Zimmer v. Cooperneff Advisors

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit

4-14-2008

Zimmer v. Cooperneff Advisors
Precedential or Non-Precedential: Precedential

Docket No. 05-1119

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2008

Recommended Citation
"Zimmer v. Cooperneff Advisors" (2008). 2008 Decisions. Paper 1296.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/1296

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2008 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 05-1119

STEVEN A. ZIMMER

v.

COOPERNEFF ADVISORS, INC.;
BNP PARIBAS SA,
Appellants

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 04-cv-03816)
District Judge: Hon. Robert F. Kelly

Argued December 20, 2007

Before: SLOVITER, FUENTES, Circuit Judges, and
RESTANI*, Judge

(Filed April 14, 2008)
____

Edward T. Colbert (Argued)
Brian S. Mudge
Kenyon & Kenyon
Washington, D.C. 20005-0000

Susan K. Herschel

*
Hon. Jane A. Restani, Chief Judge, United States Court of
International Trade, sitting by designation.
Hoyle, Fickler, Herschel & Mathes
Philadelphia, PA l9l07-0000

Attorneys for Appellants

Robert L. Ebby (Argued)
Hangley, Aronchick, Segal & Pudlin
Philadelphia, PA l9l03-0000

Attorney for Appellee

_____

OPINION OF THE COURT

SLOVITER, Circuit Judge.

Before us is an appeal by CooperNeff Advisors, Inc.
(“CooperNeff”) of the District Court’s order denying its motion
to compel arbitration of the claim filed by its former employee,
Steven A. Zimmer, on the ground that the arbitration clause in
the employment agreement between Zimmer and CooperNeff
was unconscionable and, alternately, that CooperNeff waived its
right to compel arbitration by litigating its claims against
Zimmer.

I.

Zimmer, who holds a Ph.D. in economics from Harvard
University, has worked in the financial industry since 1988,
including at the Federal Reserve Bank of New York and at J.P.
Morgan Chase. He developed an interest in hedge fund
management while he was working as a portfolio manager at the
Vanguard Group (“Vanguard”), and began to search for a new
position in that capacity. During the latter part of 2002, Zimmer
discussed terms of employment with several interested financial
companies, including CooperNeff, a trading and investment
firm.

2
 As part of the interview with CooperNeff’s chairman and
CEO, Andrew Sterge, Zimmer discussed and demonstrated the
capabilities of a stock trading model that he had developed and
that he intended to use in his new employment. CooperNeff
extended Zimmer a job offer by letter dated February 6, 2003,
which stated that the formal agreement between the parties
would be embodied in a forthcoming “Employment Agreement.”
The letter further stated that “[u]ntil the Employment Agreement
has been finally negotiated, signed and approved by BNP
Paribas’ global headquarters, either CooperNeff or [Zimmer]
may at any time terminate further participation in negotiating the
terms of . . . employment with CooperNeff.” App. at 173.
Zimmer accepted CooperNeff’s offer of employment. He
alleges that by doing so, he forfeited approximately $370,000 in
deferred compensation from Vanguard.

On March 26, 2003, the first day of Zimmer’s
employment, CooperNeff provided Zimmer with the
Employment Agreement. Paragraph 8 of that agreement
includes an arbitration clause covering “any and all legal or
contractual disputes of any nature arising at any time (including
after termination of employment) between [the employee] on the
one hand and the Company and its affiliates on the other . . . .”
App. at 177. The employee must first submit such disputes to
the company’s human resources department and, if not mutually
resolved, the dispute would then be sent to an independent
arbitrator.1 Paragraph 8(c) explains:

The types of claims and disputes that will be resolved
under these procedures include all claims and disputes
arising under this agreement or in connection with your
employment by the Company; all claims arising from the
terms and conditions of your employment; all claims
arising from the termination of your employment . . . .
However, the Company retains the right to bring any

1
During oral argument, counsel for CooperNeff assured the
court that if we held the motion to compel arbitration should have
been granted, CooperNeff would not raise Zimmer’s failure to
follow the procedure required by paragraph 8.

3
 claims to enforce any of its rights in paragraph 6 of this
agreement directly in a court of competent jurisdiction
and the Company need not arbitrate any such claims.

App. at 177 (emphasis added).

Paragraph 6 is entitled “Exclusivity of Services, Non-
Solicitation, Confidentiality, Intellectual Property, Return of
Documents and Property upon Termination, and Enforcement
Provisions.” App. at 175. That paragraph contains six clauses
setting forth the parameters of the substantive provisions listed
in the title. For example, the intellectual property clause states
that any intellectual property that the employee “invented,
discovered, produced or the like using (in whole or in part) any
of the Company’s resources or on Company time . . . will be the
sole and exclusive property of the Company.” App. at 176. The
effect of the retention language underlined above is to authorize
CooperNeff to file a law suit against an employee on any issue
covered in paragraph 6.

Zimmer testified that he initially refused to sign the
Employment Agreement because he was concerned about how
the intellectual property clause in paragraph 6 would be applied
to his model. He stated that he brought his concerns regarding
that clause to CooperNeff’s human resources personnel and then
to Sterge. Sterge stated that the offer letter did not contemplate
his negotiation of the terms of the agreement and that Zimmer
would be terminated if he did not sign the agreement as drafted.
Zimmer eventually signed the agreement.2
While Zimmer worked at CooperNeff, he implemented
his model as part of a hedge fund called the CooperNeff
Quantitative Strategies Fund. Zimmer testified that he attempted
to keep the model isolated from CooperNeff’s systems to the

2
Zimmer’s signature on the Employment Agreement is
dated March 31, 2003, but Zimmer testified that he did not sign the
agreement until sometime in mid-May. CooperNeff does not argue
otherwise. Zimmer’s account is corroborated by Sterge’s
testimony that he spoke with Zimmer about his failure to sign the
agreement at some point in May.

4
greatest extent possible. For example, he did not permanently
install the model in CooperNeff’s system, instead bringing the
model to work every day on a portable hard drive.

In June of 2004, after Zimmer had been at CooperNeff for
almost fifteen months, he gave notice that he would be resigning
his position at CooperNeff effective July 2, 2004. He intended
to work at another hedge fund, QVT. At his exit interview on
June 30, 2004, he was handed a copy of an unfiled complaint
and motion for an injunction. The following day, CooperNeff
filed a “Complaint in Equity” against Zimmer in Pennsylvania’s
Montgomery County Court of Common Pleas seeking injunctive
and other remedies under six different theories: inadequacy of
legal relief, breach of contract, misappropriation of trade secrets,
breach of fiduciary duty, conversion, and unfair competition. On
July 1, 2004, the state court entered a temporary restraining
order (“TRO”) enjoining Zimmer from disclosing or using the
model.3 The parties agree that at some point during the state
court proceedings, three depositions were taken, two by Zimmer
and one by Cooperneff.

Zimmer and CooperNeff proceeded to litigate on two
fronts for the remainder of 2004. Zimmer filed a federal
complaint and sought to remove CooperNeff’s state-court action
to the United States District Court for the Eastern District of
Pennsylvania. Because Zimmer had not yet received a copyright
for the model, the District Court dismissed his federal action for
lack of subject matter jurisdiction and remanded the action to
state court.

Zimmer filed his application for a copyright on the
trading model on July 30, 2004, and he obtained it by August 11.
Zimmer then filed the federal complaint underlying this appeal,
alleging copyright infringement, defamation, conversion,
tortious interference with contractual relations, and
misappropriation of trade secrets. On August 19, following a

3
The TRO was subsequently withdrawn after QVT
indicated that it would not hire Zimmer before the resolution of his
dispute with CooperNeff.

5
hearing on Zimmer’s motion for a preliminary injunction and
TRO, the District Court granted him a TRO ordering
CooperNeff to “cease all use of Plaintiff’s computer model and
any copies, derivatives, modifications, or adaptations of the
computer model until the Court enters an order with respect to
Plaintiff’s Motion for a preliminary injunction.” Zimmer v.
CooperNeff Advisors, Inc., No. 04-3816, 2004 WL 2933979, at
*2 (E.D. Pa. Dec. 20, 2004). The District Court then scheduled a
preliminary injunction hearing for September 21.

On September 7, CooperNeff answered Zimmer’s
complaint and asserted two counterclaims seeking declaratory
judgments pertaining to Zimmer’s copyright ownership of the
model. On September 13, Zimmer answered CooperNeff’s
complaint in state court. On September 17, CooperNeff filed an
amended answer to Zimmer’s federal complaint, for the first
time asserting a right to arbitration.

On September 20, the day before the scheduled
preliminary injunction hearing, CooperNeff filed a motion to
compel arbitration and stay further proceedings. The District
Court heard argument on that motion and denied it from the
bench before commencing the preliminary injunction hearing.
On the second day of the hearing, CooperNeff attempted to
renew its motion to compel arbitration. On December 20, the
District Court filed a memorandum opinion denying
CooperNeff’s “renewed” motion to compel, holding that the
arbitration agreement was both procedurally and substantively
unconscionable and that CooperNeff had waived its right to
compel arbitration. See id. at *6-*9. CooperNeff timely
appealed.

II.

The District Court had jurisdiction under the Copyright
Act, 17 U.S.C. § 101 et seq., and 28 U.S.C. §§ 1331, 1338, and
1367. Although there has been no final order, we have
jurisdiction under the Federal Arbitration Act (“FAA”), 9 U.S.C.
§ 1 et seq., which permits appeal from an order denying a motion
to compel arbitration. 9 U.S.C. § 16(a)(1).

6
 We exercise plenary review over questions of law
concerning the applicability and scope of arbitration agreements.
Harris v. Green Tree Fin. Corp., 183 F.3d 173, 176 (3d Cir.
1999). To the extent that the District Court’s decision relied on
factual findings, we review those findings for clear error.
Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247
F.3d 44, 53-54 (3d Cir. 2001). We review the District Court’s
determination of state law de novo. Kowalsky v. Long Beach
Twp., 72 F.3d 385, 388 (3d Cir. 1995).

III.

The District Court provided alternate grounds for its
denial of CooperNeff’s motion to compel, namely that the
arbitration clause was unconscionable and that CooperNeff had
waived its right to compel arbitration by proceeding with its
litigation against Zimmer in state court. We discuss each
holding in turn.

A.

The District Court applied Pennsylvania law in holding
that the Employment Agreement’s arbitration clause was both
procedurally and substantively unconscionable. Procedural
unconscionability refers specifically to “the process by which an
agreement is reached and the form of an agreement, including
the use therein of fine print and convoluted or unclear language.”
Harris, 183 F.3d at 181. Substantive unconscionability looks to
whether the arbitration provision “unreasonably favors the party
asserting it.” Salley v. Option One Mortgage Corp., 925 A.2d
115, 119 (Pa. 2007).

The District Court found procedural unconscionability on
the basis of the “extreme inequality in bargaining position
between Zimmer and CooperNeff at the time Zimmer signed the
Employment Agreement,” and CooperNeff’s unwillingness to
negotiate that agreement. Zimmer, 2004 WL 2933979, at *6. In
Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 258-60, 266-68
(3d Cir. 2003), the primary authority relied upon by the District
Court, we held that an employment agreement that compelled
minimally-educated crane operators in the Virgin Islands to

7
arbitrate their claims and pay for that arbitration was
procedurally and substantively unconscionable. In discussing
procedural unconscionability, we stated that “[t]he arbitration
agreement in the Hourly Employee Contract was prepared by the
party with excessive bargaining power and presented to plaintiffs
for signature on a take-it-or-leave-it basis.” Id. at 266 (citation
and internal quotation marks omitted). We elaborated that the
employer, “which conducts business throughout the nation and
the world, clearly possessed more bargaining power than two
long-time equipment operators with limited educational
backgrounds and, at best, very narrow options for other
employment.” Id.

In contrast to the employees in Alexander, Zimmer is a
Harvard-educated economist, previously employed by J.P.
Morgan Chase and the Federal Reserve Bank of New York.
Zimmer had been the manager of a two billion dollar fund at
Vanguard, had multiple offers of employment at the time he
accepted CooperNeff’s job offer, quickly secured a new position
when he decided to leave CooperNeff, and, according to counsel
at oral argument, is currently working in the industry.

Zimmer was told by CooperNeff when it offered him the
job that the offer was contingent on the negotiation of a signed
Employment Agreement and that the negotiation of that
agreement could be terminated by either party at will.
CooperNeff presented Zimmer with the Employment Agreement
on his first day of work. There is no evidence that Zimmer
either sought a copy of the agreement or sought to negotiate the
agreement before accepting the job offer or beginning his
employment. Zimmer noted his concern with the intellectual
property provision in paragraph 6 of the agreement, but agreed
to sign the agreement after speaking with Sterge. Thereafter, he
remained at CooperNeff for more than a year. There is no
evidence that Zimmer challenged the provision of the
Employment Agreement that reserved judicial remedies
exclusively for CooperNeff.

Zimmer’s educational background and field of
employment are highly distinguishable from the crane operators
in Alexander. So too is the context in which the “take-it-or-

8
leave-it” ultimatum was issued. Zimmer was employed by
Vanguard when he accepted CooperNeff’s offer of employment,
and accepted that offer with full knowledge that an employment
agreement had not yet been reached. He does not allege that he
was denied an opportunity to negotiate the contract before
accepting CooperNeff’s offer of employment; rather, he alleges
that the company forced him to sign the agreement after he had
already been on CooperNeff’s payroll for over a month.4

In summary, Zimmer was a highly-educated party with
various employment opportunities who accepted an employment
offer without first examining the terms of that employment and
who now seeks to nullify the contract that he ultimately signed.
Under these circumstances, considering the entire context of
Zimmer’s dealings with CooperNeff and his employment
opportunities at the time he accepted CooperNeff’s job offer, we
conclude that Zimmer did not lack a meaningful choice in
accepting the challenged arbitration provision. Therefore, we
reverse the District Court’s holding that the arbitration clause
was unenforceable by reason of unconscionability.

B.

In considering substantive unconscionability, the District
Court noted that this court and the Pennsylvania Superior Court
disagreed whether there was a presumption of unconscionability
under Pennsylvania law when an arbitration contract limits one
party to arbitration but permits the other to reserve access to the
courts. Specifically, in Harris, this court stated that “[a]s long as
the requirement of consideration is met, mutuality of obligation
is present, even if one party is more obligated than the other.”
183 F.3d at 181 (citing Greene v. Oliver Realty, Inc., 526 A.2d
1192, 1195 (Pa. Super. Ct. 1987)). Three years after our

4
Zimmer contends that CooperNeff refused to negotiate the
Employment Agreement after he began working at the company.
Nonetheless, while it appears that Zimmer expressed considerable
concern about the intellectual property clause in paragraph 6 of the
agreement, Zimmer does not assert that he challenged the
arbitration clause in paragraph 8.

9
decision in Harris, the Pennsylvania Superior Court stated that
“under Pennsylvania law, the reservation by [one party] of
access to the courts for itself to the exclusion of [another] creates
a presumption of unconscionability, which in the absence of
‘business realities’ that compel inclusion of such a provision in
an arbitration provision, renders the arbitration provision
unconscionable and unenforceable under Pennsylvania law.”
Lytle v. Citifinancial Servs., Inc., 810 A.2d 643, 665 (Pa. Super.
Ct. 2002) (emphasis in original). Based on Lytle, the District
Court held that CooperNeff had not shown any business realities
justifying its exclusive right of access to the courts, and
concluded that the arbitration clause was substantively
unconscionable.

Lytle was not reviewed by the Pennsylvania Supreme
Court. However, that court recently undertook an examination
of the unconscionability issue in the context of an arbitration
clause, confirming that the party challenging an arbitration
agreement has the burden to demonstrate that the agreement is
both procedurally and substantively unconscionable. Salley, 925
A.2d at 119-20. Because we have concluded that the arbitration
agreement here was not procedurally unconscionable and reverse
on that basis, we need not decide whether the District Court’s
decision as to substantive unconscionability was correct.
Nonetheless, we take this occasion to note our concern about the
District Court’s holding on substantive unconscionability as
well.

We deem it significant that the Salley decision rejected
the presumption relied upon by the District Court in finding
substantive unconscionability. The arbitration clause at issue in
Salley reserved judicial remedies for lenders in the sub-prime
lending industry. Id. at 127. In expressly abrogating Lytle, the
Pennsylvania Supreme Court concluded that “the burden of
establishing unconscionability lies with the party seeking to
invalidate a contract, including an arbitration agreement, and
there is no presumption of unconscionability associated with an
arbitration agreement merely on the basis that the agreement
reserves judicial remedies associated with foreclosure” for
lenders, to the exclusion of borrowers. Id. at 129. Salley did not
hold that an arbitration clause reserving remedies could never be

10
unconscionable; rather, it held that there “is a facially apparent
business justification for such an exception [in the context of
mortgage lending], as the safeguards thereby preserved assure
regularity and consistency for the benefit of both lender and
borrower, and accordingly, there are sound pragmatic and policy
reasons why foreclosure proceedings should be pursued in a
court of law.” Id. at 128.

In this case as well, CooperNeff asserted that there are
plausible reasons why it needed to reserve for itself the option
for access to the courts. Nonetheless, because the District Court
relied on Lytle’s discredited presumption of unconscionability
and did not place the burden to demonstrate substantive
unconscionability on Zimmer, it is questionable whether the
District Court’s conclusion could be upheld. We do not hold,
and we believe the Pennsylvania Supreme Court did not hold,
that unequal access to the courts can never be the basis for
finding an arbitration agreement unconscionable. The
conclusion in each case will depend on the circumstances. We
proceed to consider waiver, the final basis for the District
Court’s order.

IV.

In considering the District Court’s alternate ground for
denying CooperNeff’s motion to compel, i.e., its holding that
CooperNeff had waived its right to compel arbitration, we
recognize at the outset that the prevailing mood is to favor
arbitration as an effective method of dispute resolution.
Nonetheless, not every motion to compel arbitration must be
granted. One of the accepted defenses to such a motion is that
the party has waived its right to compel arbitration.

The District Court framed its holding as recognizing a
“non-traditional” form of waiver. Zimmer, 2004 WL 2933979,
at *8. It held that CooperNeff had waived its right to compel
arbitration by initiating litigation against Zimmer in state court
and then continuing to litigate its rights to the disputed trading
model in that court. The Court concluded that because
CooperNeff sought judicial enforcement of its purported
intellectual property rights rather than arbitration, “Zimmer

11
should be allowed to seek judicial action as well in his attempt to
enforce the intellectual property rights that CooperNeff alleges
are its own.” Id.

On its appeal to this court, CooperNeff raised two distinct
challenges to the District Court’s decision: (1) that the District
Court should have left the issue of waiver for an arbitrator, rather
than deciding that issue; and (2) that the District Court erred in
finding waiver under the circumstances of this case. While this
appeal was pending, another panel of this court filed its opinion
in Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 221 (3d Cir.
2007), holding that “waiver of the right to arbitrate based on
litigation conduct remains presumptively an issue for the court to
decide . . . .” In light of that opinion, CooperNeff conceded that
the issue of waiver is properly addressed by the court where, as
here, waiver is based on litigation conduct. Therefore, we need
only address whether the District Court erred in holding that
CooperNeff waived its right to compel arbitration by virtue of its
litigation conduct.

In Ehleiter we noted that “‘prejudice is the touchstone for
determining whether the right to arbitrate has been waived’ by
litigation conduct.” Id. at 222 (quoting Hoxworth v. Blinder,
Robinson & Co., Inc., 980 F.2d 912, 925 (3d Cir. 1992)). We
stated that the “nonexclusive list of factors relevant to the
prejudice inquiry” includes the timeliness of the motion to
compel arbitration, the degree to which the merits of the non-
movant’s claims have been contested by the party moving for
arbitration, whether the non-movant is otherwise aware of the
movant’s intention to seek arbitration, the extent of non-merits
motion practice that has transpired, the movant’s assent to the
trial court’s pretrial orders, and the degree to which the parties
have engaged in discovery. Id. (citing Hoxworth, 980 F.2d at
926-27). Although we have stated that “waiver 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,” id. at 222-23 (citations, alterations and internal
quotation marks omitted), we have also held that “the length of
the time period involved alone is not determinative,” Palcko v.
Airborne Express, Inc., 372 F.3d 588, 598 (3d Cir. 2004).

12
 As we noted above, the District Court’s conclusion that
CooperNeff had waived its right to compel arbitration was based
solely on CooperNeff’s initiation and pursuit of litigation in the
state court. The District Court did not discuss whether Zimmer
was prejudiced by CooperNeff’s state court litigation. Just as
“the length of the time period involved alone is not
determinative,” id., our precedents do not support the notion that
the single consideration relied upon by the District Court is
sufficient to find prejudice, and therefore waiver.

That is not to say that CooperNeff’s role in affirmatively
initiating litigation to resolve its dispute with Zimmer is
immaterial. We recently reiterated that the list of factors set
forth in Hoxworth is “nonexclusive,” and that we looked to the
case law of our court and others in compiling that list. Ehleiter,
482 F.3d at 222. Although we have not had occasion to consider
the prejudicial effect that follows from the initiation of litigation
by the party seeking to compel arbitration, other courts have
factored a party’s affirmative litigation conduct into their
consideration of prejudice and waiver. See, e.g., Zwitserse
Maatschappij van Levensverzekering en Lijfrente v. ABN Int'l
Capital Mkts. Corp., 996 F.2d 1478, 1479-80 (2d Cir. 1993); S
& H Contractors, Inc. v. A.J. Taft Coal Co., Inc., 906 F.2d 1507,
1514 (11th Cir. 1990). Because the parties rely, at least in part,
on Pennsylvania law,5 it is particularly significant that the
Pennsylvania Superior Court recently found waiver where the

5
The parties did not meaningfully address whether state or
federal law controls the waiver analysis. Because both
Pennsylvania and federal courts have long emphasized the
importance of prejudice to that analysis, see, e.g., Hoxworth, 980
F.2d at 925; Kwalick v. Bosacco, 478 A.2d 50, 52 (Pa. Super. Ct.
1984), we need not decide the broader question of which law
governs in this case. But see Sovak v. Chugai Pharm. Co., 280
F.3d 1266, 1270 (9th Cir. 2002) (holding that the FAA, and not
state law, supplies the standard for waiver because “the question of
whether a party has waived its right to compel arbitration directly
concerns the allocation of power between courts and arbitrators”).
Instead, we focus on the factors informing the prejudice analysis
and the importance of a party’s initiation of suit to that analysis.

13
parties seeking to compel arbitration filed a complaint, “sought
and won injunctive relief from the . . . court . . . and continued to
pursue their claims” in court, resulting in exceeding unfairness to
the opposing party. Stanley-Laman Group, Ltd. v. Hyldahl, 939
A.2d 378, 387-88 (Pa. Super. Ct. 2007).

That court stated that “the mere filing of a complaint does
not demonstrate waiver of the right to arbitration.” Id. at 387
(citing Keystone Tech. Group, Inc. v. Kerr Group, Inc., 824 A.2d
1223, 1226 (Pa. Super. Ct. 2003)). However, the court did note
the “atypical[ity]” of the events in that case, as the parties
seeking to compel arbitration consisted of the company that had
initiated litigation, a sister company, and their shared owners, all
of whom were named in a counterclaim filed by the party
defending that litigation. Id. The court considered that the basis
of the complaint and counterclaims were identical, that the
parties had engaged in limited discovery, and that the parties
seeking to compel arbitration had obtained an injunction in
court. Id. Because those parties “sought relief from the judicial
process” when they “could have compelled arbitration,” the
court found that they had waived their right to compel
arbitration. Id. at 388.

In Zwitserse, the Court of Appeals for the Second Circuit
found that the initiation of judicial proceedings may lead to
waiver “when a party has unfairly used litigation prior to
commencing arbitration in a way that might prejudice the
opposing party.” 996 F.2d at 1479 (citing Rush v. Oppenheimer
& Co., 779 F.2d 885, 887 (2d Cir. 1985)). In that case, the party
seeking to compel arbitration had initiated litigation by
submitting a request for a preliminary witness hearing in a Dutch
court, id., and then “unfairly profit[ed] from the benefits of
discovery that it most likely would not otherwise have been
entitled to in arbitration,” id. at 1480. Therefore, the court
concluded that the defending party had suffered prejudice and
that waiver was appropriate.

Finally, in S & H Contractors, the Court of Appeals for
the Eleventh Circuit noted that the party seeking to compel
arbitration, S & H, had “acted inconsistently with its arbitration
right” by initiating litigation and substantially invoking the

14
judicial process before seeking to compel arbitration. 906 F.2d
at 1514. Again, however, initiation of litigation did not by itself
justify a denial of the motion to compel on the basis of waiver.
Rather, the court considered that “S & H waited eight months
from the time it filed its complaint to the time it demanded
arbitration,” that the defending party had filed two motions
during that time period, and that S & H had taken five
depositions prior to demanding arbitration. Id. Accordingly, the
court found sufficient prejudice to justify a holding of waiver.

It is evident from these decisions that whereas one party’s
initiation of litigation may play a role in the waiver analysis, that
consideration alone is insufficient to find prejudice. The courts
referred to above looked beyond the mere initiation of litigation
to consider the extent to which the party seeking to compel
arbitration took unfair advantage of the litigation process to the
detriment of the other party. In the absence of the District
Court’s finding whether Zimmer suffered the requisite prejudice,
we do not undertake that determination but merely refer to some
relevant factors on the record to be considered.

For example, there may well have been some prejudice to
Zimmer who was required to hire (and pay) an attorney to
defend the state suit. Zimmer emphasizes that the
commencement of discovery and taking of depositions are all
relevant to this inquiry. At oral argument, CooperNeff’s counsel
confirmed that the state court action required limited discovery
and the taking of three depositions, two by Zimmer and one by
CooperNeff. We also note that the combined proceedings in the
state and federal court included two successful motions for
TROs and a preliminary injunction hearing that lasted at least
two days. There was also a suggestion at the oral argument that
CooperNeff has still not withdrawn its state court complaint, a
fact that neither counsel who argued before us could confirm.

CooperNeff responds that it needed to have access to a
forum that could act promptly to protect its trade secrets by
enjoining Zimmer from providing those secrets to his new
employer, a competitor of CooperNeff. CooperNeff argued
before us that it could not have waived its right to compel
arbitration by initiating the state court action because it had a

15
contractual right to bring that action under the carve-outs from
the requirement to arbitrate in the Employment Agreement.
Assuming the validity of CooperNeff’s argument that it required
immediate access to state court for a temporary restraining order
and/or preliminary injunction, we note that CooperNeff’s state
court action was not limited to that claim. CooperNeff’s state
court complaint asserted six different counts: the need for
injunctive relief, breach of contract, misappropriation of trade
secrets, breach of fiduciary duty, conversion, and unfair
competition. Paragraph 6 covers exclusivity of services, non-
solicitation, confidentiality, intellectual property, and the return
of documents and property upon termination. By asserting
claims such as breach of fiduciary duty and unfair competition,
CooperNeff seeks to enforce rights plainly beyond those that
were necessary for immediate judicial action. The breadth of the
state court complaint may be one of the factors that the District
Court will take into consideration in making its finding of
prejudice, vel non.6

In light of the absence of findings as to prejudice, we
think it prudent to remand to the District Court so that it may
consider and make findings as to all relevant factors
demonstrating prejudice, including CooperNeff’s initiation of
the state court litigation, its failure to withdraw its claims after it
had been granted the requested preliminary relief, and its
interposition of counterclaims in federal court which appear, at
least facially, to raise as defenses the same claims it presses in
state court. The District Court may decide that CooperNeff has
elected to pursue judicial action as its remedy and should not be
entitled to proceed with arbitration. Or, we hasten to add, it may
decide the contrary.

6
CooperNeff also argues that its complaint is not identical
to Zimmer’s, and therefore it is entitled to litigate its claims while
forcing Zimmer to arbitrate the claims that he has asserted. We
leave to the District Court the issue whether CooperNeff’s state
court complaint and its federal court counterclaim exceed the scope
of the clause reserving its judicial remedies.

16
 V.

For the above-stated reasons, we will vacate the judgment
of the District Court and remand for proceedings consistent with
this opinion.

17