No Deference to Litigation-Conduct Waiver Holding Based on “Conclusory Assertions,” Holds Fifth Circuit

In Int’l Energy Ventures Mgt. v. United Energy Grp., No. 20-20221 (5th Cir. May 28, 2021), the Fifth Circuit reverses – on the case’s second appearance in that court – an order compelling arbitration, based on the plaintiff’s three-year “persistent pursuit of litigation.”

“International Energy Ventures Management (‘IEVM’) sued United Energy Group (‘UEG’) more than seven years ago. Since then, the dispute has bounced back and forth between three courts and two arbitrations.” Despite that the parties included an unambiguous arbitration term in their supplemental services contract, “IEVM sued UEG in Texas state court in July 2013. It alleged that despite the initial and supplemental agreements, UEG continued not to pay IEVM for services rendered.” UEG removed to federal court.

Three months into its own case, “IEVM moved to compel arbitration. The district court suspended all briefing on that motion and all other case deadlines pending resolution of UEG’s motion to dismiss. So IEVM filed a demand for arbitration with the American Arbitration Association (‘AAA’) on its own. UEG promptly moved to dismiss the arbitration on the theory that IEVM had waived its right to arbitrate through its litigation conduct in state and federal court.”

In the next round of the case, Arbitrator McGowen ordered the proceeding dismissed “based on IEVM’s ‘decision to seek substantive relief in court,’ its opposition to UEG’s motion to dismiss, its motion to remand, and its participation in the parties’ joint case-management plan” (the McGowan Award). Meanwhile, the district court dismissed the original case on personal jurisdiction grounds, a holding affirmed by the Fifth Circuit. Int’l Energy Ventures Mgmt. v. United Energy Grp., 818 F.3d 193 (5th Cir. 2016). IEVM sought rehearing en banc, which was denied.

IEVM then refiled its litigation and arbitration. Arbitrator Davis, as with the McGowen Award, “held that IEVM had waived its right to arbitrate for many of the same reasons that persuaded McGowan …. With round two of arbitration completed, IEVM returned to litigation yet again. It asked the district court to vacate the Davis Award and compel arbitration on grounds that Davis had exceeded his authority and UEG hadn’t established the elements of waiver.”

“Two years later, the district court issued a five-page ‘Opinion on Arbitration.’” The district court held that despite the several years of court proceedings, “this case has mostly been a game of cat-and-mouse. Litigation of this sort does not waive arbitration.”

The Fifth Circuit reverses. It first holds that litigation-conduct waiver is a gateway issue for the court, rather than an issue for arbitration. “Most circuits to consider the issue have held that litigation-conduct waiver is presumptively a judicial matter …. We aligned with that majority in two recent unpublished decisions. And we see no reason to change course here. As we explained … ‘parties would expect [a] court to decide litigation-conduct waiver’ because the issue ‘implicates courts’ authority to control judicial procedures or to resolve issues arising from judicial conduct.’”

The panel also holds that the parties did not “clearly and unmistakably” delegate the waiver issue to the arbitrator by virtue of expressly adopting the AAA rules. “[T]he rules do not expressly give arbitrators the power to resolve questions of waiver through litigation. So incorporation of those rules cannot supply the clear and unmistakable agreement that is required here.” Finding no other basis for delegation, the panel “conclude[s] that the parties failed to contract around the general rule that courts resolve litigation-conduct waivers.”

Reaching the merits, the panel holds that IEVM waived arbitration. Litigation-conduct waiver is found “‘when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party.’” The panel finds both elements satisfied.

“Here, IEVM sued UEG in state court without saying anything about arbitration. It demanded a jury trial and paid the required fee. It filed a motion to remand the action to state court and appealed the district court’s denial of that motion. It vigorously defended the existence of personal jurisdiction in Texas and appealed the district court’s personal jurisdiction dismissal. And it sought rehearing en banc after this court affirmed the district court’s removal and jurisdictional holdings. Only after we denied its rehearing petition did IEVM initiate the Davis arbitration.”

The panel also finds sufficient delay and expense to constitute prejudice. “Among other things, IEVM’s persistent pursuit of litigation required UEG to defend its interests by:

“• removing the case to federal court,

“• opposing IEVM’s motion to remand,

“• filing a motion to dismiss for lack of personal jurisdiction,

“• preparing a joint discovery and case-management plan,

“• filing an appellate brief defending the district court’s dismissal,

“• traveling to New Orleans to participate in oral argument,

“• filing a petition for rehearing after we initially reversed the district court, and

“• responding to IEVM’s rehearing petition after we ultimately affirmed the district court.”

Although the district court found no prejudice, the panel refuses to credit the holding. “the district court’s analysis contains no factfinding. Rather than carefully review the record for prejudice like McGowan and Davis did, the district court dismissed IEVM’s prejudicial litigation as a harmless jurisdictional ‘game of cat-and-mouse.’ We owe no deference to such conclusory assertions.”

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