MARGO K. BRODIE, District Judge.
Plaintiff and Counterclaim-Defendant Commercial Lubricants, LLC commenced the above-captioned action against Defendant and Counterclaim-Plaintiff Safety-Kleen Systems, Inc., alleging that Defendant breached certain contracts relating to the distribution of recycled oil. (Compl., Docket Entry No. 1.) On August 13, 2015, Plaintiff filed a Second Amended Complaint ("SAC"), asserting claims for, inter alia, breach of a "Used Oil Incentive Agreement" governing the disposal of waste oil (the "Waste Oil Agreement"). (SAC ¶¶ 141-43, Docket Entry No. 14.)
Currently before the Court is Defendant's motion for summary judgment as to Plaintiff's claim for breach of the Waste Oil Agreement. (Def. Mot. for Partial Summ. J. ("Def. Mot."), Docket Entry No. 39; Def. Mem. in Supp. of Def. Mot. ("Def. Mem."), Docket Entry No. 39-1; Def. Suppl. Mem. in Supp. of Def. Mot. ("Def. Suppl. Mem."), Docket Entry No. 54.) For the reasons discussed below, the Court grants Defendant's motion.
The Court assumes the parties' familiarity with the underlying facts and procedural history of the case as set forth in its prior decision, see Commercial Lubricants, LLC v. Safety-Kleen Sys., Inc., No. 14-CV-7483, 2017 WL 3432073, at *1 (E.D.N.Y. Aug. 8, 2017), and provides only a summary of the relevant facts and procedural history below.
The facts are undisputed unless otherwise noted.
On July 17, 2013, through an asset purchase agreement, Plaintiff purchased the assets of NYCL. (Aff. of Gary Stetz in Opp'n to Def. Mot. ¶ 2, Docket Entry No. 43.) The assets included the contractual rights to the Waste Oil Agreement. Under the Waste Oil Agreement, Plaintiff agreed to provide Defendant with the waste oil from Plaintiff's various customers in exchange for payment from Defendant. (See Waste Oil Agreement 2, annexed to Decl. of Scott. E. Reynolds in Opp'n to Def. Mot. ("Reynolds Decl.") as Ex. N, Docket Entry No. 44-5.) The Waste Oil Agreement had an expiration date of December 31, 2014 and consisted of two main components: (1) a per-gallon commission paid to Plaintiff and (2) an "oil payment" paid either directly to the customer or to Plaintiff. (Id. at 1-2.) The Waste Oil Agreement permitted either party to terminate the contract upon sixty days' prior written notice and provided that during the sixty-day period, "both parties will maintain customer services and billing." (Id.) In addition, the Waste Oil Agreement provided that "[i]f a dispute arises . . . the matter in dispute shall be referred to binding arbitration in Erie County, New York in accordance with the rules of the American Arbitration Association . . . ." (Id. at 2.)
On December 16, 2014, Defendant sent a letter (the "Pay-For-Oil Rate Reduction Letter") addressed to "Dear Valued Customer," stating that "[e]ffective December 21st or as contracts allow, all pay-for-oil rates will be moved to $0.00/gallon. Other terms and conditions of our oil collection service are unchanged." (Pay-For-Oil Rate Reduction Letter, Annexed to Reynolds Decl. as Ex. O, Docket Entry No. 44-5; Pl. 56.1 ¶ 20.) Defendant states that the Pay-For-Oil Rate Reduction Letter terminated the Waste Oil Agreement, (Def. 56.1 ¶ 20); Plaintiff states that the Waste Oil Agreement was not terminated because the letter expressly states that "[o]ther terms and conditions of our oil collection service are unchanged," (Pl. 56.1 ¶ 20). In addition, Plaintiff asserts that the Waste Oil Agreement remained in effect because (1) "the word `terminated' is noticeably absent" from the Pay-For-Oil Rate Reduction Letter, and (2) Defendant "acknowledges that it has continued to collect used oil from [Plaintiff's] customers . . . ."
Plaintiff filed this action on December 23, 2014, and filed an Amended Complaint on February 26, 2015. (See Compl.; Am. Compl., Docket Entry No. 7.)
On June 25, 2015, in the course of discovery, Plaintiff requested that Defendant produce "[a]ny and all communications and documents relating to waste oil received by Defendant from . . . Plaintiff's customers since September 1, 2014." (Pl. Letter dated Oct. 4, 2016 at 1, Docket Entry No. 34.)
Plaintiff filed the SAC on August 13, 2015. In the SAC, Plaintiff added a claim for breach of the Waste Oil Agreement, alleging that Defendant breached that agreement by failing to pay commissions due to Plaintiff, and by wrongfully attempting to repudiate the agreement through the Pay-For-Oil Rate Reduction Letter. (SAC ¶¶ 142-43.)
By letter dated November 5, 2015, Plaintiff's counsel followed up on its prior request for waste oil documents between Defendant and Plaintiff's customers. (Pl. Letter dated Oct. 4, 2016 at 1-2.) In the letter, Plaintiff's counsel conveyed its belief that Defendant "continued to collect waste oil from [Plaintiff's] customers post-September 2014 . . . ." (Id.)
After additional follow-up requests, on March 10, 2016, and "contrary to its prior position that it did not have documents responsive to [Plaintiff's] request," Defendant produced responsive documents for the period between August of 2014 through December of 2014, and January of 2015 through February of 2015. (Id. at 2.)
On March 15, 2016, Defendant filed a pre-motion conference letter expressing its intention to, inter alia, file a motion for summary judgment and compel arbitration of Plaintiff's claim for breach of the Waste Oil Agreement. (Def. Pre-Motion Conference Letter, Docket Entry No. 28.) The Court held a pre-motion conference on June 14, 2016 and set a briefing schedule for Defendant's motion for summary judgment as to some of Plaintiff's claims, and Plaintiff's motion for summary judgment as to Defendant's cross-claims. (Minute Order dated June 14, 2016.)
On September 8, 2016, prompted by the deposition testimony of Defendant's rebuttal expert witness, Plaintiff's counsel requested that Defendant "clarify whether it is in possession of documents responsive to [Plaintiff's] prior requests for documents relating to used oil collections for the period February 2015 to present . . . ." (Pl. Letter dated Oct. 4, 2016 at 2.) Defendant's counsel did not respond to the request. (Id.) Plaintiff's counsel renewed their request on September 16, 2016. (Id.) Defendant's counsel replied that same day, stating that he hoped to provide a response later in the day. (Id.) Defendant's counsel never provided a response. (Id.) On September 28, 2016, Plaintiff's counsel sent another request. (Id.) Defendant's counsel responded, stating that if Plaintiff believed the information sought was "relevant and should be produced," Plaintiff could seek the Court's intervention by filing a motion. (Id.) Plaintiff filed a letter-motion on October 4, 2016, seeking to compel production of the documents.
On October 19, 2016, Judge Mann held a telephone conference to discuss the issue. (See Min. Entry dated Oct. 19, 2016.) At the conference, Judge Mann granted Plaintiff's motion to compel discovery, and that same day, issued a written order (the "October 19, 2016 Order"). (October 19, 2016 Order, Docket Entry No. 37.) In the October 19, 2016 Order, Judge Mann "express[ed] [her] displeasure that [Defendant], in violation of Fed. R. Civ. P. 34, failed to make clear that it was withholding documents relating to waste oil received from Plaintiff's customers after February of 2015." (Id.) Judge Mann ruled, however, that production of the documents would be deferred until the Court ruled on Defendant's motions for summary judgment. (Id.)
Defendant filed its motions for summary judgment on October 31, 2016. (See generally Def. Mot.; Def. Mem.; Def. CC Mot., Def. CC Mem.) As relevant here, Defendant argued in its motion for partial summary judgment as to Plaintiff's claims that the Court lacks jurisdiction over any claims for damages arising from the Waste Oil Agreement in light of the Waste Oil Agreement's arbitration clause. (Def. Mem. 13.) In the alternative, Defendant argued that Plaintiff cannot recover for any damages incurred on or after February 14, 2015, because the Waste Oil Agreement permits termination by either party with sixty days' notice, and Defendant's December 14, 2014 Pay-For-Oil Reduction Letter acted as a notice of termination. (Id. at 14.)
In response, Plaintiff argued that Defendant waived its right to arbitrate the Waste Oil Agreement claim because Defendant has filed responsive pleadings, deposed several witnesses and conducted extensive document discovery since Plaintiff first asserted a claim for breach of the Waste Oil Agreement in the SAC. (Pl. Mem. in Opp'n to Def. Mot. ("Pl. Opp'n") 23-25, Docket Entry No. 41.) In its Rule 56.1 statement, Plaintiff contends that the Pay-for-Oil Rate Reduction Letter was not a notice to terminate the Waste Oil Agreement because the letter states that "[o]ther terms and conditions of our oil collection service are unchanged," and denies that Plaintiff's representatives acknowledged at deposition that the Pay-for-Oil Rate Reduction Letter terminated the Waste Oil Agreement. (Pl. 56.1 ¶¶ 20-21.) Plaintiff's opposition brief does not respond to Defendant's argument that the letter acted as sixty days' notice to terminate the agreement, or address the evidence cited by Defendant indicating that Plaintiff's representatives understood the letter to do so. Plaintiff nevertheless asserts in its opposition brief that Judge Mann "determined that [Defendant] surreptitiously continued to collect waste oil from [Plaintiff's] customers" after February of 2015, and "it is more than likely that [Plaintiff] is entitled to additional payments for waste oil" after February of 2015. (Pl. Opp'n 24-25.)
By Memorandum and Order dated August 8, 2017, the Court granted in part and denied in part Defendant's motion for partial summary judgment as to Plaintiff's claims, and denied Defendant's motion for summary judgment as to Defendant's counterclaims (the "August 2017 Decision"). See generally Commercial Lubricants, LLC, 2017 WL 3432073. As relevant here, in considering the parties' arguments regarding waiver of arbitration, the Court reserved judgment on Plaintiff's claim for breach of the Waste Oil Agreement. Id. at *18-19. In order to determine whether Defendant had waived its right to arbitrate Plaintiff's breach of the Waste Oil Agreement, the Court ordered the parties to submit supplemental briefing addressing:
Id. at *19.
In its August 25, 2017 supplemental brief, Plaintiff makes five arguments in support of its assertion that Defendant has waived its right to arbitration. (Pl. Suppl. Mem. in Opp'n to Def. Mot. ("Pl. Suppl. Mem."), Docket Entry No. 53.) First, after Plaintiff filed the SAC on August 13, 2015 and added the claim for breach of the Waste Oil Agreement, Defendant "actively participated in the [c]ase including as to issues related to the Waste Oil Agreement," for seven months until March 15, 2016, when Defendant raised the arbitration issue. (Pl. Suppl. Mem. 2.) Second, in light of the resources spent "litigating [Defendant's] improper conduct before Magistrate Judge Mann and briefing the arbitration matter in connection with summary judgment," permitting Defendant to sever the Waste Oil Agreement claim after wrongfully withholding documents would "essentially . . . reward[]" Defendant for its conduct and "effectively . . . nullif[y]" Judge Mann's October 19, 2016 Order granting Plaintiff's motion to compel production of the documents. (Id. at 2-4.) Third, "there is no guarantee that an arbitration would require [Defendant]" to produce the documents Plaintiff is owed. (Id. at 4.) Fourth, severing the claim for breach of the Waste Oil Agreement risks the possibility that "a decision will be rendered in this action before a decision is rendered in the arbitration," which could "irretrievably damage" Plaintiff's financial condition if Defendant were to seek collection on any judgment before Plaintiff has "the opportunity to prevail in arbitration." (Id. at 4-5.) Finally, severing the claim for breach of the Waste Oil Agreement would deprive both "the trier of fact in this [c]ase" and the arbitral forum to which this dispute would be relocated of "the benefit of understanding the full extent of the parties' relationship," including "the course of dealings" and "the multifaceted, strategic alliance" between Plaintiff and Defendant. (Id. at 5.)
On September 4, 2017, Defendant responded to each of Plaintiff's arguments. (Def. Suppl. Mem.) As to the seven-month delay in raising the arbitration issue, Defendant argues that delay, without more, is insufficient to find that Plaintiff has been prejudiced. (Id. at 2.) Although not addressing directly Plaintiff's argument that ordering arbitration would reward Defendant for its allegedly improper conduct before Judge Mann during the seven-month period, Defendant argues that Plaintiff cannot argue prejudice based on the discovery taken during this seven-month period, because:
(Id. at 2.) Third, in response to Plaintiff's argument that "there is no guarantee" it would be entitled to the disputed documents in arbitration, Defendant argues that this is insufficient to establish prejudice because Plaintiff's request for additional documents "can be made and fulfilled in the arbitral forum," where "the modern trend . . . is to permit litigation-like discovery," and "[t]he mere fact the discovery conducted might be unavailable at arbitration is insufficient to establish prejudice." (Id. at 3.) Fourth, in response to Plaintiff's argument regarding the risk that Defendant could prevail and seek collection of a judgment in this action before the conclusion of arbitration, Defendant argues that this does not establish prejudice because each of the alleged remaining breaches "arise from separate and distinct agreements," and Plaintiff "is not entitled to offset" the $243,429 it is allegedly owed from "the more than one million dollars it owes" Defendant as a result of its breach of other agreements. (Id. at 3-4.) Finally, Defendant argues that neither the Court nor any arbitral forum requires a full understanding of the business relationship between Defendant and Plaintiff to resolve the remaining disputed issues in this case. (Id. at 4.)
On November 10, 2017, Plaintiff filed a letter-motion to compel before Judge Mann, arguing that Defendant refused to comply with her October 19, 2016 Order. (Pl. Letter dated Nov. 10, 2017, Docket Entry No. 55.) As Plaintiff explained in its letter, after the Court issued the August 2017 Decision, Plaintiff demanded that Defendant produce the waste oil documents for February of 2015 to the present. (Id. at 2.) Defendant responded that it was not required to produce any such documents because the Court had not yet ruled on the Waste Oil Agreement claim. (Id.) Plaintiff "disagree[d] with [Defendant's] interpretation" of Judge Mann's October 19, 2016 Order, "given the prejudice to [Plaintiff] in the event [the Court] orders the Waste Oil Agreement claim to arbitration," and requested that Judge Mann order the documents produced. (Id.)
In its November 14, 2017 response, Defendant argued that because Judge Mann's October 19, 2016 Order stated that production of the relevant documents was "deferred until after the District Court rules on the summary judgment motion," Defendant was not yet required to produce the documents since the Court reserved judgment on the Waste Oil Agreement claim. (Def. Letter dated Nov. 14, 2017 at 2, Docket Entry No. 56.) Defendant also asserted that "any documents related to the collection of Waste Oil after February 2015 are irrelevant as [Defendant] terminated the Waste Oil Agreement with [Plaintiff] effective February 14, 2015." (Id.)
By Memorandum and Order dated December 28, 2017, Judge Mann denied Plaintiff's motion to compel without prejudice, pending a decision from the Court on Plaintiff's claim for breach of the Waste Oil Agreement (the "December 2017 Decision"). (Mem. and Order dated Dec. 28, 2017, Docket Entry No. 58.)
In the December 2017 Decision, Judge Mann discussed the October 19, 2016 telephone conference and her October 19, 2016 Order. (Id. at 1-2.) During the conference, Judge Mann "concluded that [D]efendant had violated Rule 34 of the Federal Rules of Civil Procedure by failing to make clear in responding to [P]laintiff's discovery demands that it was withholding responsive information that postdated February 2015," and "without ruling on admissibility . . . granted plaintiff's motion to compel, finding that the documents were discoverable, notwithstanding the parties' as-yet unresolved dispute as to whether the Waste Oil Agreement had been terminated." (Id.) Judge Mann noted that she nevertheless deferred production of these documents until after the Court ruled on the summary judgments motions, in light of (1) "the burden entailed in collecting the demanded information," and (2) "[P]laintiff's acknowledgment that the disputed documents, which related to damages, were not needed in connection with the summary judgment motions . . . ." (Id.)
In light of this procedural history, Judge Mann "swiftly rejected" Plaintiff's motion and stated:
Id. (alteration and internal citation omitted)). Judge Mann further rejected Plaintiff's argument that it would be "irreparably prejudiced" if the claim were referred to arbitration before Defendant is required to produce the relevant documents, reasoning that: (1) "[P]laintiff failed to raise [this argument] a year ago in agreeing to defer production of the documents," and (2) Plaintiff raised the risk of prejudice to the Court in its supplemental briefing. (Id. at 4.)
Summary judgment is proper only when, construing the evidence in the light most favorable to the non-movant, "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); Wandering Dago, Inc. v. Destito, 879 F.3d 20, 30 (2d Cir. 2018); see also Cortes v. MTA NYC Transit, 802 F.3d 226, 230 (2d Cir. 2015). The role of the court "is not to resolve disputed questions of fact but only to determine whether, as to any material issue, a genuine factual dispute exists." Rogoz v. City of Hartford, 796 F.3d 236, 245 (2d Cir. 2015) (first quoting Kaytor v. Elec. Boat Corp., 609 F.3d 537, 545 (2d Cir. 2010); and then citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986)). A genuine issue of fact exists when there is sufficient "evidence on which the jury could reasonably find for the plaintiff." Anderson, 477 U.S. at 252. The "mere existence of a scintilla of evidence" is not sufficient to defeat summary judgment. Id. The court's function is to decide "whether, after resolving all ambiguities and drawing all inferences in favor of the nonmoving party, a rational juror could find in favor of that party." Pinto v. Allstate Ins. Co., 221 F.3d 394, 398 (2d Cir. 2000).
The parties do not dispute that Plaintiff's claim for damages from Defendant's alleged breach of the Waste Oil Agreement is covered by the arbitration clause in the agreement.
Plaintiff asserts that Defendant has waived arbitration and Plaintiff would be prejudiced by Defendant's gamesmanship if the Court were to reach a contrary conclusion. (Pl. Mem. 23-25; Pl. Suppl. Mem.) Defendant contends that Plaintiff cannot establish prejudice, a necessary prerequisite to finding waiver. (Def. Suppl. Mem.)
"Federal policy strongly favors arbitration and waiver of a right to arbitrate is not lightly inferred." Tech. in P'ship, Inc. v. Rudin, 538 F. App'x. 38, 39 (2d Cir. 2013). "This preference for arbitration `[h]as led to its corollary that any doubts concerning whether there has been a waiver are resolved in favor of arbitration.'" PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 107 (2d Cir. 1997) (quoting Leadertex Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995)). Nevertheless, a party waives its right to arbitration "when it engages in protracted litigation that prejudices the opposing party." Tech. in P'ship, 538 F. App'x at 39 (quoting In re Crysen/Montenay Energy Co., 226 F.3d 160, 162 (2d Cir. 2000)). The question of whether a party's pretrial conduct amounts to waiver of the defense of arbitration is a legal question to be decided by the court. Leadertex, 67 F.3d at 25; see Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985) ("[T]he question of waiver of arbitration is one of law . . .").
"In determining whether a party has waived its right to arbitration by expressing its intent to litigate the dispute in question," courts consider the following three factors: "(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice." Sutherland v. Ernst & Young, LLP, 600 F. App'x 6, 7-8 (2d Cir. 2015) (internal quotation marks omitted) (quoting La Stadium & Expo. Dist. v. Merrill Lynch, Pierce, Fenner & Smith Inc., 626 F.3d 156, 159 (2d Cir. 2010)). "There is no rigid formula or bright-line rule for identifying when a party has waived its right to arbitration; rather, the above factors must be applied to the specific context of each particular case." Id. (quoting La Stadium & Expo. Dist., 626 F.3d at 159).
"The key to a waiver analysis is prejudice. Waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated." Id. at 8 (quoting Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 105 (2d Cir. 2002)); see also Leadertex, 67 F.3d at 25 ("Although litigation of substantial material issues may amount to waiver, delay in seeking arbitration does not create a waiver unless it prejudices the opposing party." (citation omitted)). The Second Circuit has recognized "two types of prejudice: substantive prejudice and prejudice due to excessive cost and time delay." Sutherland, 600 F. App'x at 7-8 (citing Thyseen, 310 F.3d at 105). "Prejudice can be substantive, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration." Id. at 8 (quoting Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991)). In contrast to substantive prejudice, prejudice may also "be found when a party too long postpones his invocation of his contractual right to arbitration, and thereby causes his adversary to incur unnecessary delay or expense." Id. (quoting Kramer, 943 F.2d at 179); S&R Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 80, 83-84 (2d Cir. 1998) ("Prejudice results `when a party seeking to compel arbitration engages in discovery procedures not available in arbitration, makes motions going to the merits of an adversary's claims, or delays invoking arbitration rights while the adversary incurs unnecessary delay or expense.'" (quoting Cotton v. Slone, 4 F.3d 176, 179 (2d Cir. 1993))); see also NV Petrus SA, No. 14-CV-3138, 2017 WL 1831096, at *2-3 (E.D.N.Y. May 4, 2017) ("Prejudice `refers to the inherent unfairness — in terms of delay, expense, or damage to a party's legal position — that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate that same issue.'" (quoting Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 134 (2d Cir. 1997))). A court will not find waiver where "delay in trial proceedings was not accompanied by substantial motion practice or discovery." Sutherland, 600 F. App'x at 8 (quoting Thyssen, Inc., 301 F.3d at 105).
Guided by these considerations, the Court finds that Defendant has waived its right to arbitrate the Waste Oil Agreement claim.
While Plaintiff argues that Defendant waited seven months from the time Plaintiff filed the SAC to raise the arbitration issue, (Pl. Suppl. Mem. 2), it is well established that delay, standing alone, cannot support a finding of waiver of the right to arbitrate.
In assessing the amount of litigation for purposes of a waiver analysis, courts find relevant, inter alia, any motion practice engaged in by the parties, and the extent of discovery the parties have exchanged. See, e.g., Tech. in P'ship, Inc., 538 F. App'x at 39 (affirming district court's finding of waiver where the party asserting waiver "had to defend two substantive motions to dismiss, then produce its witness for deposition, comply with an extensive document request, and participate in extended discovery disputes"); S & R Co. of Kingston, 159 F.3d at 83 (observing that the waiver analysis includes consideration of "the amount of litigation (including exchanges of pleadings, any substantive motions, and discovery)").
Since filing the SAC,
Since the filing of the SAC Plaintiff took three depositions of Defendant's current and former employees before Defendant raised the issue of arbitration, and took two additional depositions after Defendant raised the issue of arbitration. (See Pl. Suppl. Mem. 2; Def. Suppl. Mem. 3.) For its part, Defendant has taken two depositions: Joe Ioia, former owner of NYCL, and Stetz, Commercial Lubricants' president and owner. (Id.)
Defendant argues that Plaintiff was not prejudiced by the discovery taken during the seven-month period because Plaintiff's first three depositions revealed information that "did not pertain to the Waste Oil Agreement but was relevant to the other claims pending in this litigation," and although Plaintiff's two additional depositions involved questions regarding the arbitration issue, these depositions are nevertheless "irrelevant" to the Court's waiver analysis, because they took place after Plaintiff was on notice of Defendant's efforts to compel arbitration of the Waste Oil Agreement claim. (Def. Suppl. Mem. 2-3.)
Plaintiff argues it was prejudiced because, inter alia, Stetz "was deposed at length concerning [the] claim for breach of the Waste Oil Agreement." (Pl. Suppl. Mem. 2.) Defendant contends that it had to take the depositions of Ioia and Stetz "in order to discover information" pertinent to other claims in this litigation. (Def. Suppl. Mem. 2.) Defendant further asserts that "although [it] inquired into the Waste Oil Agreement at Ioia's and Stetz's depositions, the majority of the testimony elicited about the Waste Oil Agreement took place during Stetz's second deposition, on July 19, 2016," four months after Defendant indicated that it would seek to arbitrate the claim. (Id. at 2-3.)
The lack of substantive motion practice weighs against a finding of waiver. See Tech. in P'ship, Inc., 538 F. App'x at 39. Although Plaintiff protests that it was forced to "brief[] the arbitration issue along with the underlying merits of the Waste Oil Agreement claim in opposition to [Defendant's] motion for summary judgment," (Pl. Suppl. Mem. 3), the Court is not persuaded by this argument because (1) Plaintiff did not brief the merits of the claim for breach of the Waste Oil Agreement, and (2) Plaintiff's opposition to Defendant's request to compel arbitration was served nine months after Defendant indicated its intent to enforce the arbitration provision.
Plaintiff's opposition brief contains no briefing of the "underlying merits of the Waste Oil Agreement claim." (See Pl. Opp'n 23-25.) In addition, Plaintiff did not respond to Defendant's argument that it terminated the Waste Oil Agreement with its Pay-For-Oil Rate Reduction Letter — the only merits-based argument relating to the Waste Oil claim addressed in Defendant's motion.
As to Plaintiff's argument that it was forced to brief the arbitration issue, Plaintiff's opposition was served December 14, 2016, nine months after Defendant indicated its intent to invoke the arbitration clause. (See Docket Entry Nos. 41-46.) During the telephone conference before Judge Mann on October 19, 2016, Plaintiff's counsel expressly represented that "the disputed documents . . . were not needed in connection with the summary judgment motions." (Mem. and Order dated Dec. 28, 2017 at 2.) Plaintiff therefore cannot now rely on the summary judgment motion practice to support its argument that the litigation activity in this case militates in favor of finding waiver.
Nevertheless, the Second Circuit has expressly rejected any rule "that a party must have made dispositive motions on the merits in order to be deemed to have waived arbitration," finding "no case that supports the argument that such motions are required before waiver can be found." S & R Co. of Kingston, 159 F.3d at 84. Aside from Defendant's summary judgment motions, the litigation in this case "was hardly dormant" during the seven-month period between the filing of the SAC and Defendant's pre-motion conference letter raising the issue of arbitration. See Louisiana Stadium & Exposition Dist., 626 F.3d at 159-60 (observing that no discovery took place during eleven-month delay, but "the litigation was hardly dormant" and the "facts demonstrate[d] that the parties spent a significant amount of time and expense litigating" before arbitration was sought). During this period, the parties "propounded and responded to various discovery requests," which discovery was "largely complete," according to the parties' status report submitted one month before Defendant raised the arbitration issue. (Joint Status Report 2.) As discussed above, the parties also engaged in active settlement negotiations,
Notwithstanding the above, the first two factors of the Court's analysis do not resolve the issue, because "[t]he key to a waiver analysis is prejudice"; without prejudice, there can be no waiver of the right to arbitrate a dispute. Sutherland, 600 F. App'x at 8 (quoting Thyssen, Inc., 310 F.3d at 105); see In re Enron Corp., 364 B.R. 489, 511 (Bankr. S.D.N.Y. 2007) ("[I]t is the presence or absence of prejudice that is determinative of the issue of waiver." (citing Lubrizol Int'l, S.A. v. M/V Stolt Argobay, 562 F.Supp. 565, 573 (S.D.N.Y. 1982))). Moreover, "[p]rejudice is not presumed based on the timing of [an] arbitration demand and . . . participation in litigation [by the party seeking arbitration] — i.e., the first two prongs of the three-part waiver inquiry-standing alone." Nat'l Union Fire Ins. Co. of Pittsburgh, P.A. v. NCR Corp., 376 F. App'x 70, 72 (2d Cir. 2010). Rather, "[p]rejudice results `when a party seeking to compel arbitration engages in discovery procedures not available in arbitration, makes motions going to the merits of an adversary's claims, or delays invoking arbitration rights while the adversary incurs unnecessary delay or expense.'" S&R Co. of Kingston, 159 F.3d at 83-84 (quoting Cotton, 4 F.3d at 179). Stated differently, "[p]rejudice . . . refers to the inherent unfairness — in terms of delay, expense, or damage to a party's legal position — that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate that same issue." Nat'l Union Fire Ins. Co. of Pittsburgh, P.A., 376 F. App'x at 72 (quoting In re Crysen, 226 F.3d at 162-63). "Prejudice can be substantive, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration." Sutherland, 600 F. App'x at 8 (quoting Kramer, 943 F.2d at 179).
Although Defendant's efforts do not reflect an attempt to relitigate a motion on the merits, severing the arbitration claim would damage Plaintiff's legal position and cause substantive prejudice. After repeated follow-up requests, and motion practice before Judge Mann, Plaintiff has established its entitlement
Defendant argues that severing the claim before producing the disputed documents would cause no prejudice to Plaintiff because, "[e]ven if the rules of arbitration do not specifically permit discovery, the modern trend in arbitration is to provide for depositions and the exchange of documents just as in litigation," and the fact that such documents "might be unavailable at arbitration" is insufficient to establish prejudice. (Def. Suppl. Mem. 3.) Defendant also argues that "[t]o the extent [Plaintiff] alleges that [Defendant] must produce additional documents, such a request can be made and fulfilled in the arbitral forum." (Id.)
These arguments are not persuasive. Defendant offers little authority and no analysis of the rules of the American Arbitration Association to support its claim that "the modern trend" in arbitration is to permit litigation-like discovery.
The Court is mindful that "[t]here is no rigid formula or bright-line rule for identifying when a party has waived its right to arbitration," and the above factors must be applied "to the specific context" of each case. Sutherland, 600 F. App'x at 7-8 (quoting La Stadium & Expo. Dist., 626 F.3d at 159). Considering the prejudice Plaintiff would suffer if the parties are required to arbitrate this claim, in addition to the extensive discovery discussed above, the Court finds that Defendant has waived the right to arbitrate the dispute regarding its purported breach of the Waste Oil Agreement.
Defendant argues in the alternative that the Pay-for-Oil-Reduction Letter served as notice of termination of the Waste Oil Agreement, and the Waste Oil Agreement was therefore terminated effective February 14, 2015, precluding Plaintiff's claims to damages after this date.
"When interpreting a contract, the intention of the parties should control, and the best evidence of intent is the contract itself." Cont'l Ins. Co. v. Atl. Cas. Ins. Co., 603 F.3d 169, 180 (2d Cir. 2010) (quoting Rothstein v. Am. Int'l Grp., Inc., 837 F.3d 195, 205 (2d Cir. 2016)); see also Biremis, Corp. v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 11-CV-4934, 2012 WL 760564, at *5 (E.D.N.Y. Mar. 8, 2012) ("As with any issue of contract interpretation, the court begins with the language of the contracts at issue."); Dittman v. Dyno Nobel, Inc., No. 97-CV-1724, 2000 WL 151950, at *2 (N.D.N.Y. Feb. 10, 2000) ("Contract interpretation begins with the plain language of the contract."). There is no dispute that the Waste Oil Agreement permitted either party to terminate the contract upon sixty days' prior written notice. (Waste Oil Agreement 1.)
The Court finds that the Pay-For-Oil Rate Reduction Letter served as notice of termination of the Waste Oil Agreement, and that the Waste Oil Agreement was therefore terminated effective February 14, 2015. Stetz testified at his deposition that he understood the Pay-For-Oil Rate Reduction Letter to terminate the Waste Oil Agreement:
(Gary Stetz Dep. 224-25.)
Plaintiff failed to address this issue in its opposition brief and has arguably waived any claim for damages after February 14, 2015. See Jackson v. Fed. Exp., 766 F.3d 189, 198 (2d Cir. 2014) ("[I]n the case of a counseled party, a court may, when appropriate, infer from a party's partial opposition that relevant claims or defenses that are not defended have been abandoned.").
None of Plaintiff's arguments support the conclusion that the Waste Oil Agreement remained in force sixty days after Defendant served the Pay-For-Oil Rate Reduction Letter. As an initial matter, while Plaintiff's 56.1 statement denies that Stetz acknowledged that the Pay-For-Oil Rate Reduction Letter terminated the Waste Oil Agreement, (see Pl. 56.1 ¶ 21), Plaintiff's denial cannot refute the uncontroverted testimony of Stetz acknowledging that he understood the Pay-For-Oil Rate Reduction Letter to terminate the Waste Oil Agreement.
Moreover, the documents Plaintiff relies on to dispute Stetz's acknowledgment — Defendant's Answer to the Amended Complaint and Counterclaims — do not relate to the Waste Oil Agreement and therefore cannot support its argument. (Pl. Resp. to Def. 56.1 ¶ 21, Docket Entry No. 45 (citing Def. Answer and Counterclaims to Am. Compl. and Counterclaims, annexed to Reynolds Decl. as Ex. LL, Docket Entry Nos. 45-11 and 45-12).) As discussed supra, Plaintiff's Amended Complaint did not contain a claim for breach of the Waste Oil Agreement, and Defendant's Answer consequently includes no information relevant to this issue. Similarly, Defendant's Counterclaim and the attached documents relate to breach of the Distributor Agreement and contain no relevant information about the Waste Oil Agreement. See Potash v. Fla. Union Free Sch. Dist., 972 F.Supp.2d 557, 564 (S.D.N.Y. 2013) (observing that the plaintiff's Rule 56.1 statement was "deficient" because, inter alia, it "purport[s] to deny facts properly set forth by Defendants' 56.1 Statement with a citation to evidence that does not support Plaintiff's purported denial").
In addition, Plaintiff's argument that the Pay-For-Oil Rate Reduction Letter did not serve as notice of termination because it does not contain the word "termination" is also unpersuasive, as the Waste Oil Agreement does not prescribe a specific process or term to comply with the notice requirement. See Brockhaus v. Gallego Basteri, 188 F.Supp.3d 306, 317 (S.D.N.Y. 2016) ("[W]here the contract does not require any particular language in the notice of termination, there are no magic words that need to be uttered as long as the notice evinces clear intent to terminate." (citing G.B. Kent & Sons, Ltd. v. Helena Rubinstein, Inc., 47 N.Y.2d 561, 561 (1979))); Nat'l Gear & Piston, Inc. v. Cummins Power Sys., LLC, 861 F.Supp.2d 344, 362 (S.D.N.Y. 2012) ("[T]he Second Circuit has declined `to construe the notice provision as if it were a common law pleading requirement under which every slip would be fatal.'" (first quoting Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918, 925 (2d Cir. 1977); and then citing RBFC One, LLC v. Zeeks, Inc., 367 F.Supp.2d 604, 617 (S.D.N.Y. 2005))).
Lastly, while the Pay-For-Oil Rate Reduction Letter states that "[o]ther terms and conditions of our oil collection service are unchanged," Plaintiff does not point to any other "terms and conditions" it believes were still in effect after February 14, 2015. As noted above, Stetz testified expressly that he understood the Pay-For-Oil Rate Reduction Letter to terminate "the contract."
Because the Pay-For-Oil Rate Reduction Letter served as the sixty-days notice to terminate the Waste Oil Agreement, the Waste Oil Agreement was terminated effective February 14, 2015.
However, notwithstanding the Court's conclusion that the Waste Oil Agreement was terminated effective February 14, 2015, the Court cannot conclude as a matter of law that Plaintiff may not recover any post-termination damages. Defendant's argument that Plaintiff is not entitled to damages after February 14, 2015 is based on the Waste Oil Agreement's termination; however, whether Plaintiff may be able to pursue damages on alternative legal theories other than based on the contract is not before the Court.
For the foregoing reasons, the Court grants Defendant's motion for summary judgment as to Plaintiff's claim for breach of the Waste Oil Agreement.
SO ORDERED:
(Waste Oil Agreement 2.)
