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Case number 17-7104.

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Stephen Heller versus Dream Catcher LLC and L. Appellants.

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Mr. Katz for the Appellants.

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Mr. Crawford for the Appellate.

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May it please the Court.

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Good morning, Your Honors.

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Good morning.

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This case, before Your Honors, is entirely a matter of law.

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The ruling below is subject to a de novo review by Your Honors.

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No discretion is appropriate, and in fact it should be reversed on many grounds.

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Primarily, we ask that Your Honors reverse otherwise

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what otherwise might be looked at as controlling law in this precedent.

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We ask that Your Honor reverse Zuckerman Spader, or at least heavily clarify Zuckerman Spader.

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Well, we can't do that as a three-judge panel.

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We can do that as an in-bank court, at least as to reversing.

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Yes, Your Honor.

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In terms of clarification,

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Your honors, I believe, can rely on Supreme Court precedent without being bound by Zuckerman's Vader in that respect.

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So I apologize.

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I do ask that your honors look to the controlling Supreme Court precedent.

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And bear in mind that every other circuit in this country has deemed the right of arbitration as one that can be waived but not forfeited.

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It's only this circuit, only as of 2011 in Zuckerman and Spader, that indicated that waiver is not the correct analysis, but rather it's forfeiture.

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Zuckerman and Spader realized it was parting with 40 years of this own circuit's jurisprudence.

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It recognized whether Moses Cone Memorial Hospital, the Supreme Court, and several other Supreme Court cases that all mandate

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the preferential treatment of arbitration agreements that mandate arbitration, that any doubts be resolved in favor of arbitration.

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But yet, in Zuckerman-Spader, the court, the circuit court, this circuit walked away from the waiver analysis and all that that imports.

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Can I ask a question on Zuckerman, which is that

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We said that it needs to be raised at the first available opportunity.

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I just want to go factually here in this case.

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It seems like there were a variety of opportunities for this to be raised before it was, in fact, raised.

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And so, therefore, isn't that a problem under Zuckerman's first available opportunity language?

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Your Honor, the waiver versus forfeiture would play directly into that because waiver requires the, is the knowing, the relinquishment of a known right, or the known relinquishment of a known right.

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Forfeiture occurs as a matter of law.

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The court below didn't care whether or not... Just on my question, I understand your point on that, and I recognize your point on that.

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There were opportunities in the proceedings to raise this correct and it was not raised.

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So the answer is filed.

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Um, initial motion is dismissed, and I realize that was the individual defendants.

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There's the scheduling conference, the meet and confer.

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There were various proceedings that took place until this was finally raised, correct?

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That's correct.

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Uh, it's correct, Your Honor.

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The appellants raised arbitration within three days of learning of the arbitration agreement.

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When you say raised, tell us what you did to raise arbitration within three days.

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We reserved the rights that we invoked our desire to arbitrate.

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You didn't invoke, did you?

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You may have stated that you were reserving, but you did not invoke, did you?

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We demonstrated an intention.

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What were your words?

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Of course, indulgence.

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It's in the footnote, right?

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It's in the footnote, yes, Your Honor.

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And I thought it merely referred to reserving.

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Yeah, that's what I'm suggesting, that you did not invoke.

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You didn't say we want arbitration.

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You said we're reserving the question of arbitration.

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But Your Honor, it's not

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The law is not a system of words and semantics.

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The law is all about semantics.

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It's all about words and semantics.

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It ought not to be.

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And I don't think that the Supreme Court established the FAA that way.

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The words were, this motion to dismiss is filed without prejudice to specifically reserving and without waiving Dreamcatcher's right to compel arbitration of all claims not otherwise dismissed.

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When did you first attempt to invoke that supposed right of arbitration?

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It was not within 30 days.

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We contend that footnote was an invocation of the right to arbitration.

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Zuckerman and Spader itself talks... Is reservation and invocation the same thing?

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I believe so, Your Honor.

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You do?

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Zuckerman and Spader... Is waiver and forfeiture the same thing then?

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No, absolutely not.

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So that's an okay use of semantics there then.

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Zuckerman and Spader itself talks about the desire to rely on arbitration.

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We made that clear.

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We couldn't be clearer.

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This motion to dismiss is filed without prejudice.

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Yes, you could.

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You could be far clearer if you intended to invoke the arbitration.

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You didn't say you were invoking the arbitration.

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You said you deserved it, but you didn't claim it at that point.

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Your Honor, the rules of the trial court require that any motion, consent needs to be sought.

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We were waiting.

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We had sought consent before filing this.

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We didn't know if the answer would come down yes or no.

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We couldn't yet file a motion to arbitrate.

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We filed a motion to dismiss.

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We invoked, we reserved the right.

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We demonstrated to everybody.

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We let everybody know there's an arbitration agreement here.

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Within three days of when we learned about it, when I say we, those that understand the law,

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How long has the litigation been going on at that point?

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The three days you're talking about, isn't it?

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What's that measured from?

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Within three days after what?

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To address the no relinquishment.

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Within three days after what?

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after counsel learned of the existence of an arbitration.

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How long had the litigation been going on at that point?

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It had been, it had been, it was removed to the federal, to the federal court in October.

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And what, when was this, when did this three days commence?

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It was learned on January 10th.

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And litigation had been in federal court since October at that point, and it was January.

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So that's,

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three months there and then there was some time from the filing in D.C.

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Court.

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Before that, wasn't it?

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Your Honor, if I may, my time is running, if I may, and that delay itself doesn't constitute prejudice.

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Zuckerman's later recognized that.

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Okay, but Zuckerman said it typically has to be filed at the first available, or it has to be filed at the first available opportunity and typically that would be

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in the first responsive pleading, and it wasn't done here that way.

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And there's a savings clause in the district administrator as well, recognizing, I think, that delay alone does not constitute prejudice.

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It wasn't just delay, though.

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They had to file

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they had a file and there was some discovery as well, right?

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Limited, I take that, but there's not zero cost here.

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Your Honor, there was no discovery filed until after, in fact, the actual motion to arbitrate, to compel arbitration.

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So in that sense, you know, you certainly can't, this Court certainly could not look at things filed after the motion to arbitrate as

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As being costs at that point the initial there's a scheduling conference.

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I mean for there's the one schedule initial the initial disclosures.

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This court this panel needs to put needs to address de minimis needs to address what it constitutes de minimis is one scheduling is appearing to one scheduling conference is that cost.

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Council is 10 minutes away from this courthouse.

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It is a cost.

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It might be.

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Is it a cost that rises to overturn and to undermine the Supreme Court's high favorability towards arbitration?

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Does the Supreme Court adopt a rule that we're going to take into account when Council figures out?

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what the papers are, and that's the way we start counting?

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That can't be your test.

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You said I did it with a – it was done within three days after we figured it out.

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That doesn't sound like an appropriate test.

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If we demonstrate it was not a knowing relinquishment, then I would say yes, Your Honor.

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No, but the question is how long counsel on behalf of clients can delay before informing the court and the other side.

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It's just like there are rules with respect to raising

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You've got to act within some kind of timely period.

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And no, it's not within your control to do it whenever it's appropriate or whenever you figure it out.

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No, that's not the rule.

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I ask that Your Honor, as considered, Zuckerman Spader had been before the trial court for close to two years.

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There were three various amended complaints.

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There were counterclaims.

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There were depositions taken.

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There was a mediation with a settlement judge of the court.

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After all that,

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Arbitration was requested.

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That is not this case.

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Thank you.

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What was the result in that case?

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What did we hold in Zuckerman's case?

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That all that, all that was a, was prejudice because of the costs.

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Two years of litigation, depositions, counterpoints.

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Did we give any indication that it was necessary that there be that much time or that much cost?

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Zuckerman and Spader said that, you know, arbitration needs to be raised as a, it needs to be raised as an affirmative defense, which is not the case.

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The rule regarding affirmative defense is arbitration is an affirmative defense after there's an award pursuant to arbitration, not just the right of arbitration.

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Okay, we'll give you a couple minutes, Senator Buttle.

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Thank you.

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Thank you, Honors.

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Good morning, Your Honors, and may it please the Court.

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My name is Mark Crawford.

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I represent the appellee, Stephen Kelleher, plaintiff in the case below.

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The question before the Court is whether the District Court judge properly applied the law in ruling upon

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Dreamcatcher's motion to stay and compel arbitration, which was filed in April of 2017.

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Well, there's substantial prejudice.

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First of all, the parties went through extensive motions practice as to the merits of the issues themselves on the face of the pleadings.

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There was a motion to dismiss, not on procedural grounds, not that there was a frivolous lawsuit, as was

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alluded to in the Kahn case, there were issues as to whether the individual defendants should be held in the case on grounds of alter ego or corporate veil piercing liability.

[00:13:40] Speaker 03:
Well, that has nothing to do with this.

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That was being played out.

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That had nothing to do with the request for arbitration.

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Right, but respectfully, all of that was going on prior to the time of the arbitration.

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I'm trying to figure out how you're measuring cost and what the prejudice is.

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The fight over the corporation and its inclusion is a different issue.

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Well, what's the cost?

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Take that away.

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What's the cost?

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It wasn't substantial motion practice as far as I get.

[00:14:13] Speaker 03:
Substantial with respect to what we're talking about?

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What was substantial?

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Well, what was substantial with respect to what we were talking about is that there was motions practiced by the corporation.

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They moved to dismiss substantively certain counts of the complaint as to them.

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There was... What does that have to do with the timing of the request for arbitration?

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Well, because it's appellee's position that it's improper and that this is part of the underlying rationale for Zuckerman and even Kahn and the whole body of cases that address this issue, that it's improper to invoke the litigation machinery to use the litigation process in an effort to obtain a result, a substantive result,

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and then take whatever other issues remain that aren't decided in your favor and jump the traps over to arbitration and attempt to arbitrate.

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But I'd like to discuss some other aspects of prejudice.

[00:15:20] Speaker 03:
Well, you can read Zuckerman to say first appropriate moment, either after the filing of the answer to the complaint or the first motion.

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Now, if you look, if you can read Zuckerman that way, the timing starts with the filing of the motion.

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It's not untimely.

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I'm not.

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Well, again, I would have to disagree with that.

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There was a complaint that was filed.

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There were answers filed in October of 2016.

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There was an answer by Dreamcatcher that included a rule 8b3 general denial as to the facts and raised 15 separate affirmative defenses, none of which mentioned arbitration, and the individual defendants filed a motion to dismiss.

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Those were the defendants' first opportunity to raise the arbitration issue, and they did not do it either in their

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in a motion or as an affirmative defense in an answer, the parties went on.

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There was not just the initial conference, which I would suggest is not de minimis to put together the initial conference.

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What you're saying is the cost of litigation in the meantime is the prejudice you assert.

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Yes, sir.

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And it was substantial.

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In addition to which, besides the motions practice, there were Rule 26A disclosures on the part of defendants, which constitutes discovery.

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And there were Rule 26A to expert disclosures, which constitute discoverers.

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There were

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So I guess, thinking about Suckerman, it didn't purport to establish a bright line rule for all cases that if you fail to raise it before the answer, before the motion dismiss, then it's over.

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It said typically, and then as Judge Edwards points out, it says prejudice, but if we accept

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your reading, won't it tend to convert Zuckerman into more of a bright line rule that you lose in all cases?

[00:17:37] Speaker 04:
No, I don't think so.

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So what are some examples of when you could fail to raise it in the first responsive pleading and still be allowed to invoke your right to arbitration?

[00:17:51] Speaker 04:
Maybe if one failed to raise it in an initial responsive pleading, but raised it, not only referenced it in a footnote, but invoked it through an affirmative request,

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for a stay or some affirmative effort to have the court stop the litigation and compel arbitration, as wasn't done here until April, if that was done shortly, within a reasonably short timeframe after the initial pleadings, before any kind of significant activity had taken place in the case.

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If the invocation here occurred in January, as opposed to the reservation, if we treated that as an invocation, do you still win?

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I think so, yes, sir, because there's significant activity that goes on with consultation between client and counsel litigation strategy.

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But that's not what Zuckerman says.

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Zuckerman says typically in filing his first responsive pleading or motion to dismiss.

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You're trying to make it a bright line test referring to the response to the complaint.

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I'm not sure what you're saying.

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I mean, Zuckerman is not as tight as what you're saying.

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So you could look at this case.

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There's a question as to whether or not the footnote satisfies the requirement of an invocation.

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This is a serious question there, I understand.

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But you're not even willing to concede that

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We should time it with reference to the motion to dismiss, which Zuckerman does say that's a possibility.

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Time it with reference to the motion to dismiss.

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What I'm saying, Your Honor, is even if the court were to deem the request for arbitration to have been or the right to arbitration to have been invoked as of that period of time,

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there had already been litigation activity, costs incurred, the initial conference, the statements.

[00:20:02] Speaker 02:
Because the answer had been filed, right?

[00:20:07] Speaker 02:
The answer had been filed late October, I guess.

[00:20:09] Speaker 02:
Correct.

[00:20:10] Speaker 02:
And so between late October and late January, you're saying there was cost.

[00:20:17] Speaker 04:
Yes, sir.

[00:20:20] Speaker 02:
But they say de minimis.

[00:20:23] Speaker 04:
Well, I suggest it's relatively self-serving when the excuse is, I, the contractor, didn't even know what my own contract said until my lawyer explained it to me.

[00:20:34] Speaker 03:
That's not responsive.

[00:20:36] Speaker 03:
What Judge Kavanagh was saying, are they right that it's the minimus?

[00:20:40] Speaker 03:
It's not whether their excuse is any good.

[00:20:43] Speaker 03:
We're talking about whether there really were costs that were beyond the minimus.

[00:20:48] Speaker 03:
You didn't respond to that.

[00:20:51] Speaker 04:
I submit that there were costs that were beyond de minimis.

[00:20:55] Speaker 03:
Based on what?

[00:20:57] Speaker 03:
I mean, what are we talking about?

[00:20:59] Speaker 03:
You've listed some things, they may or may not have been expensive.

[00:21:02] Speaker 03:
Let's forget the time for the minute, but what are we talking about?

[00:21:11] Speaker 03:
I'm not getting what the accumulated costs were that were beyond de minimis, and I'm not saying

[00:21:19] Speaker 03:
you're wrong, I'm just saying I don't understand.

[00:21:22] Speaker 04:
I'm talking about the motions practice, which I understand the court has indicated that you deemed that potentially to be separate from what I'm discussing, but I believe that the cost of litigating these issues while

[00:21:40] Speaker 04:
we could have been simply addressing the arbitration question is more than de minimis and that did occur in this case and that the process of consultation between lawyer and client in preparation for appearance before the judge for initial conference

[00:21:58] Speaker 04:
I would like to hear from council on the issues.

[00:22:09] Speaker 04:
And I would like to hear from council on the

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And I needed to be prepared to address, to fully address all the issues that were pending at that time, none of which had anything to do with arbitration.

[00:22:29] Speaker 04:
And that involved a significant amount of work on my part, and I submit more than de minimis costs.

[00:22:35] Speaker 05:
you'd say that any of your time is more than Edmund's.

[00:22:39] Speaker 04:
Well, I'd like to think so.

[00:22:42] Speaker 04:
In all seriousness, no, there is some where exactly to draw the line, I guess, is one of the questions that the court needs to consider.

[00:22:55] Speaker 04:
And I don't know exactly where that line is, but I feel comfortable that what was done.

[00:23:03] Speaker 03:
Counsel, the question is, does

[00:23:05] Speaker 03:
the side that who has the right to invoke arbitration have any room to think about it in light of how the litigation is setting up?

[00:23:17] Speaker 03:
Or must you do it, or are you suggesting it must be done immediately?

[00:23:23] Speaker 03:
Because if it's not done immediately, the other side is going to have to engage in some litigation practice

[00:23:31] Speaker 03:
And in your view, any litigation practice is too costly.

[00:23:35] Speaker 03:
Is there any room for the side that has the right to invoke to think about whether it would be appropriate or inappropriate in this case, depending upon how it sets up?

[00:23:50] Speaker 04:
Well, I would go back to the language of Zuckerman.

[00:23:54] Speaker 03:
Zuckerman doesn't really help you there, because it says,

[00:23:58] Speaker 03:
filing in his first responsive pleading or motion to dismiss.

[00:24:04] Speaker 03:
The word motion to dismiss may come later after the first response to the complaint, which suggests there may be room and the court may be suggesting, well, you know, it says typically filed as if to suggest, well, you know, it depends on how it's playing out.

[00:24:22] Speaker 04:
That's the word I was going to focus on when I said to go back to Zuckerman, typically, which suggests that the majority of the time, the answer is no.

[00:24:32] Speaker 04:
One needs to raise the issue at the outset of the case.

[00:24:38] Speaker 03:
No, that typically refers to first responsive pleading or motion to dismiss, or

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which is the room for, well, I've got to think about it.

[00:24:51] Speaker 03:
Okay, now I've thought about it.

[00:24:54] Speaker 03:
I'm past the very first time.

[00:24:57] Speaker 03:
I'm now up to what Zuckerman says his motion to dismiss.

[00:24:59] Speaker 03:
I ought to be saying something by now.

[00:25:01] Speaker 03:
Then the question is, does that footnote count?

[00:25:06] Speaker 04:
Well, I think that my answer to whether a person who believes they may have a right to arbitrate

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can take some time to assess how the course of the litigation is proceeding and what the prospects are and then make a decision as to which form, which venue, which forum they'd like to proceed is not appropriate.

[00:25:34] Speaker 03:
Is not appropriate?

[00:25:35] Speaker 03:
That's... Well, I don't see that as appropriate.

[00:25:40] Speaker 03:
That's a strange notion, is not appropriate.

[00:25:42] Speaker 03:
I'd like to hear you on the other side of it, if it were you,

[00:25:48] Speaker 03:
on the flip side of this case and read Zuckerman and say, no, there's no room whatsoever.

[00:25:52] Speaker 03:
And what you're essentially saying, it has to come in the answer to the complaint.

[00:25:55] Speaker 03:
That seems a little strange.

[00:25:57] Speaker 04:
Or shortly thereafter, if there was an oversight in drafting the initial pleading before a significant amount of time had passed in the complaint.

[00:26:09] Speaker 04:
That's how I read the typically in Zuckerman, Your Honor, in effect.

[00:26:15] Speaker 02:
Okay.

[00:26:18] Speaker 02:
Got you.

[00:26:18] Speaker 02:
Thank you.

[00:26:19] Speaker 02:
Thank you very much.

[00:26:19] Speaker 02:
We'll give you two minutes for rebuttal.

[00:26:23] Speaker 03:
Thank you, Your Honors.

[00:26:40] Speaker 06:
In terms of the invocation question, is a footnote an invocation, is it not an invocation?

[00:26:46] Speaker 06:
Zuckerman's Bader itself said at 923,

[00:26:51] Speaker 06:
Assuming for the sake of his argument that Offenberg told Zuckerman early and often of his intention to arbitrate, that representation is nowhere documented in the record.

[00:26:59] Speaker 06:
Zuckerman Spader wanted to know if there was an intention to arbitrate anywhere.

[00:27:04] Speaker 06:
And the footnote says not only do we want to arbitrate, it says we have requested consent to arbitration under the terms of the contract.

[00:27:12] Speaker 06:
We invoked arbitration by asking him to arbitrate, and we told that to the court.

[00:27:15] Speaker 06:
We represented to the court on

[00:27:19] Speaker 06:
January 27th, we asked the other side to arbitrate.

[00:27:21] Speaker 06:
We're waiting for their response.

[00:27:23] Speaker 06:
We certainly invoked our right to arbitrate.

[00:27:25] Speaker 06:
And we told the court about that.

[00:27:27] Speaker 06:
Why do you need their consent?

[00:27:29] Speaker 06:
Under the rules, I don't have the rule handy, Your Honor, but under the rule, any non-dispositive motion or any motion, with the exception of just a few that don't include arbitration, require a state passed and whether it's been received from the other side.

[00:27:45] Speaker 06:
And in fact, a motion I had filed earlier was immediately rejected because it didn't contain... No, no, wait.

[00:27:51] Speaker 03:
Maybe I've got it wrong in my head, but to invoke, if I have the right to arbitrate,

[00:27:56] Speaker 03:
I can invoke that, and the other side, if it's required by law, they've got to go.

[00:28:02] Speaker 03:
I don't need their consent.

[00:28:03] Speaker 03:
Is that wrong?

[00:28:04] Speaker 06:
Regardless, Your Honor, we invoke that, right?

[00:28:06] Speaker 06:
By telling the court, we ask for their consent.

[00:28:07] Speaker 03:
No, wait.

[00:28:08] Speaker 03:
I want to make sure I'm understanding.

[00:28:09] Speaker 03:
Am I correct in my understanding?

[00:28:11] Speaker 06:
I believe under the – and I apologize, I don't have the rule handy.

[00:28:14] Speaker 06:
I believe that under – I think it's in the paperwork – there's a rule of the

[00:28:19] Speaker 06:
the circuit or certainly the trial court that requires every motion, a local rule that requires every motion except with the exception of just one or two and not this one to a statement as to seek consent and a statement as to whether consent was granted or not.

[00:28:35] Speaker 06:
I'm just following the rule.

[00:28:36] Speaker 06:
With respect to the right to arbitrate.

[00:28:38] Speaker 03:
And arbitration cannot proceed if the consent isn't given?

[00:28:42] Speaker 06:
With any motion, with the exception of a motion to the decision.

[00:28:44] Speaker 06:
No, no, no, I'm asking about arbitration.

[00:28:45] Speaker 01:
So yes, yes, Your Honor.

[00:28:46] Speaker 06:
Really?

[00:28:48] Speaker 06:
Well, you may not have to look that up.

[00:28:49] Speaker 06:
That's interesting.

[00:28:50] Speaker 06:
If the local rule says any motion, with the exception of, you know, a motion to something, you know, one or two.

[00:28:54] Speaker 05:
Well, is the invocation of the right to arbitrate a motion?

[00:28:59] Speaker 06:
It's asking the court to do something.

[00:29:01] Speaker 05:
The local rule covers motions in the court.

[00:29:04] Speaker 05:
But is the invocation of the right to arbitrate a motion such as would require consent or notice of intent?

[00:29:11] Speaker 06:
Respectfully, Your Honors, if this case turns on that determination, we haven't addressed the actual issue and the justice that's necessary in this case and in all cases in this circuit.

[00:29:24] Speaker 02:
Thank you very much to both counsel.

[00:29:25] Speaker 02:
The case is submitted.