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Court Waves Off Waiver of Arbitration Despite Former Filing in Its Forum: Grigsby & Associates, Inc. v. M Securities Investment
Posted on Categories Court Decisions, Securities ArbitrationTags , ,

By Pete S. Michaels

The act of filing a complaint in court does not by itself constitute a waiver of a right to arbitrate, where it does not constitute a substantial invocation of litigation machinery and does not prejudice the opposing party.

Grigsby & Assoc., Inc. vs. M Securities Investment, No. 13-15208 (11th Cir., 12/28/15).

An Aborted Court Case

This dispute, brought by Grigsby & Associates and its principal (collectively “Grigsby”) against M Securities and others, arose from a municipal bond offering. Grigsby and M Securities agreed to underwrite the bond, while a third-party partially owned by Grigsby arranged an interest rate swap for the bond, from which M Securities was to receive underwriting fees and net profits. However, the third-party failed to remit the swap transaction profits to Grigsby and, as a result, Grigsby was unable to pay the fees and profits owed to M Securities.  M Securities filed four separate lawsuits against Grigsby and the third-party, three of which were dismissed for various reasons before Grigsby entered an appearance and the other was dismissed after Grigsby filed a motion to dismiss for lack of prosecution.

Arbitration Instead

A few years later, M Securities filed a FINRA arbitration action against Grigsby after learning that Grigsby settled its dispute with the third-party. Grigsby sought to enjoin the arbitration, arguing that M Securities waived that right, but the district court ruled that the issue of waiver was for the arbitrator to decide. The subsequent arbitration was favorable to M Securities and damages were awarded (FINRA ID #06-04209 (Boca Raton, 10/19/07)). The district court confirmed the Award (SLA 2009-35), Grigsby appealed and the Court of Appeals reversed, finding that the district court erred when it failed to decide the waiver issue and remanding the case to the district court to consider whether M Securities waived its right to arbitrate (see summary above). The district court found that M Securities did not waive its right to arbitrate and again confirmed the Award.

No Waiver

Grigsby then filed this appeal, arguing that (1) M Securities waived its right to arbitrate after filing four lawsuits; (2) the district court erred when it did not hold an evidentiary hearing as ordered by this Court; and (3) the district court abused its discretion in failing to hold an evidentiary hearing. The Court rejects each argument and affirms. First, the Court finds that Grigsby failed to satisfy its heavy burden of proof that M Securities waived its right to arbitrate. Although M Securities filed four lawsuits against Grigsby, none of them progressed to a substantial level. Three of the suits were dismissed before Grigsby was served, while the other suit only required Grigsby to file an unopposed motion to dismiss. The Court rules that this does not rise to the level of substantial participation in litigation sufficient to find waiver. The Court adds that, even if it did view M Securities' filings as substantial, Grigsby fails to demonstrate any prejudice.

No Hearing Needed

The Court also rejects Grigsby’s argument that the district court erred by not conducting an evidentiary hearing. The Court responds that it never ordered an evidentiary hearing and rules that the district court did not abuse its discretion in denying Grigsby’s request, finding that Grigsby had an opportunity to submit certain evidence at oral argument, but did not do so. The Court affirms the district court’s order confirming the Award.

(P. Michaels)

(SLC Ref. No. 2016-05-02)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA)from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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