Assocs. Int’l , Inc., 938 F.2d
1574, 1576-78 (2d Cir. 1991) (waiver where defendant actively

34
participated in discovery and filed dispositive motions over
course of eighteen months and trial was only three months
away); S&H Contractors, Inc. v. A.J. Taft Coal Co., Inc., 906
F.2d 1507, 1514 (11th Cir. 1990) (waiver where defendant
delayed eight months, engaging in merits and non-merits motion
practice and taking several depositions in the interim).

GSI insists that the circumstances of this case do not
compel a finding of waiver under Hoxworth because Ehleiter
has failed to demonstrate that his legal position has been
actually prejudiced by GSI’s delay in invoking its arbitration
rights. GSI notes that, in contrast to Hoxworth, where the
defendants had taken “the deposition of each of the named
plaintiffs, depositions that would not have been available in
arbitration” and “inadequately answered plaintiffs’ discovery
requests, prompting plaintiffs to file two motions to compel,”
Hoxworth, 980 F.2d at 925, Ehleiter has not suggested that GSI
took advantage of discovery procedures only available in the
trial court while thwarting his own efforts to obtain discoverable
information. In further contrast to Hoxworth, GSI stresses that
it did not wait for a ruling on the merits of Ehleiter’s claims
before seeking arbitration, but instead specifically asked the
Superior Court to resolve its motion to stay before addressing its
pending summary judgment motion.

In Hoxworth, we observed the plaintiffs in that case had
“characterized the prejudice they suffered from defendants’
failure to raise arbitration promptly as twofold: plaintiffs
devoted substantial amounts of time, effort, and money in
prosecuting the action, while defendants were able to use the
Federal Rules to conduct discovery not available in the

35
arbitration forum.” Id. at 926. While our waiver determination
in Hoxworth was supported by evidence of both substantive
prejudice and prejudice resulting from the unnecessary delay
and expense incurred by the plaintiffs as a result of the
defendants’ belated invocation of their right to arbitrate, we did
not suggest that a party claiming waiver must demonstrate the
presence of both types of prejudice to prevail. To the contrary,
we recognized that “‘where a party fails to demand arbitration
during pretrial proceedings, and, in the meantime, engages in
pretrial activity inconsistent with an intent to arbitrate, the party
later opposing . . . arbitration may more easily show that its
position has been compromised, i.e., prejudiced,’” id. (quoting
Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1161
(5th Cir. 1986)), because under these circumstances we can
readily infer that the party claiming waiver has already invested
considerable time and expense in litigating the case in court, and
would be required to duplicate its efforts, to at least some
degree, if the case were now to proceed in the arbitral forum.
Prejudice of this sort is not mitigated by the absence of
substantive prejudice to the legal position of the party claiming
waiver.16

16
Ehleiter’s attorney submitted an affidavit in the Superior
Court stating that “over $40,000 has been expended by the
plaintiff in the prosecution of this case.” JA at 244. Although
GSI challenges counsel’s statement as “uncorroborated,” in
view of the extensive discovery and motion practice engaged in
by the parties, there is no question that Ehleiter spent substantial
amounts of time, effort, and money, whatever the precise
amount, litigating this action before GSI filed its motion to stay.
See Restoration Preserv., 325 F.3d at 61 (noting that

36
 GSI also contends that Ehleiter was not prejudiced by
the extensive discovery that took place prior to the filing of
GSI’s motion to stay because much of the same discovery was
conducted in a District Court case brought by Ehleiter against
other defendants who did not have an agreement to arbitrate
with Ehleiter. In support of this assertion, GSI simply points us
to a docket sheet from that District Court action. Although the
docket sheet reveals that Ehleiter and the defendants in the
District Court action engaged in various forms of discovery, it
is impossible for us to discern from this document the extent to
which the discovery in that case overlapped with the discovery
in the Superior Court action. Without further substantiation,
GSI’s argument does not undercut a finding of prejudice in this
case.

Even were we to assume that some of the same discovery
would have taken place in the District Court litigation had GSI
promptly invoked its right to arbitration in the Superior Court
action, a finding of prejudice would still be warranted on the
record before us. The fact remains that GSI put Ehleiter to the
expense of having to engage in at least “some case-specific
written and deposition discovery” in the Superior Court action,
as GSI itself concedes, JA at 311, and all the other Hoxworth
factors strongly support a finding of prejudice here.

In short, Hoxworth compels a finding of waiver under
these circumstances. See Hoxworth, 980 F.2d at 925-27; see
also Doctor’s Assocs., Inc. v. Distajo, 107 F.3d 126, 131 (2d

“[p]rejudice to the plaintiffs is easily inferred from the necessary
expenditures” over a four-year period of active litigation).

37
Cir. 1997) (“The ‘prejudice’ that supports a finding of waiver
can be ‘substantive’ prejudice to the legal position of the party
opposing arbitration, such as when the party seeking arbitration
loses a motion on the merits and then attempts, in effect, to
relitigate the issue by invoking arbitration, or obtains
information through discovery procedures not available in
arbitration. Additionally, . . . a party may be prejudiced by the
unnecessary delay or expense that results when an opponent
delays invocation of its contractual right to arbitrate.”) (internal
citations omitted) (emphasis added).17

V.

For the foregoing reasons, we will affirm the judgment
of the Appellate Division.

17
We have considered all of GSI’s remaining arguments and
conclude that no further discussion is necessary.

38