IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA16-908
Filed: 2 January 2017
Union County, No. 15 CVS 2234
iPAYMENT, INC., Plaintiff,
v.
KELLY M. GRAINGER, INDIVIDUALLY AND AS ADMINISTRATOR OF THE
ESTATE OF GEORGE GREGORY GRAINGER, WEAKLEY GETWAWAYS, LLC,
1ST AMERICARD, INC., JESSICA GRAINGER, and UNIVERSAL FINANCE &
LEASING CORPORATION, Defendants.
Appeal by Plaintiff from an order entered 25 August 2016 by Judge Theodore
S. Royster, Jr., in Union County Superior Court. Heard in the Court of Appeals 8
February 2017.
Rayburn Cooper & Durham, P.A., by Ross R. Fulton and Tory Ian Summey, for
Plaintiff-Appellant.
Koehler & Associates, by Stephen D. Koehler, for Defendants-Appellees.
INMAN, Judge.
iPayment Inc. (“Plaintiff”) appeals from an order denying its motion to compel
arbitration of counterclaims brought against Plaintiff by Universal Finance and
Leasing Corp. (“Universal”). Plaintiff argues that the trial court erred in finding that
Plaintiff waived its right to compel arbitration on Universal’s counterclaims. After
careful review, we reverse the trial court’s order.
Factual and Procedural Background
IPAYMENT V. GRAINGER
Opinion of the Court
This appeal arises from a dispute between Plaintiff and 1st Americard, Inc.
(“Americard”) involving an Asset Purchase Agreement, governed by New York law,
which resulted in an arbitration award (the “Arbitration Award”) of $2,350,264.74 in
favor Plaintiff.
The parties are in the business of processing bankcard payments for retail
merchants. Their rights and duties are governed by interconnecting agreements,
specifically an Asset Purchase Agreement between Plaintiff and Americard and a
separate Split Funding Agreement between Plaintiff and Universal.
Kelly M. Grainger (“Kelly”) is the President and sole shareholder of Americard.
Jessica Grainger (“Jessica”), daughter of Kelly, was initially an employee of
Americard before becoming an employee of Universal following the death of her father
George Gregory Grainger.1 At all relevant times, Kelly and Jessica were citizens and
residents of Union County, North Carolina. Kelly and Jessica were also the sole
officers and employees of Universal. Weakley Getaways, LLC (“Weakley”) is a
corporation based in Panama City Beach, Florida, owned and operated by Cathy
Baker, Kelly Grainger’s sister, and Cathy’s husband, Gordon H. Weakley.
On 28 June 2013, Plaintiff and Americard executed an Asset Purchase
Agreement, whereby Plaintiff agreed to purchase rights to Americard’s existing
1 George Gregory Grainger, spouse of Kelly, was the Chief Executive Officer of Americard and
passed away on 24 April 2015. George Grainger was a party to the original arbitration which gave
rise to the Arbitration Award.
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IPAYMENT V. GRAINGER
Opinion of the Court
merchant accounts in exchange for $4,867,852.32. Plaintiff and Americard also
executed a Sub-Independent Sales Organization agreement (“Sub-ISO”), whereby
Americard agreed to submit all new merchant applications for payment processing
services exclusively to Plaintiff during the “Initial Term” and to use its best efforts to
obtain new merchants. The Asset Purchase Agreement included the following
arbitration clause and choice of law provision:
BINDING ARBITRATION. EXCEPT AS PROVIDED IN
SECTION 5.2(C) HEREOF, ANY DISPUTE OR CLAIM
BETWEEN THE PARTIES ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT SHALL BE FULLY AND FINALLY
RESOLVED BY BINDING ARBITRATION IN THE CITY
OF NEW YORK, NEW YORK COUNTY IN
ACCORDANCE WITH THE COMMERCIAL
ARBITRATION RULES AND PRACTICES OF THE
AMERICAN ARBITRATION ASSOCIATION (“AAA”)
FROM TIME TO TIME IN FORCE AND EFFECT.
...
GOVERNING LAW. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO ANY JURISDICTION’S
PRINCIPLES OF CONFLICT OF LAWS.
A month after executing the Asset Purchase Agreement, on 25 July 2013,
Plaintiff and Universal executed a Split Funding Agreement providing that Universal
would advance funds to merchants serviced by Plaintiff in exchange for Plaintiff’s
remittal of certain funds related to those accounts. Similar to the Asset Purchase
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IPAYMENT V. GRAINGER
Opinion of the Court
Agreement, the Split Funding Agreement included the following mandatory
arbitration clause (the “Arbitration Clause”) and choice of law provision (the “Choice
of Law Provision”):
BINDING ARBITRATION. EXCEPT FOR ANY ACTION
FOR INJUNCTIVE RELIEF WITH RESPECT TO THE
ENFORCEMENT OF ANY PARTY’S RIGHTS UNDER
SECTION 11 OR 12 HEREOF, ANY DISPUTE OR CLAIM
BETWEEN THE PARTIES ARISING OUT OF OR
RELATED TO THIS AGREEMENT SHALL BE FULLY
AND FINALLY RESOLVED BY BINDING
ARBITRATION IN THE CITY AND COUNTY OF NEW
YORK IN ACCORDANCE WITH THE COMMERCIAL
ARBITRATION RULES AND PRACTICES OF THE
AMERICAN ARBITRATION ASSOCIATION (“AAA”)
FROM TIME TO TIME IN FORCE AND EFFECT.
...
GOVERNING LAW. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO ANY JURISDICTION’S
PRINCIPLES OF CONFLICT OF LAWS.
Within a year after purchasing Americard’s merchant accounts, Plaintiff
brought an arbitration action in New York against Americard, Kelly, and George
Grainger alleging that they made misrepresentations to Plaintiff and breached the
Asset Purchase Agreement and associated agreements, excluding the Split Funding
Agreement. In February 2015, Plaintiff obtained the Arbitration Award finding
Americard, Kelly, and Jessica jointly and severally liable to Plaintiff for
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IPAYMENT V. GRAINGER
Opinion of the Court
$2,350,264.74. Plaintiff then filed a motion to confirm the arbitration award in the
United States District Court for the Southern District of New York.
On 25 August 2015, while Plaintiff’s motion to confirm the arbitration award
was pending, Plaintiff filed a verified complaint in Union County Superior Court
alleging that immediately after the arbitration award was entered, Kelly and George
Grainger entered into a scheme to fraudulently transfer their assets to Weakley in
an attempt to avoid Plaintiff’s eventual judgment from the Arbitration Award. On
18 September 2015, Plaintiff amended its original complaint to include Kelly in her
capacity as the administrator of the estate of George Gregory Grainger. On 26
October 2015, Plaintiff filed its second amended verified complaint (the “Second
Amended Complaint”), which named Jessica, Americard, and Universal as additional
defendants in the action. Plaintiff asserted two claims against Universal as a
transferee of fraudulent transfers from the other Defendants, alleging “[u]pon
information and belief, Universal Finance is the recipient of some or all of those
fraudulently transferred assets from the Graingers or 1st AmeriCard or their
proceeds.” The Second Amended Complaint alleged no conduct by or on behalf of
Universal other than receiving fraudulent transfers.
Plaintiff began pursuing discovery in the fraudulent transfer litigation on 24
September 2015 by propounding to Kelly interrogatories, requests for production of
documents, and requests for admissions. On 1 October 2015, prior to adding
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IPAYMENT V. GRAINGER
Opinion of the Court
Americard and Universal as defendants in the action, Plaintiff issued a subpoena to
a third-party accountant for all documents relating to Americard, Universal, or Kelly
and George Grainger “for the period from January 1, 2013 through the present,
including, but not limited to, tax returns, financial statements, work papers, bank
account records, and all correspondence (including emails, letters, and text
messages).” Later in October 2015, but prior to naming Americard and Universal as
defendants in the action, Plaintiff issued subpoenas to five banks seeking additional
documents and information relating to specific accounts and transactions involving
Kelly, George Grainger, Americard, and Universal.
In December 2015, after asserting claims against Americard, Universal, and
Jessica, Plaintiff served on Americard and Jessica a set of interrogatories, requests
for production of documents, and requests for admissions, and served interrogatories
and requests for production of documents on Universal.
On 29 December 2015, Defendants filed a joint answer to Plaintiff’s Second
Amended Complaint and counterclaims by Universal against Plaintiff for breach of
contract, defamation, tortious interference with contract and/or prospective
advantage, and unfair and deceptive trade practices and unfair methods of
competition. All of the counterclaims related to the Split Funding Agreement.
On 26 and 27 January 2016, Plaintiff took depositions of Kelly and Jessica.
Plaintiff’s counsel specified before questioning Kelly about Universal’s counterclaims:
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Opinion of the Court
“iPayment is reserving all rights to argue that counterclaim 1 [breach of the Split
Funding Agreement] is subject to arbitration under its contract and as [sic] they’re
participating in discovery without waiving any of those rights to those arguments.”
Plaintiff’s counsel went on to ask Kelly a series of questions, including, inter alia:
“What false statements—false and misleading statements has iPayment made about
[Universal]?” and “[w]hat false and misleading statements has iPayment made about
the officers of Universal Finance & Leasing?” Plaintiff’s counsel also inquired about
the internal operations of Universal, communications between several merchants and
Universal, and the structure of the Split Funding Agreement.
On 24 February 2016, Plaintiff filed a motion to dismiss Universal’s
counterclaims arising from the Split Funding Agreement or, in the alternative, to
stay the litigation and compel arbitration of the counterclaims (“Motion to Compel”).
The Motion to Compel came on for hearing on 4 April 2016. Universal asserted
that Plaintiff waived its right to compel arbitration of Universal’s counterclaims
under the Split Funding Agreement because of Plaintiff’s participation in this
litigation, including Plaintiff’s pursuit of discovery.
On 25 April 2016, the trial court entered an order denying Plaintiff’s Motion to
Compel. The trial court held that “[t]he conduct of the Plaintiff in this action was
clearly inconsistent with the arbitration provision contained in the Split Funding
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Opinion of the Court
Agreement and manifests Plaintiff’s election to submit to the jurisdiction of this
forum.”
Plaintiff filed its notice of appeal on 9 May 2016.
Appellate Jurisdiction
An order denying a motion to compel arbitration is interlocutory. “Generally,
there is no right of immediate appeal from interlocutory orders and judgments.”
Goldston v. American Motors Corp., 326 N.C. 723, 725, 392 S.E.2d 735, 736 (1990).
However, our courts have long held that an order denying a motion to compel
arbitration affects a substantial right which might be lost if the appeal is delayed,
and therefore is immediately appealable. Prime South Homes, Inc. v. Byrd, 102 N.C.
App. 255, 258, 401 S.E.2d 822, 825 (1991). Accordingly, we hold this appeal is
properly before us.
Analysis
I. Choice of Law
The trial court concluded, and the parties do not dispute, that New York law
governs the Arbitration Clause, as provided in the Split Funding Agreement. A
choice of law provision agreed upon by parties is “generally binding on the
interpreting court as long as they had a reasonable basis for their choice and the law
of the chosen State does not violate a fundamental public policy of the state or
otherwise applicable law.” Torres v. McClain, 140 N.C. App. 238, 241, 535 S.E.2d
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IPAYMENT V. GRAINGER
Opinion of the Court
623, 625 (2000) (citations omitted). When the parties entered into the Split Funding
Agreement, Plaintiff’s principle place of business was New York, so there was a
reasonable basis for the choice of law provision. Additionally, applying New York law
will not violate any fundamental public policy of the State of North Carolina. See
Behr v. Behr, 46 N.C. App. 694, 696-97, 266 S.E.2d 393, 395 (1980) (applying New
York law to the interpretation of a separation agreement).
II. Waiver of Right to Arbitration
Universal does not dispute that the Arbitration Clause in the Split Funding
Agreement applies to its counterclaims. Rather, Universal asserts that Plaintiff
waived its right to compel arbitration of the counterclaims by engaging in litigation
and by obtaining discovery beyond that allowed by the rules of arbitration.
Universal’s contention relies on the presupposition that Plaintiff’s fraudulent
transfer claims against Universal, asserted in the Second Amended Complaint, were
also subject to the Arbitration Clause. We disagree with this presupposition and hold
that Plaintiff did not waive its arbitration rights by litigating and pursuing discovery
related to that claim.
The trial court, in determining that Plaintiff acted in a manner inconsistent
with its right to arbitrate and prejudiced Universal, considered discovery that
Plaintiff pursued prior to Universal’s filing of its counterclaims. Because we disagree
with the premise upon which Universal’s argument lies—i.e., that Plaintiff’s claims
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Opinion of the Court
asserted in the Second Amended Complaint against Universal invoked the
Arbitration Clause in the Split Funding Agreement—and conclude that Universal
failed to present competent evidence that Plaintiff acted inconsistently with its right
to compel arbitration or that Universal was prejudiced by Plaintiff’s actions prior to
the assertion of its right to compel, we reverse the trial court’s order.
A. Standard of Review
Our precedent reflects a protracted dispute, and divergence of decisions,
regarding the standard of review applicable to a trial court’s denial of a motion to
compel arbitration on the basis that a party waived this contractual right.2
The seminal decision, Cyclone Roofing Co., Inc. v. David M. LaFave Co., Inc.,
312 N.C. 224, 321 S.E.2d 872 (1984), explains that arbitration is a contractual right,
which may be waived. The misperception about whether this is a question of fact or
law arises from the North Carolina Supreme Court’s plain statement in Cyclone:
“Waiver of a contractual right to arbitration is a question of fact.” Id. at 229, 321
S.E.2d at 876 (citations omitted). Following this language, several decisions have
treated the issue as one of pure fact. See, e.g., Elliott, 231 N.C. App. at 332, 752
S.E.2d at 694. However, close examination of the Supreme Court’s own
2 In Elliott v. KB Home North Carolina, Inc., 231 N.C. App. 332, 752 S.E.2d 694 (2013), this
Court highlighted the divergence between what our courts state is the standard of review and what
our courts apply in their analyses. 321 N.C. App. at 337-38 n. 1, 752 S.E.2d at 698 n. 1 (“We
acknowledge that this Court has also treated a determination of waiver as a conclusion of law,
sometimes in the same opinion stating that it is a finding of fact.” (citations omitted)).
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Opinion of the Court
interpretation of Cyclone and the question of whether waiver is an issue of law or fact,
along with later decisions’ treatment of the issue, lead us to conclude that whether a
party has waived the contractual right to arbitration is actually a mixed question of
law and fact. This conclusion affects the applicable standard of review of the trial
court’s determination that Plaintiff waived its arbitration rights.
In Servomation Corp. v. Hickory Const. Co., 316 N.C. 543, 544-45, 342 S.E.2d
853, 854 (1986), the North Carolina Supreme Court explained:
The leading case on arbitration in North Carolina, Cyclone
Roofing Co. v. Lafave Co., 312 N.C. 224, 321 S.E.2d 872,
teaches that arbitration is a contractual right which may
be waived. However, the mere filing of a complaint or
answer does not result in waiver of arbitration absent
evidence showing prejudice to the adverse party.
A party may be prejudiced by his adversary’s delay in
seeking arbitration if (1) it is forced to bear the expense of
a long trial, (2) it loses helpful evidence, (3) it takes steps
in litigation to its detriment or expends significant
amounts of money on the litigation, or (4) its opponent
makes use of judicial discovery procedures not available in
arbitration.
There is a strong public policy favoring the settlement of
disputes by arbitration, and doubts concerning the scope of
arbitrable issues will be resolved in favor of the party
seeking arbitration.
We note holdings from other jurisdictions, consistent with
Cyclone, to the effect that a party waives arbitration when
it engages in conduct inconsistent with arbitration which
results in prejudice to the party opposing arbitration.
Maxum Foundations, Inc. v. Salus Corp., 779 F.2d 974, 981
(4th Cir. 1985); ATSA of California, Inc. v. Continental Ins.
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Opinion of the Court
Co., 702 F.2d 172, 175 (9th Cir. 1983).
Applying these rules of law to the facts of [the] instant case
we initially observe that there has been no long trial.
Further there is no evidence that [the] plaintiff has lost
helpful evidence or taken steps in litigation to its
detriment.
316 N.C. at 544-45, 342 S.E.2d at 854 (emphasis added). Servomation explicitly holds
that the determination of whether a party has waived its right requires the
application of “rules of law.” Id. at 545, 342 S.E.2d at 854.
Whether an issue is one of fact or law turns on whether its determination
requires the application of legal principles.
The classification of a determination as either a finding of
fact or a conclusion of law is admittedly difficult. As a
general rule, however, any determination requiring the
exercise of judgment, see Plott v. Plott, 313 N.C. 63, 74, 326
S.E.2d 863, 870 (1985), or the application of legal
principles, see Quick v. Quick, 305 N.C. 446, 452, 290
S.E.2d 653, 657-58 (1982), is more properly classified as a
conclusion of law. Any determination reached through
“logical reasoning from the evidentiary facts” is more
properly classified a finding of fact. Quick, 305 N.C. at 452,
290 S.E.2d at 657-58 (quoting Woodard v. Mordecai, 234
N.C. 463, 472, 67 S.E.2d 639, 645 (1951)).
In re Helms, 127 N.C. App. 505, 510, 491 S.E.2d 672, 675 (1997).
Some prior decisions by this Court have perpetuated confusion regarding the
appropriate standard of review regarding waiver of the right to arbitrate. In Prime
South Homes, despite stating that waiver is a question of fact, we reviewed de novo
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Opinion of the Court
the trial court’s conclusion that the plaintiff waived his right to arbitration. 102 N.C.
App. at 258-59, 401 S.E.2d at 825.
We interpret Cyclone’s reference to waiver as a question of fact to apply to the
question of whether a party has in fact engaged in a particular action. But we follow
Servomation, and the manner in which this issue has been addressed in other
decisions, and conclude that the question of whether those actions, once found as fact
by the trial court, amount to waiver of the right to arbitrate a dispute is a question of
law subject to de novo review. Servomation, 316 N.C. at 545, 342 S.E.2d at 854
(“Applying these rules of law to the facts of [the] instant case . . . .” (emphasis added));
see also Moose v. Versailles Condominium Ass’n, 171 N.C. App. 377, 382, 614 S.E.2d
418, 422 (holding that we review whether a trial court’s findings of fact “support its
conclusions of law that a party has waived its right to compel arbitration”). This
interpretation is consistent with the holdings in Cyclone and Servomation and
resolves the inconsistency in our jurisprudence.
Accordingly, we first review whether the trial court’s findings of fact are
supported by competent evidence, and then examine de novo whether those findings
taken together support the legal conclusion that Plaintiff waived its right to compel
arbitration. As required by the parties’ Choice of Law Provision, we apply New York
law with regard to the substantive legal issue of what actions amount to waiver of
the right to compel.
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Opinion of the Court
B. Discussion
The primary question before us is whether Plaintiff’s actions prior to seeking
arbitration of Universal’s counterclaims waived Plaintiff’s contractual right to compel
arbitration. We note that there is a split in New York law as to when the Federal
Arbitration Act (“FAA”) applies and whether the standard for demonstrating waiver
under the FAA differs from New York’s standard—specifically, whether
demonstration of prejudice is a requisite for the conclusion of waiver. Compare
Gramercy Advisors LLC v. J.A. Green Dev. Corp., No. 650166/2014, 2015 WL 1623789
*1, *6 (N.Y. Sup. Ct. Aug. 13, 2015), aff’d, 23 N.Y.S.3d 38, 134 A.D.3d 652 (2015)
(noting that “the court need not determine whether New York or [the FAA] waiver
standards govern, as the court holds that there is no material difference in the
standards”) and All Metro Health Care Services, Inc. v. Edwards, 884 N.Y.S.2d 648,
653 n.3 (2009) (“It is noted that New York law and the FAA apply different standards
of wavier. Under the FAA, a wavier will not be inferred without prejudice to the
opposing party as a result of the delay. New York cases do not condition a finding of
waiver on prejudice to the opposing party but find a waiver based on the degree of
participation.” (internal citations omitted)). However, we do not need to settle this
split in the present case. As discussed below, Universal has failed to demonstrate
both that Plaintiff acted inconsistent with its right to compel arbitration and that
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Opinion of the Court
Universal was prejudiced, and therefore the trial court’s denial of Plaintiff’s Motion
to Compel is erroneous.
Both New York and Federal law impose a strong policy favoring arbitration.
Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2nd Cir. 1995).
Generally, “any doubts concerning whether there has been a waiver are resolved in
favor of arbitration.” Id. at 25 (citing Moses H. Cone Memorial Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24-25, 74 L.Ed.2d 765 (1983)). This policy has led to the
decree that “waiver of arbitration is not to be lightly inferred.” Id. at 25 (internal
quotation marks and citations omitted). “Whether or not there has been a waiver is
decided in the context of the case, with a healthy regard for the policy of promoting
arbitration.” Id. at 25 (citation omitted).
When reviewing whether a party has waived the right to compel arbitration,
courts look to (1) “the amount of litigation (usually exchanges of pleadings and
discovery),” (2) “the time elapsed from the commencement of litigation to the request
for arbitration,” and (3) “the proof of prejudice[.]” Leadertex, 67 F.3d at 25; see also
Cusimano v. Schnurr, 26 N.Y.3d 391, 400, 44 N.E.3d 212, 218, 23 N.Y.S.3d 137, 143
(2015).
1. Amount of Litigation
This case presents a unique legal issue. In reviewing the trial court’s findings
relating to the amount of litigation inconsistent with Plaintiff’s arbitration rights, we
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Opinion of the Court
must decide whether Plaintiff’s claims in its Second Amended Complaint asserted
against Universal—as the transferee of fraudulent transfers—arose out of or related
to the Split Funding Agreement. How we decide this issue will determine whether
Plaintiff’s discovery efforts relating to the claims in the Second Amended Complaint
were inconsistent with its right to compel arbitration. We conclude that, based on
the pleadings, Plaintiff’s initial claims against Universal bore no relation to the Split
Funding Agreement, and therefore we will consider only the litigation and discovery
pursued by Plaintiff following, and directly related to, Universal’s counterclaims.
Plaintiff’s claims against Universal assert only that Universal was a recipient
of certain fraudulent transfers by the other defendants. These claims are entirely
independent of any claim against Universal for other conduct, including conduct
related to the Split Funding Agreement. Universal filed its counterclaims against
Plaintiff on 29 December 2015, alleging breach of contract, defamation, tortious
interference with contract and/or prospective advantage, and unfair and deceptive
trade practices, all relating to the Split Funding Agreement. Plaintiff filed its first
response to Universal’s counterclaims—a motion to dismiss, or, in the alternative, to
stay and compel arbitration—on 24 February 2016. Plaintiff served no additional
discovery requests on Universal after the counterclaims were filed. We are
unpersuaded that Plaintiff’s claims in its Second Amended Complaint are
inextricably interwoven with Universal’s counterclaims.
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Opinion of the Court
In January 2016, within a month after the counterclaims were filed, Plaintiff
took the depositions of Kelly and Jessica. The trial court’s finding that Kelly and
Jessica were the “sole employees and officers” of Universal is unchallenged and
binding on appeal. However, the pleadings reveal that Plaintiff sued Kelly and
Jessica in their individual capacities and not as employees, officers, or agents of
Universal. A close examination of the deposition transcripts also shows that
Plaintiff’s questions relating to Universal’s counterclaims were limited, and that
counsel for Plaintiff stated, prior to questioning witnesses, “iPayment is reserving all
rights to argue that counterclaim 1 is subject to arbitration under its contract and as
[sic] they’re participating in discovery without waiving any of those rights to those
arguments.” Keeping in mind the strong public policy favoring arbitration, we hold
that the trial court’s conclusion that Plaintiff acted inconsistent with its right to
compel arbitration is unsupported by its findings of fact.
2. Time Elapsed From the Commencement of the Litigation
Given the particular facts and the nature of Plaintiff’s claims in this case, the
relevant period of litigation prior to the request for arbitration began not with the
filing of the lawsuit, but with the filing of Universal’s counterclaims. Plaintiff moved
to compel arbitration within two months after Universal filed its counterclaims. This
two-month period falls far short of periods that other courts have deemed insufficient
to establish waiver of arbitration rights. See, e.g., Brownstone Inv. Grp., LLC v. Levey,
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Opinion of the Court
514 F. Supp. 2d 536, 540 (S.D.N.Y. 2007) (holding that a “delay of more than ten
months in seeking arbitration is insufficient by itself to support a finding of waiver”).
Accordingly, we are unpersuaded that this amount of time would support the
conclusion that Plaintiff waived its right to compel arbitration based on delay.
3. Prejudice
Plaintiff’s limited participation in the litigation has not prejudiced Universal
by allowing Plaintiff to take advantage of discovery not permitted under the rules of
arbitration. The Arbitration Clause in the Split Funding Agreement limits discovery
to: “twenty-five (25) interrogatories and twenty-five (25) document requests per side,
and no more than two (2) depositions per side; and [] the discovery period to three (3)
months . . . .” The period between Universal’s filing of its counterclaims and Plaintiff’s
filing of its Motion to Compel was two months, well within the permissible timeframe
for discovery allowed by the Arbitration Clause. Moreover, Plaintiff’s depositions of
Kelly and Jessica did not exceed the scope of discovery allowed by the Arbitration
Clause.
We also note that Plaintiff’s initial response to the counterclaims was to assert
its right to compel arbitration of those claims. Beyond Plaintiff’s Motion to Compel
the counterclaims, Plaintiff engaged in no motion practice related to the merits of the
counterclaims. See Kramer v. Hammond, 943 F.2d 176, 179 (2nd Cir. 1991) (holding
that the defendant’s substantial engagement in motion practice including a motion
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Opinion of the Court
for summary judgment, amounted to prejudice to the plaintiff and established waiver
of the right to compel arbitration).
We hold that Universal has failed to demonstrate any prejudice caused by the
limited discovery taken prior to Plaintiff’s Motion to Compel. Considering the record
in light of the strong public policy favoring arbitration, we conclude that Plaintiff did
not waive its right to compel arbitration.
Conclusion
For the foregoing reasons, we reverse the trial court’s denial of Plaintiff’s
Motion to Compel Arbitration and remand this matter to the trial court to enter an
order compelling arbitration of Universal’s counterclaims.
REVERSED AND REMANDED.
Judges CALABRIA and DILLON concur.
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