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A federal court in New York held that a man who waited nearly a year after the commencement of litigation to request arbitration did not waive his right to arbitrate because no information was received through discovery that would not have been received in arbitration and the opposing party did not offer proof that they had been sufficiently prejudiced.
In Levey v. Brownstone Inv. Group, LLC, No. 06 CV 0747 (VM), 2007 WL 2710401 (S.D. N.Y. Sep 17, 2007), Brownstone brought suit against Gordon Levey seeking injunctive relief and damages for claims of breach of fiduciary duty and misappropriation of trade secrets. Levey answered, asserting various affirmative defenses and filing a third party action.
Although Levey did not claim a right to arbitrate in his answer, after ten and a half months and “substantial pretrial discovery,” Levey changed counsel and moved to stay litigation and compel arbitration.
A report was issued by the magistrate judge that found Levey had not waived arbitration. The report specifically noted that Brownstone “would not be prejudiced by submitting the dispute to arbitration at this point.” Brownstone objected to the report and challenged its findings.
This Court agreed with the findings of the report and adopted its conclusions.
First, Levey’s delay in seeking arbitration was not sufficient by itself to prove waiver. A party’s acts inconsistent with arbitration, including delay, must result in actual prejudice.
Brownstone was not prejudiced by the amount of litigation the parties had already engaged in, including the related expenses. The Court noted that Brownstone had pursued litigation aggressively, seeking expedited discovery that obtained some of the documents it tried to use against Levey here. Nothing was discovered that would not have surfaced in arbitration, and the resulting discovery could also be used at arbitration, the Court reasoned.
Further, although this dispute was arbitrable from the beginning, Brownstone chose to commence litigation. Levey had a right to respond with affirmative defenses and counterclaims.
Finally, Levey did not unfairly use litigation to prejudice the opposing party by attempting to try an issue in court and then try the same issue in arbitration.
Accordingly, the Court adopted the conclusions of the report and held that Levey did not waive his right to arbitrate and no prejudice was shown to Brownstone by the commencement of arbitration.
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