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Producers Credit Corp. v. Fletcher

United States District Court, M.D. Georgia, Macon Division

January 23, 2019

PRODUCERS CREDIT CORPORATION, Plaintiff,
v.
CHARLES A. FLETCHER, et al., Defendants.

          ORDER

          MARC T. TREADWELL, UNITED STATES DISTRICT COURT JUDGE.

         Third Party Defendants Rob Fletcher, Angela Fletcher, and Silver Dollar Farms[1]have moved to stay the case pending arbitration and compel arbitration of the claims between Third Party Plaintiff Charles A. Fletcher and the Third Party Defendants. Doc. 21. After careful consideration, the Court concludes that the Third Party Defendants have waived their contractual rights to arbitration. Accordingly, the motion is DENIED.

         I. BACKGROUND

         This matter arises from an alleged non-payment of a debt owed to Producers Credit Corporation (“PCC”) by Charles Fletcher. Docs. 1; 8. After PCC sued Charles for failing to pay a promissory note, Charles filed a third party complaint against the Third Party Defendants, alleging that the Third Party Defendants are liable to him for all or part of the claim asserted against him by PCC. See generally id.

         In the underlying claim, which was filed on May 2, 2018, PCC alleges that Charles failed to pay a promissory note.[2] Doc. 1. Charles filed his third party complaint on May 24, 2018, alleging that he, Rob, and Angela entered into a partnership agreement, creating Silver Dollar Farms. Doc. 8 ¶ 11. The Agreement required the parties to “indemnify each partner in respect of payments made and personal liabilities reasonably incurred by each partners [sic] in the ordinary and proper conduct of the partnership business or for the preservation of the business or property of the partnership.” Id. ¶ 17. Charles alleges that the debt he incurred from PCC was “intended solely for the benefit” of Silver Dollar Farms, and the Third Party Defendants are thus also liable for the PCC debt. Id. ¶¶ 23, 35-36.

         The parties engaged in the following litigation activity up until the filing of its motion to compel arbitration: (1) the Third Party Defendants filed an answer to the third party complaint, wherein the Third Party Defendants admitted that the first ten pages of the Agreement-including the arbitration clause-were true and correct, but yet did not raise the issue of arbitration (Doc. 14); (2) both parties participated in a Rule 26(f) conference and prepared and filed a joint scheduling and discovery order, which does not mention arbitration, but rather announced the parties', including the Third Party Defendants', intentions to engage in all types of discovery permissible under the Federal Rules of Civil Procedure, e.g., interrogatories, requests for production of documents and admissions, and depositions (Doc. 18); and (3) since the entry of the scheduling and discovery order on August 9, 2018, both parties participated in discovery, including providing and amending initial disclosures, and, significantly, the Third Party Defendants noticed and took Charles' deposition (Docs. 26-1; 26-2; 26-3; 27 ¶ 3).

         On November 12, 2018, one day before Charles' noticed deposition, the Third Party Defendants moved to stay the case and compel arbitration pursuant to Article XVIII of the Agreement creating Silver Dollar Farms. Doc. 21. Nonetheless, the Third Party Defendants proceeded with the deposition. Docs. 26-3; 27 ¶ 3.

         Article XVIII of the Agreement provides,

It is agreed that disputes arising under this agreement, or under any instrument made to carry out the terms of this agreement, shall be submitted to arbitration in accordance with the arbitration laws of the State of Georgia.

Doc. 8-1 at 9. Charles filed a response, arguing that the Third Party Defendants have waived their rights to arbitration. Doc. 26 at 6. The Third Party Defendants did not file a reply.

         II. DISCUSSION

         In response to the Third Party Defendants' motion to stay the case and compel arbitration, Charles does not challenge the existence of the arbitration agreement, the applicability of the Federal Arbitration Act, [3] or the premise that his claims are covered by the arbitration agreement. Doc. 26. Rather, Charles contends that the Third Party Defendants, through their conduct in this litigation, have waived their rights to demand arbitration under the Agreement. Id. at 6. As a threshold matter, questions of whether a party, by earlier litigating in court, has waived its right to arbitrate is presumptively for the courts-and not the arbitrators-to decide. Grigsby & Assocs., Inc. v. M Sec. Inv., 664 F.3d 1350, 1353 (11th Cir. 2011). “This presumption leaves the waiver issue to the decisionmaker with greater expertise in recognizing and controlling abusive forum-shopping.” Id. at 1354 (citations omitted). Thus, absent “clear and unmistakable evidence of an agreement to the contrary, disputes regarding conduct-based waiver are left to the courts to decide.” Plaintiff's S'holders Corp. v. S. Farm Bureau Life Ins. Co., 486 Fed.Appx. 786, 789 (11th Cir. 2012) (quotation marks and citations omitted). Here, the Third Party Defendants have not shown “clear and unmistakable evidence” that the parties intended to arbitrate the issue of waiver. In fact, the Third Party Defendants do not discuss this threshold matter in their brief. Accordingly, the Court, and not an arbitrator, will decide whether the Third Party Defendants have waived their rights to arbitrate.

         While the FAA, which governs the Third Party Defendants' motion, creates a strong federal policy favoring enforcement of arbitration agreements, a party may, by its conduct, waive its rights to arbitration. S & H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990) (citations omitted). This determination is made using a two-part test. First, courts decide if, under the totality of the circumstances, the party has acted inconsistently with its arbitration rights, such as by “substantially invok[ing] the litigation machinery prior to demanding arbitration.” Garcia v. Wachovia Corp., 699 F.3d 1273, 1277 (11th Cir. 2012) (citations omitted). Second, courts examine whether those inconsistent actions by the movant have “in some way prejudiced the other party, ” based on factors such as “the length of delay in demanding arbitration and the expense incurred by that party from participating in the litigation process.” Id. (citations omitted). And because federal policy strongly favors arbitration, the party arguing waiver “bears a heavy burden of proof” under this two-part test. Krinsk v. SunTrust Banks, Inc., 654 F.3d 1194, 1200 n.17 (11th Cir. 2011) (citations omitted). Charles has met that burden.

         Here, it is clear that the Third Party Defendants waived their rights to arbitration under the two-part test. First, given the totality of the circumstances, the Court concludes that the Third Party Defendants have acted in a manner inconsistent with their contractual rights to arbitrate. As mentioned above, the Third Party Defendants actively and substantially participated in this litigation and failed to raise the arbitration issue, despite having many opportunities to do so. The Third Party Defendants filed their answer; participated in a Rule 26(f) conference and prepared and filed a joint scheduling and discovery order; and participated in discovery, including providing initial disclosures and taking Charles' deposition. The Court agrees ...


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