United States District Court, D. Utah, Central Division
D. RAY STRONG, as Liquidating Trustee of the Consolidated Legacy Debtors Liquidating Trust, the Castle Arch Opportunity Partners I, LLC Liquidating Trust and the Castle Arch Opportunity Partners II, LLC Liquidating Trust, Plaintiff,
KIRBY D. COCHRAN, et al., Defendants.
ORDER AND MEMORANDUM DECISION
CAMPBELL, U.S. DISTRICT COURT JUDGE
William H. Davidson has moved to compel arbitration of claims
brought by Plaintiff D. Ray Strong (Trustee) on behalf of the
Series E investors in CAREIC. He has also filed a motion to
dismiss which is not the subject of this order. The court
will hear the merits of the motion to dismiss at the May 16,
2017 hearing, but now the court denies Mr. Davidson's
demand for an order compelling arbitration because he has
waived his right to arbitrate those claims.
Davidson correctly points out that the arbitration clause of
the CAREIC Amended Operating Agreement required arbitration
of certain claims in the Complaint. Indeed, the court ordered
arbitration of claims 1 and 8 in May 2015 after Defendants
Jeff Austin and Austin Capital Solutions (“Austin
Defendants”) moved for an order compelling arbitration.
(See May 5, 2015 Order, ECF No. 44; Austin
Defs.' Mot. Compel Arbitration etc., ECF No. 12.) Later,
after the Austin Defendants filed a second motion to compel
arbitration of other claims (filed in July 2015)
(see ECF No. 45), the Trustee agreed to submit
all of the claims to arbitration. The court followed
with an order to that effect. (See Aug. 20, 2015
Order, ECF No. 55.)
on that order, the Trustee, in October 2015, initiated
arbitration before the American Arbitration Association
(AAA). Mr. Davidson paid his portion of the AAA fees (each
party owed approximately $3, 800). But the Austin Defendants
and Defendant Child Van Wagoner & Associates did not. The
AAA notified the parties of the problem and said that
“any party may make a deposit on behalf of the
non-paying parties to avoid any possible interruption of the
case.” (Letter from AAA to counsel for parties (Oct.
18, 2016), ECF No. 127 at p. 12.) No party, despite the
opportunity and right to do so, covered the unpaid fees.
Nothing in the record suggests that Mr. Davidson, when the
possibility for avoiding dismissal still existed, raised
concerns with the parties or the AAA, for example by
objecting to the AAA's time frame for covering the unpaid
fees or the AAA's proposal to dismiss the arbitration.
And nothing in the record shows that Mr. Davidson objected to
the AAA's termination of the arbitration. In November
2016, the AAA, after a series of communications with the
parties, dismissed the arbitration due to non-payment.
(Letter from AAA to counsel for parties (Dec. 19, 2016), ECF
No. 127 at p. 23.)
point, the Trustee approached the court with a request to
return resolution of the claims to this venue. (See
Trustee's Dec. 22, 2016 Status Rep. & Request for
Status Conference, ECF No. 80.) Mr. Davidson did not file an
opposition to the Trustee's request. During the
court's January 17, 2017 status conference, the parties
discussed the Trustee's request to re-open court
proceedings after the AAA decision and lift the arbitration
stay. Mr. Davidson, who was represented at that hearing, did
not object. (See Tr. of Jan. 17, 2017 Status
Conference, ECF No. 126-1.) On January 30, 2017, the court
lifted the stay and ordered the parties to proceed to regular
litigation. (See Jan. 17, 2017 Minute Entry, ECF No.
91; Jan. 30, 2017 Order, ECF No. 92.) During the last three
months the parties have held an attorneys' planning
meeting, filed a planning meeting report, and either answered
the complaint or filed motions to dismiss. In addition, on
April 24, 2017, the court entered a scheduling order (ECF No.
136) following the parties' April 12, 2017 initial
pretrial conference. Mr. Davidson participated in those
activities without placing any objection on the record.
two months after the court lifted the stay and four months
after the arbitration ran its course, Mr. Davidson asserts
the right to arbitrate his claims because he paid his AAA
fees and actively participated in the truncated arbitration.
issue is referable to arbitration, a court, under the Federal
Arbitration Act (FAA), 9 U.S.C. §§ 1-16,
“shall, on application of one of the parties stay the
trial of the action until such arbitration has been had in
accordance with the terms of the [arbitration] agreement,
providing the applicant for the stay is not in default in
proceeding with such arbitration.” Id. §
3. Additionally, “[a] party aggrieved by the alleged
failure, neglect, or refusal of another to arbitrate under a
written agreement for arbitration may petition any United
States district court” for an order compelling
arbitration. Id. § 4. If a party files a motion
to compel arbitration under the FAA, and if the court has
determined that the arbitration agreement is valid and
applicable, the statute requires the court to order
“the parties to proceed to arbitration in accordance
with the terms of the agreement.” Id.
noted above, the court has already gone through this
procedure. Given the circumstances, the court finds that Mr.
Davidson waived his right to arbitrate.
is axiomatic that ‘the right to arbitration, like any
other contract right, can be waived.'” Healy v.
Cox Comm's, Inc., 790 F.3d 1112, 1115 (10th Cir.
2015) (quoting Reid Burton Constr., Inc. v. Carpenters
Dist. Council of S. Colo., 614 F.2d 698, 702 (10th Cir.
1980)). The Tenth Circuit requires the court to consider the
following six factors when determining whether a party has
waived its right to compel arbitration. Id. at 1114,
1116 (citing Peterson v. Shearson/Amer. Inc., 849
F.2d 464 (10th Cir. 1988)).
(1) whether the party's actions are inconsistent with the
right to arbitrate; (2) whether the litigation machinery has
been substantially invoked and the parties were well into
preparation of a lawsuit before the party notified the
opposing party of an intent to arbitrate; (3) whether a party
either requested arbitration enforcement close to the trial
date or delayed for a long period before seeking a stay; (4)
whether a defendant seeking arbitration filed a counterclaim
without asking for a stay of the proceedings; (5) whether
important intervening steps [e.g., taking advantage of
judicial discovery procedures not available in arbitration]
had taken place; and (6) whether the delay affected, misled,
or prejudiced the opposing party.
Id. at 1116. Rather than applying the factors in a
“mechanical process, ” the court should use them
as a guide. Id.
first, third, fifth, and sixth factors weigh in various
degrees against Mr. Davidson. Once Mr. Davidson learned that
the arbitration was in jeopardy, his failure to
contemporaneously object and his participation in pre-trial
proceedings over the last three months are inconsistent with
his asserted right to arbitrate. Between October 18, 2016,
and December 19, 2016, the AAA warned the parties three times
that the arbitration was in danger of being dismissed, but
Mr. Davidson said nothing and did nothing in an attempt to
save the arbitration proceedings. Then, when the issue to
lift the stay was presented to the court, he did not object.
He did not raise the arbitration issue when the parties
negotiated a scheduling order. He participated in a pre-trial
conference and coordinated with other parties to create a
scheduling order. He waited months before saying
anything. His delay misled and now prejudices the