Joca-Roca Real Estate, LLC sued Robert T. Brennan asserting claims of fraud and breach of contract arising out of an agreement between the two parties which contained an arbitration clause. Although Brennan raised the failure to arbitrate as an affirmative defense, it never pursued arbitration. Instead, the parties engaged in significant discovery. On the eve of trial, Joca-Roca moved to stay the proceedings pending arbitration. Both the magistrate judge and the district court denied the motion to stay, finding that Joca-Roca waived its arbitral rights.
On appeal, the First Circuit noted that, while federal law favors agreements to arbitrate, arbitration clauses can be waived expressly or through conduct. In determining whether a conduct-based waiver occurred, a court must ascertain whether there has been undue delay in the assertion of arbitral rights and whether, if arbitration supplanted litigation, the other party would suffer unfair prejudice. The longer the delay and the more extensive the litigation-related activities that have taken place, the stronger the inference of prejudice. Joca-Roca’s attempt to invoke the arbitration was deemed not only untimely, but unsupported by an explanation for the belated request. Moreover, during this time, Brennan was prejudiced because he was forced to engage in discovery which would not have been required in arbitration. The prejudice to Brennan was even greater given the looming trial date. On this basis, the First Circuit affirmed the lower court’s ruling denying Joca-Roca’s motion to stay the proceedings pending arbitration. Joca-Roca Real Estate, LLC v. Brennan, No. 14-1353 (1st Cir. Dec. 1, 2014).