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Ltd. v. Amherst International Inc.

April 21, 1997

TRADE-INDUSTRIAL CENTRE "COTO," LTD., RESPONDENT,
v.
AMHERST INTERNATIONAL, INC., APPELLANT.



Appeal from Superior Court of King County. Docket No: 94-2-03366-2. Date filed: 06/30/95. Judge signing: Hon. Sharon Armstrong.

Authored by Mary K. Becker. Concurring: C. Kenneth Grosse, Ronald E. Cox.

The opinion of the court was delivered by: Becker

BECKER, J. -- Trade-Industrial Centre "COTO", a Russian business organization, sued Amherst International, Inc., for contract damages, alleging Amherst failed to perform its agreement to deliver a shipment of shoes to Russia. The contract included what was arguably an arbitration clause. About two weeks before the trial date, Amherst moved to compel arbitration of the dispute. The trial court denied the motion. We agree with the trial court that Amherst waived any right of arbitration in view of its lengthy delay before moving to compel arbitration, and affirm.

Amherst International, a Washington corporation, contracted in 1992 to deliver 5,000 pairs of ladies' shoes to COTO in Russia, in exchange for $18,000. The contract provides: "If dispute is not resolved between parties, they must enter their dispute into International Court in Stockholm, Sweden."

A dispute arose about performance on the contract, and on February 7, 1994, COTO filed a complaint against Amherst in King County Superior Court. The complaint alleged that Amherst never delivered the shoes as promised, and set forth legal theories for breach of contract and violation of the Washington Consumer Protection Act. On June 15, 1995, Amherst moved to compel arbitration. Amherst appeals from the denial of that motion.

The Amherst-COTO contract is subject to the Federal Arbitration Act *fn1 (FAA), which governs the enforceability of an arbitration agreement in a contract involving foreign or interstate commerce. *fn2 This court held in Kinsey v. Bradley *fn3 that the standard for waiver which has been developed by the federal courts is the proper standard to apply in cases under the FAA. We review the determination of waiver de novo, applying the legal test for waiver to the undisputed facts of Amherst's participation in the litigation below. *fn4 Kinsey stated the federal standard for waiver as adopted by the Ninth Circuit: a party seeking to prove waiver of a right to arbitration must demonstrate "(1) knowledge of an existing right to compel arbitration, (2) acts inconsistent with that right, and (3) prejudice [to the party opposing arbitration resulting from such inconsistent acts]." *fn5 Since Kinsey was decided in 1986, at least two federal courts of appeal, the D.C. Circuit and the Seventh Circuit, have declined to require a showing of prejudice. *fn6 When the Kinsey court adopted the three-part test, including prejudice, no other federal alternative had been articulated. But we need not now consider whether it is appropriate to revisit the standard adopted in Kinsey, because COTO has established Amherst's waiver even considering the prejudice requirement imposed by Kinsey and its Ninth Circuit antecedents.

The first element of the test for waiver adopted in Kinsey, knowledge of an existing right to compel arbitration, is not in dispute because Amherst asserted a right to arbitrate at the outset. Amherst contends that assertion of the arbitration clause in its answer to COTO's complaint should be dispositive to avoid a waiver, but no authority cited supports that proposition. The waiver determination "is not susceptible to bright line rules." *fn7 In any event, Amherst did not assert its right to arbitration unequivocally. Instead, Amherst answered that the parties had agreed to submit their claims "for adjudication or arbitration in Stockholm, Sweden." (Emphasis added.) And it is debatable whether the contract clause relied on by Amherst ("If dispute is not resolved between parties, they must enter their dispute into International Court in Stockholm, Sweden") is even an arbitration clause. For these reasons, Amherst's answer does not foreclose a finding of waiver.

The second element COTO must show is that Amherst acted in a manner inconsistent with a right to arbitration. Critical factors in evaluating this element include the extent to which the parties have prepared for trial and engaged in discovery, and how clearly they manifested an intent to use the judicial process. *fn8 Our evaluation of Amherst's conduct in light of these factors does not favor Amherst. Before Amherst answered COTO's complaint, COTO submitted to Amherst a set of 10 interrogatories and one request for document production. With its answer, Amherst set forth counterclaims for breach of contract, interference with a business relationship, defamation, and violation of the Consumer Protection Act. Amherst then answered the interrogatories propounded by COTO, and submitted its own interrogatories to COTO, which COTO answered.

In September, 1994, Amherst moved to consolidate the case with a companion claim COTO filed against the directors of Amherst. The trial court declined to consolidate the two cases "until such time that either the defendants waive their right to seek arbitration or the court orders that arbitration shall not be allowed." Amherst then responded to another of COTO's discovery requests.

Trial was set for August 7, 1995. Before trial, the parties submitted to the court a joint status report indicating that discovery was substantially complete, that the parties did not anticipate any amendment to the pleadings or change in the parties, and that they expected trial to take three to five days. The report stated that Amherst believed the matter should be dismissed or stayed because the parties agreed to arbitrate their disputes. Still, Amherst never requested the court to dismiss or stay the matter, so litigation continued.

Amherst sent COTO a second set of interrogatories, and gave notice of deposition of COTO's agents. Amherst also submitted to the court certified translations of the contract, which was written in both English and Russian. COTO moved for a protective order to prevent Amherst from requiring agents who lived in Moscow from flying to Seattle for a deposition.

Amherst failed to take any action to enforce its claimed right to arbitrate until 16 months after litigation began and less than two months before the trial date. Amherst moved for arbitration only after first asserting counterclaims and conducting discovery related to them. Amherst ignored a clear signal from the trial court that its position with respect to arbitration needed to be clarified. By the time Amherst finally made its motion to compel, the "litigation machinery had been substantially invoked". *fn9 As to the third element, prejudice to the party opposing arbitration, some federal decisions hold that delay, discovery, and the expenses of pretrial litigation are not necessarily enough to constitute prejudice. *fn10 Again, however, it is a matter of degree rather than a bright line rule. Prejudice may be found "when a party too long postpones" moving to compel arbitration, "and thereby causes his adversary to incur unnecessary delay or expense." *fn11 In view of the impending trial date, preparation and expense for trial in superior court was necessarily well under way. Any expenses COTO incurred in pre-trial proceedings and discovery were all unnecessary, since Amherst could have moved to compel arbitration when it first filed its answer.

Amherst claims that it "had a good reason to delay the substantial expense associated with the preparation of its motion to compel arbitration in the hope that the parties' relatively minor dispute could be resolved by settlement." On the contrary, switching forums 16 months into a dispute is unlikely to facilitate a fair settlement. And the cost of preparing a motion to compel is substantially outweighed by the cost of time wasted by COTO, not to mention the cost of time wasted by the court, in pretrial proceedings.

In short, we agree with the comments made by the trial court in its oral ruling: "It would be prejudicial at this time, so much time having passed, to put it into arbitration and abandon the discovery efforts and abandon the trial date, so, it ...


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