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HEADNOTES

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COURT'S OPINION

MARTIN G. YINUG, Chief Justice:

On October 12, 2012 Defendants filed a Motion for Judgment on the Pleadings. On October 23, 2012 Plaintiffs filed an Opposition to Judgment on the Pleadings, and also a Cross Motion for Judgment on the Pleadings. On October 31, 2012, Defendants filed an Opposition to Cross Motion for Judgment on the Pleadings.

I. WAIVER OF ARBITRATION CLAUSE

Defendants argue that this case should be dismissed due to the failure of Plaintiffs to bring this dispute before an arbitral forum, as mandated by Section 8 of the Lease Agreement. In response, Plaintiffs advance the dubious argument that this matter is not appropriate for arbitration, because section 3 of the lease contains specific language requiring that Defendants leave the property one year after executing the lease agreement. The thrust of this argument, unsupported by any authority, seems to be that this Court should set aside a binding arbitration clause where one party can advance a meritorious argument. On its face, such a proposition runs contrary to the purpose of an arbitration clause, which is to have the merits decided in an arbitral forum.

While Plaintiffs cannot resort to the text of the contract to avoid arbitrating this dispute, the doctrine of waiver compels this Court to deny Defendants' motion to dismiss.¹ The touchstone for determining whether the right to arbitrate has been waived by litigation conduct is prejudice to the non-moving party. Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 222 (3d Cir. 2007). A non-exclusive list of factors relevant to the prejudice inquiry is: (1) timeliness of a motion to arbitrate; (2) the degree to which the party seeking to compel arbitration has contested the merits of its opponent's claim; (3) the extent of the moving party's non-merits motion practice; (4) its assent to the trial court's pretrial orders; and (5) the extent to which both parties have engaged in discovery. Id.

While delay alone is not sufficient to establish prejudice, id. at 223, this Court observes that the delay of more than two years in this instance far exceeds the delay involved where courts have found

[18 FSM R. 553]

no waiver. 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 amount to waiver . . . the four years' delay . . . greatly exceeds that found acceptable in this circuit"). It is also of great significance that the parties here had previously expected this matter to be resolved at trial. Indeed, the Justice previously assigned to this case recused herself only one day before trial was scheduled to commence! This history, combined with the parties' compliance with pretrial orders, demonstrates conclusively that the parties had consented to a judicial determination of this dispute.

While the parties have not engaged in extensive discovery or non-merits motion practice (although a TRO and preliminary injunction were requested and denied), it is clear that the limited discovery in this instance was a strategic choice, and was not driven by a decision to seek resolution in an arbitral forum. While Plaintiffs may not have suffered substantive prejudice to their legal position through Defendants' use of discovery available under the FSM Civil Rules, it is clear that plaintiff would suffer prejudice if compelled to engage in duplicative litigation efforts in an arbitral forum.

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 prejudiced, 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.

Ehleiter, 482 F.3d at 224.

Having applied the factors relevant to a waiver inquiry to this dispute, it is clear that the balance of the equities support a finding that Defendants has waived the arbitration remedy specified in the lease agreement.

II. MATERIAL QUESTIONS OF LAW AND FACT REMAIN UNRESOLVED

Plaintiffs contend that judgment on the pleadings² is appropriate in this instance, because it is not disputed that Defendants have no right to remain on the premises. This statement is a gross mischaracterization of Defendants' position. Defendants have advanced multiple defenses including estoppel, modification and ratification. These defenses, if proven, would support Defendants' continuing right to remain on the premises. Indeed, Defendants has asked this Court to invalidate the Lease Agreement and evict Plaintiff from the premises! As it is clear that material questions of law and fact remain, Plaintiff's motion for judgment on the pleadings must be denied.

III. CONCLUSION

Defendants waived the right to arbitration anchored in Section 8 of the Lease Agreement, and material questions of law and fact remain to be decided. Accordingly, The Motion for Judgment on the Pleadings is HEREBY DENIED. The Cross-Motion for Judgment on the Pleadings is also HEREBY DENIED.

Footnotes:

¹ Defendants should have filed a motion to compel arbitration, rather than a motion to dismiss. The reasoning in this order is applicable to a motion to compel arbitration.

² Plaintiffs should have filed a motion for summary judgment rather than a motion for judgment on the pleadings. The reasoning in this order is applicable to a motion for summary judgment.