24-696-cv Doyle v. UBS Fin. Servs., Inc., et al.
United States Court of Appeals For the Second Circuit
August Term 2024
Argued: January 7, 2025 Decided: July 14, 2025
No. 24-696
CYNTHIA T. DOYLE, MOLLIE T. BYRNES, JAMES WEISS, DAVID WELBOURN, IN THEIR CAPACITIES AS TRUSTEES OF THE PETER AND ELIZABETH C. TOWER FOUNDATION,
Plaintiffs-Appellees,
v.
UBS FINANCIAL SERVICES, INC., JAY S. BLAIR, Defendants-Appellants,
JOHN N. BLAIR, Defendant. ∗
Appeal from the United States District Court for the Western District of New York No. 1:22CV00276, Frank P. Geraci, Jr., Judge.
∗ The Clerk is respectfully instructed to amend the caption as set forth above. Before: WALKER, ROBINSON, and MERRIAM, Circuit Judges.
Defendants-appellants UBS Financial Services, Inc. and Jay S. Blair (collectively, the “UBS Defendants”) appeal from the District Court’s February 23, 2024, decision and order denying their motion to compel arbitration. Plaintiffs-appellees Cynthia T. Doyle, Mollie T. Byrnes, James Weiss, and David Welbourn, in their capacities as trustees of the Peter and Elizabeth C. Tower Foundation (collectively, “Plaintiffs”), brought claims under the Investment Advisers Act of 1940, 15 U.S.C. §80b-1 et seq., and New York state law, alleging principally that the UBS Defendants breached their fiduciary duties to the Foundation in their management of the Foundation’s investment advisory accounts. The UBS Defendants moved to stay or dismiss this action under the Colorado River abstention doctrine. After that motion was denied, the UBS Defendants moved to compel arbitration pursuant to the Federal Arbitration Act. The District Court denied the motion, finding that Plaintiffs presented sufficient evidence to place the validity of the arbitration agreement at issue for trial. In 2022, the Supreme Court held in Morgan v. Sundance, Inc. that when evaluating whether a party has waived enforcement of an arbitration agreement, courts may not impose “a prejudice requirement.” 596 U.S. 411, 419 (2022). But we may evaluate a party’s conduct, asking: Did the party now seeking to compel arbitration “knowingly relinquish the right to arbitrate by acting inconsistently with that right?” Id. We conclude that by their actions, including by affirmatively seeking a resolution of their dispute in the District Court, the UBS Defendants waived their right to compel arbitration. We therefore AFFIRM the District Court’s denial of the UBS Defendants’ motion to compel arbitration on the alternative ground of waiver.
BRIAN E. WHITELEY, Barclay Damon LLP, Boston, MA (Benjamin Reed Zakarin, Barclay Damon LLP, New York, NY, on the brief), for Plaintiffs-Appellees.
JOSHUA SCOTT BRATSPIES, Sherman Atlas Sylvester & Stamelman LLP, New York, NY (Terrance P. Flynn, Harris Beach Murtha Cullina PLLC, Buffalo, NY, on the brief), for Defendants-Appellants.
2 SARAH A. L. MERRIAM, Circuit Judge:
Defendants-appellants UBS Financial Services, Inc. (“UBS”) and Jay S. Blair
(collectively, the “UBS Defendants”) appeal from the District Court’s February
23, 2024, decision and order denying their motion to compel arbitration.
Plaintiffs-appellees Cynthia T. Doyle, Mollie T. Byrnes, James Weiss, and
David Welbourn (“Plaintiffs”), in their capacities as trustees of the Peter and
Elizabeth C. Tower Foundation (the “Foundation”), bring claims pursuant to the
Investment Advisers Act of 1940, 15 U.S.C. §80b-1 et seq. (“IAA”), and New York
state law, alleging principally that the UBS Defendants breached their fiduciary
duties to the Foundation in their management of the Foundation’s investment
accounts. Specifically, they allege that defendant John N. Blair 1 – the father of
defendant-appellant Jay Blair – improperly used his position as Attorney Trustee
for the Foundation to place the Foundation’s assets with his son Jay’s investment
firm, the Arthurs Malof Group, which became affiliated with UBS in 2015. When
the Foundation’s accounts were moved to UBS, John Blair executed an agreement
with UBS – purportedly on behalf of the Foundation – that included an
1The claims against John Blair are not before us on appeal because the parties agree that the arbitration provision in the UBS Agreement does not cover the claims against him. 3 arbitration clause.
On July 1, 2022, John Blair filed a motion to dismiss, arguing principally
that the action should be dismissed under the Colorado River abstention doctrine
and for failure to state a claim. See Colo. River Water Conservation Dist. v. United
States, 424 U.S. 800 (1976). On July 29, 2022, the UBS Defendants filed a
“response” to the motion to dismiss, in which they joined John Blair’s motion
and similarly argued for dismissal primarily on Colorado River abstention
grounds. The District Court denied the motion to dismiss as to all defendants on
January 26, 2023. On March 10, 2023, the UBS Defendants filed a motion to
compel arbitration under the Federal Arbitration Act (“FAA”). The District Court
denied the motion to compel arbitration, finding that Plaintiffs had presented
sufficient evidence to place the validity of the arbitration agreement at issue for
trial. The UBS Defendants now appeal from that denial.
We conclude, applying the Supreme Court’s 2022 decision in Morgan v.
Sundance, Inc., that the UBS Defendants “knowingly relinquish[ed] the right to
arbitrate by acting inconsistently with that right.” 596 U.S. 411, 419 (2022).
Accordingly, we AFFIRM the District Court’s denial of the UBS Defendants’
motion to compel arbitration on the alternative ground of waiver.
4 I. BACKGROUND
This case centers on a dispute over certain brokerage accounts of the
Foundation, a charitable trust, that were held at UBS and serviced by a financial
investment firm called the Arthurs Malof Group, which employed Jay Blair.
Plaintiffs are trustees of the Foundation. Defendant John Blair was appointed the
Foundation’s Attorney Trustee in May 2006, and by that appointment he became
one of the three voting members of the Foundation’s Investment Committee. The
Arthurs Malof Group served as the financial advisor for the Foundation’s
brokerage accounts; the Group operated within various investment banks over
the years, eventually moving from Morgan Stanley to UBS in 2015.
On September 3, 2015, in connection with the opening of the Foundation’s
brokerage accounts at UBS, John Blair, purporting to act in his role as a trustee of
the Foundation, executed a client relationship agreement (the “UBS Agreement”)
governing the Foundation’s relationship with UBS. The UBS Agreement
contained an arbitration clause expressly providing for arbitration of “any
controversy, claim or issue in any controversy that may arise . . . including but
not limited to controversies, claims or issues in any controversy concerning any
account, transaction, dispute or the construction, performance or breach of this
5 Agreement or any other agreement.” Joint App’x at 1024.
The Complaint alleges that after the move to UBS, the Foundation was
unable to obtain information regarding its investments except by proceeding
through John Blair; that the other Foundation Trustees did not receive regular
statements for the accounts; and that the Foundation never received a copy of
“the underlying investment advisory contract purportedly made by the
Foundation and UBS.” Id. at 22 ¶63. In June 2020, based in part on these issues,
Plaintiffs Doyle and Byrnes – “two of the three voting members of the Investment
Committee” – initiated the process of selecting an alternative investment advisor
to replace UBS. Id. at 23 ¶66. In September 2020, a majority of the Investment
Committee voted to terminate UBS and retain a different firm as the
Foundation’s investment advisor. John Blair voted against the transfer.
In November 2020, the Foundation adopted a resolution entitled
“Unanimous Vote of the Disinterested Trustees of the Peter and Elizabeth C.
Tower Foundation to Remove John N. Blair as Attorney Trustee,” and John Blair
was removed for cause as Attorney Trustee. Id. at 134-35. On April 8, 2022, the
Foundation Trustees adopted a resolution authorizing the commencement of
legal proceedings against Defendants.
6 On April 11, 2022, Plaintiffs brought this action alleging that UBS and Jay
Blair breached their fiduciary duties of care and loyalty to the Foundation under
the IAA; that John Blair aided and abetted that breach; that Jay Blair was
negligent in managing the Foundation’s brokerage accounts; and that UBS is
liable for Jay Blair’s negligence under the doctrine of respondeat superior.
Plaintiffs contend that “Defendant John Blair hatched a scheme that ultimately
resulted in the creators of the Foundation, Peter and Elizabeth C. Tower, placing
hundreds of millions of dollars of assets under the investment stewardship of his
son, defendant Jay S. Blair” and that UBS “countenanc[ed] and indeed
sanction[ed] this conduct.” Id. at 9 ¶2, 10 ¶4. They further assert that Jay Blair
and UBS breached their fiduciary duties in managing the Foundation’s accounts.
Plaintiffs seek rescission of the UBS Agreement, restitution, compensatory and
punitive damages, as well as costs and fees.
II. STANDARD OF REVIEW
“We review de novo the denial of a motion to compel arbitration.” Meyer v.
Uber Techs., Inc., 868 F.3d 66, 72 (2d Cir. 2017) (citation omitted). “The question of
whether a party’s pretrial conduct amounts to waiver of arbitration is purely a
legal one, and our review of this issue is de novo.” Leadertex, Inc. v. Morganton
7 Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995).
III. DISCUSSION
Plaintiffs contend that the UBS Defendants’ “participation in the litigation
and material delay in demanding arbitration have resulted in a waiver of any
right they may have had to demand arbitration.” Appellees’ Br. at 27. Plaintiffs
raised this argument in the District Court, but the District Court did not reach it,
instead denying the motion to compel arbitration on the ground that the validity
of the arbitration agreement was a factual issue that could not be resolved as a
matter of law. See Doyle v. UBS Fin. Servs., Inc., No. 1:22CV00276(FPG), 2024 WL
1146620, at *8 (W.D.N.Y. Feb. 23, 2024).
“We are free to affirm on any ground that finds support in the record, even
if it was not the ground upon which the trial court relied.” Beijing Neu Cloud
Oriental Sys. Tech. Co. v. Int’l Bus. Machs. Corp., 110 F.4th 106, 113 (2d Cir. 2024)
(citation and quotation marks omitted). We affirm the District Court’s denial of
the motion to compel arbitration on the alternative ground that the UBS
Defendants waived their right to seek arbitration. In so doing, we apply the legal
standard set out in the Supreme Court’s recent decision in Morgan.
8 A. Standard for Finding Waiver of Arbitration before Morgan
Before the decision in Morgan, this Court had identified three factors to be
evaluated in determining whether a party had waived its right to arbitration
under the FAA: “(1) the time elapsed from when litigation was commenced until
the request for arbitration; (2) the amount of litigation to date, including motion
practice and discovery; and (3) proof of prejudice.” La. Stadium & Expo. Dist. v.
Merrill Lynch, Pierce, Fenner & Smith Inc., 626 F.3d 156, 159 (2d Cir. 2010) (citation
and quotation marks omitted). These factors were derived from our earlier
decision in Carcich v. Rederi A/B Nordie, 389 F.2d 692 (2d Cir. 1968). Rather than
creating a “rigid formula or bright-line rule for identifying when a party has
waived its right to arbitration,” we applied these factors “to the specific context
of each particular case.” La. Stadium & Expo. Dist., 626 F.3d at 159. But our
caselaw was clear that “proof of prejudice” was not simply one among several
factors to be considered. Instead, under our pre-Morgan precedent, prejudice
was a mandatory precondition to a finding of waiver. “The key to a waiver
analysis is prejudice. Waiver of the right to compel arbitration due to
participation in litigation may be found only when prejudice to the other party is
demonstrated.” Thyssen, Inc. v. Calypso Shipping Corp., 310 F.3d 102, 105 (2d Cir.
9 2002) (per curiam) (citation and quotation marks omitted) (emphasis added).
The Carcich standard, and its reliance on prejudice, was anchored in a
belief that agreements to arbitrate are special – that they are to be treated
differently than other agreements. “In view of the overriding federal policy
favoring arbitration,” we held, “waiver is not to be lightly inferred, and mere
delay in seeking a stay of the proceedings without some resultant prejudice to a
party cannot carry the day.” Sweater Bee by Banff, Ltd. v. Manhattan Indus., Inc.,
754 F.2d 457, 461 (2d Cir. 1985) (citation and quotation marks omitted). Indeed,
while our decisions did consider the other two factors of time elapsed and
amount of litigation activity, we returned in every case to prejudice, because “the
rule of Carcich is that delay in seeking arbitration does not constitute a waiver
absent prejudice to the opposing party.” Id. at 463. Simply stated, the prejudice
requirement was the dominant focus of our waiver inquiry for decades.
Carcich was widely adopted by other Courts of Appeals; those courts fully
adopted not only its holding, but its rationale regarding the special treatment
afforded to agreements to arbitrate and the absolute requirement of prejudice to
find waiver of the right to compel arbitration. See, e.g., Gavlik Constr. Co. v. H. F.
Campbell Co., 526 F.2d 777, 783 (3d Cir. 1975); Valero Refin., Inc. v. M/T Lauberhorn,
10 813 F.2d 60, 66 (5th Cir. 1987); Midwest Window Sys., Inc. v. Amcor Indus., Inc., 630
F.2d 535, 537 (7th Cir. 1980); Erdman Co. v. Phoenix Land & Acquisition, LLC, 650
F.3d 1115, 1120 n.4 (8th Cir. 2011); Shinto Shipping Co. v. Fibrex & Shipping Co., 572
F.2d 1328, 1330 (9th Cir. 1978).
B. The Supreme Court’s Decision in Morgan
In Morgan, the Supreme Court reviewed a case challenging the Eighth
Circuit’s then-existing rule that “a party waives its contractual right to arbitration
if it knew of the right; acted inconsistently with that right; and – critical here –
prejudiced the other party by its inconsistent actions.” Morgan, 596 U.S. at 415
(citation and quotation marks omitted) (emphasis added). The Eighth Circuit
had “sent Morgan’s case to arbitration” because it did not find “the prejudice
requirement satisfied.” Id. As the Supreme Court acknowledged, “[t]he Eighth
Circuit’s arbitration-specific rule derive[d] from a decades-old Second Circuit
decision,” Carcich, “which in turn grounded the rule in the FAA’s policy.” Id. at
417.
The Supreme Court vacated the Eighth Circuit’s decision and abrogated
the whole line of cases derived from Carcich, holding that a court “may not make
up a new procedural rule based on the FAA’s ‘policy favoring arbitration,’” such
11 as “condition[ing] a waiver of the right to arbitrate on a showing of prejudice.”
Id. at 419, 417. 2 Rather, courts should apply the same rules applicable “[o]utside
the arbitration context, [where] a federal court assessing waiver does not
generally ask about prejudice.” Id. at 417. The focus must be “on the actions of
the person who held the right” and not “the effects of those actions on the
opposing party.” Id. “Accordingly, a court must hold a party to its arbitration
contract just as the court would to any other kind. But a court may not devise
novel rules to favor arbitration over litigation.” Id. at 418. 3
Morgan expressly rejected the rule that had previously been adopted by at
2On remand, neither the District Court nor the Eighth Circuit had occasion to reconsider the merits because the parties reached a settlement agreement that was approved by the District Court. See Order, Morgan v. Sundance, Inc., No. 4:18CV00316(SHL) (S.D. Iowa Dec. 15, 2022), ECF No. 48.
3 The Supreme Court declined to address whether “waiver,” as opposed to “forfeiture, estoppel, laches, or procedural timeliness,” is the proper analytical framework within which to assess whether “a party’s litigation conduct results in the loss of a contractual right to arbitrate.” Morgan, 596 U.S. at 416. Because the Courts of Appeals generally resolved such cases “using the terminology of waiver,” the Court “assume[d] without deciding they are right to do so.” Id. at 417. We see no reason to depart from the framework and terminology of waiver here. We recognize that, in the context of waiver generally, we typically use the language of intentional relinquishment rather than knowing relinquishment. See, e.g., Hamilton v. Atlas Turner, Inc., 197 F.3d 58, 61 (2d Cir. 1999) (stating that waiver refers to “a litigant’s intentional relinquishment of a known right”). But we see no material distinction between “knowing” and “intentional”
12 least nine Circuits – including the Second Circuit – that “the strong federal policy
favoring arbitration” supported an arbitration-specific rule requiring a showing
of prejudice to the opposing party before waiver could be found. 4 Id. at 416 &
n.1. But “the usual federal rule of waiver does not include a prejudice
requirement,” the Court observed, and no such requirement is proper in the
arbitration context. Id. at 419. Instead, the Court found, the Eighth Circuit (and
other courts) may simply focus on the conduct of the party seeking to arbitrate,
asking: Did that party “knowingly relinquish the right to arbitrate by acting
inconsistently with that right?” Id. We apply that new rule here.
C. Application of Morgan by Other Courts
Since Morgan was decided in May 2022, courts have differed in their
interpretations and applications of its holding. Most Courts of Appeals to apply
relinquishment of the right to arbitrate, especially because, to discern either, we look to the conduct of the waiving party.
4See Joca-Roca Real Est., LLC v. Brennan, 772 F.3d 945 (1st Cir. 2014); Erdman Co. v. Phoenix Land & Acquisition, LLC, 650 F.3d 1115 (8th Cir. 2011); O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345 (6th Cir. 2003); PaineWebber Inc. v. Faragalli, 61 F.3d 1063 (3d Cir. 1995); S & H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507 (11th Cir. 1990); Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494 (5th Cir. 1986); ATSA of Cal., Inc. v. Cont’l Ins. Co., 702 F.2d 172 (9th Cir. 1983); Carolina Throwing Co. v. S & E Novelty Corp., 442 F.2d 329 (4th Cir. 1971) (per curiam); Carcich v. Rederi A/B Nordie, 389 F.2d 692 (2d Cir. 1968).
13 Morgan have focused narrowly on the parties’ actions, assessing whether the
moving party acted inconsistently with the right to arbitrate. 5 The Sixth Circuit
has assumed that the prejudice requirement could simply be eliminated, leaving
in place the remainder of its pre-Morgan test. 6 Others have focused on Morgan’s
5 See, e.g., Hill v. Xerox Bus. Servs., LLC, 59 F.4th 457, 471 (9th Cir. 2023) (“There is no concrete test to determine whether a party has engaged in acts inconsistent with its right to arbitrate; rather, we consider the totality of the parties’ actions.” (citation and quotation marks omitted)); White v. Samsung Elecs. Am., Inc., 61 F.4th 334, 339 (3d Cir. 2023) (“In analyzing whether waiver has occurred, a court focuses on the actions of the party who held the right and is informed by the circumstances and context of each case.” (citations and quotation marks omitted)); In re Pawn Am. Consumer Data Breach Litig., 108 F.4th 610, 613 (8th Cir. 2024) (“The focus of waiver, after all, is on the actions of the person who held the right, not the effects of those actions on the opposing party.” (citation and quotation marks omitted)); SZY Holdings, LLC v. Garcia, No. 23-1305, 2024 WL 3983944, at *3 (4th Cir. Aug. 29, 2024) (“The relevant question, then, is whether the party requesting arbitration knowingly relinquished the right to arbitrate by acting inconsistently with that right.” (citation and quotation marks omitted)).
6See Schwebke v. United Wholesale Mortg. LLC, 96 F.4th 971, 974 (6th Cir. 2024) (“At a minimum, Morgan eliminated the prejudice requirement. In this case, we need not decide whether Morgan did more than that because the parties agree that, once stripped of its prejudice requirement, our pre-Morgan caselaw remains intact.”).
14 instruction that arbitration agreements pursuant to the FAA are to be construed
under well-established principles of contract law. 7
This Court has not yet articulated in a precedential opinion the proper
standard to be applied to waiver claims after Morgan. As a result, district courts
within the Second Circuit have applied Morgan in different ways. In a recent
summary order, we described the current state of our law as follows:
Since Morgan, this court has not clarified in a precedential opinion the test for evaluating waiver of arbitration, leading district courts in the Second Circuit to differ in their description of their assessments and in their reliance on our prior caselaw. Compare, e.g., Boustead Secs., LLC v. Leaping Grp. Co., 656 F. Supp. 3d 447, 451 n.7 (S.D.N.Y. 2023) (noting that, in absence of a clear Second Circuit test, it was applying the “preexisting waiver analysis, specific to arbitration, but without taking into account prejudice”), with Deng v. Frequency Elecs., Inc., 640 F. Supp. 3d 255, 263 (E.D.N.Y. 2022) (evaluating arbitral waiver in the same way it would “in the context of any other kind of contract”). Despite these differences, post-Morgan, district courts in this Circuit
7See, e.g., Nat’l Cas. Co. v. Cont’l Ins. Co., 121 F.4th 1151, 1154 (7th Cir. 2024) (“Morgan reinforces the importance of contract principles in FAA cases and supplies no reason to revisit precedent with a solid basis in contract law.”); Brock v. Flowers Foods, Inc., 121 F.4th 753, 760 (10th Cir. 2024) (“[T]he FAA does not authorize federal courts to favor arbitration over litigation; it makes arbitration agreements as enforceable as other contracts, but not more so.” (citations and quotation marks omitted)); Lubin v. Starbucks Corp., 122 F.4th 1314, 1320 (11th Cir. 2024) (“Arbitration agreements are no more enforceable than an average contract.”); cf. Doraleh Container Terminal SA v. Republic of Djibouti, 109 F.4th 608, 617 (D.C. Cir. 2024) (echoing Morgan’s instruction that courts must “apply the usual federal procedural rules” when reviewing petitions for enforcement under the FAA). 15 focus squarely on the conduct of the party in question to determine whether it acted inconsistently with its arbitration right.
WCW, Inc. v. Atlantis Indus., Inc., No. 23-7726, 2024 WL 5038529, at *3 n.2 (2d Cir.
Dec. 9, 2024) (summary order); see also Brown v. Peregrine Enters., Inc., No. 22-
2959, 2023 WL 8800728, at *3 (2d Cir. Dec. 20, 2023) (summary order) (noting that
“the prejudice requirement has since been ‘[s]tripped’ from the waiver inquiry,
which now involves asking only whether a party ‘knowingly relinquish[ed] the
right to arbitrate by acting inconsistently with that right’” (quoting Morgan, 596
U.S. at 419)); Billie v. Coverall N. Am. Inc., No. 22-718, 2023 WL 2531396, at *3 n.3
(2d Cir. Mar. 15, 2023) (summary order) (“[H]ere we ask whether Coverall’s
conduct evinced a knowing relinquishment of its arbitration rights.”).
Accordingly, we take the opportunity presented here to clarify the applicable
standard after Morgan.
D. The Post-Morgan Standard
As noted, this Court has not yet issued a clear statement of the rule to be
applied after Morgan, and specifically, whether Morgan simply excises the
prejudice requirement from our old standard while leaving the remainder of the
standard intact, or whether it replaces the old standard entirely. Morgan does not
directly answer this question, but states: “Stripped of its prejudice requirement,
16 the . . . current waiver inquiry would focus on [the moving party’s] conduct. Did
[the moving party] . . . knowingly relinquish the right to arbitrate by acting
inconsistently with that right?” 596 U.S. at 419.
We do not read Morgan’s statement about “stripping away” the prejudice
requirement as permitting us to simply remove the prejudice requirement from
our pre-Morgan waiver standard and carry on, applying the remaining two
factors in the way we have historically done. That is because the elimination of
the prejudice requirement necessarily affects the application of the other two
factors. For instance, we have held that even where defendants delayed eight
months in seeking arbitration, filed a motion to dismiss, and conducted
discovery, waiver could not be found because these actions did not prejudice the
non-moving party “in any sense that would support a conclusion of waiver by
defendants of their contractual right to arbitrate.” Rush v. Oppenheimer & Co., 779
F.2d 885, 889 (2d Cir. 1985). In so doing, we evaluated every aspect of the
movants’ conduct through the lens of prejudice. That is no longer permissible
under Morgan. But because the concept of prejudice has been inextricably
embedded within the remaining pre-Morgan factors, it is not as simple as merely
erasing the word “prejudice” from our previous test.
17 So we cannot rely on our old test. But we need not invent a new one;
Morgan has done that work, offering a new test under which the core inquiry is
neither the length of the delay nor the amount of litigation that has occurred.
Rather, in rejecting the Eighth Circuit’s rule, and the entire line of cases relying
on Carcich, the Supreme Court suggested that courts may evaluate waiver by
focusing on the following question: Did the moving party knowingly relinquish
the right to arbitrate by acting inconsistently with that right? 8 In answering that
question, we may consider all aspects of the moving party’s conduct – including
those factors that were significant under our pre-Morgan test – as long as we do
not do so through the lens of prejudice.
E. Application of the Morgan Standard to the UBS Defendants
Applying Morgan, we conclude that the UBS Defendants acted
inconsistently with the right to arbitrate. We focus, as the Supreme Court has
approved, on the conduct of the UBS Defendants.
8Even before Morgan, of course, the conduct of the parties was an important consideration when evaluating waiver. See, e.g., In re Am. Express Fin. Advisors Sec. Litig., 672 F.3d 113, 132 (2d Cir. 2011) (“[U]nder a variety of circumstances one party may waive or destroy by his conduct his right to insist upon arbitration.” (quoting Baker & Taylor, Inc. v. AlphaCraze.com Corp., 602 F.3d 486, 490 (2d Cir. 2010) (per curiam))). It remains so, but now, that conduct need not result in any prejudice to the opposing party to warrant a finding of waiver. 18 Plaintiffs filed their Complaint on April 11, 2022. UBS Financial Services
was served on April 27, 2022; Jay Blair was served on May 3, 2022. On July 1,
2022, John Blair filed a motion to dismiss contending that the District Court
should abstain under Colorado River and that the Complaint failed to state a
claim. On July 29, 2022, after seeking and receiving an extension of time, the UBS
Defendants filed a submission using the electronic filing event for a “response”
to John Blair’s motion to dismiss, stating that they joined John Blair’s motion to
dismiss or stay the action. Regardless of the label or characterization of the UBS
Defendants’ submission, that submission was, in effect, a substantive motion to
dismiss all claims against the UBS Defendants. The UBS Defendants expressly
asked the District Court “to dismiss this action under the Colorado River
abstention doctrine” and set forth substantive arguments to support that
position. 9 UBS Defendants’ Mot. to Dismiss at 5, Doyle, No. 1:22CV00276(FPG),
ECF No. 25. The UBS Defendants’ submission did not mention arbitration.
9In their submission, the UBS Defendants also “reserve[d] all rights and defenses,” asserting that certain claims, “in addition to being baseless,” were also “now moot,” and “vehemently deny[ing] that they breached any alleged fiduciary duties.” UBS Defendants’ Mot. to Dismiss at 4 n.3, 5 n.5, Doyle, No. 1:22CV00276(FPG), ECF No. 25. In contrast to these merits arguments, the UBS Defendants did not in their motion flag or expressly “reserve” their right to invoke the arbitration agreement. 19 The District Court denied the motion to dismiss as to all defendants on
January 26, 2023. At no point before that denial did the UBS Defendants file a
motion to compel arbitration or otherwise alert the District Court – or Plaintiffs –
that they planned to seek such relief.
On February 10, 2023, the parties stipulated to a further extension of time
for the UBS Defendants to respond to the Complaint; again, the stipulation did
not mention that the UBS Defendants needed additional time to move to compel
arbitration. On March 10, 2023, rather than file an Answer, the UBS Defendants
filed a motion to compel arbitration. That motion was the first time the UBS
Defendants had mentioned arbitration in any filing to the District Court. On
February 23, 2024, the District Court denied the motion to compel arbitration,
finding that Plaintiffs had presented sufficient evidence to place the validity of
the arbitration agreement at issue for trial.
We conclude that, under Morgan, the conduct of the UBS Defendants is
inconsistent with the right to arbitrate. The UBS Defendants moved to dismiss
all claims against them – without any mention of the possible availability of
arbitration. By doing so, they intentionally availed themselves of the District
Court’s authority and sought affirmative, dispositive relief in the District Court.
20 The UBS Defendants sought to proceed in another venue – arbitration – only after
their motion to dismiss was denied. It makes no difference that the UBS Defendants
characterized their filing as a “response” and claimed only to “join” John Blair’s
motion to dismiss; by seeking dismissal in the District Court, the UBS
Defendants availed themselves of the District Court’s authority to resolve the
claims against them.
This conduct is inconsistent with the right to arbitrate. Arbitration is not a
fallback position. It is not a second bite at the apple. Rather, a party with a claim
to arbitration faces a binary choice: litigation or arbitration. One “cannot have it
both ways.” Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 712 F.2d 270, 273 (7th Circ.
1983) (“It acquiesced in Sealy’s choice of litigation; now it must live with the
consequences of that acquiescence.”); see also PPG Indus., Inc. v. Webster Auto
Parts, Inc., 128 F.3d 103, 109 (2d Cir. 1997) (observing that “PPG evidenced a
preference for litigation that supports a finding of waiver” by, among other
things, “filing substantive motions,” and concluding that “PPG acted
inconsistently with its contractual right to arbitration”); Leadertex, Inc., 67 F.3d at
26 (observing that a party’s “conduct has been largely inconsistent with its
present assertion of its right to compel arbitration” when that party “could have
21 invoked the arbitration clause at the outset of the litigation . . . but it chose not
to”); Kramer v. Hammond, 943 F.2d 176, 180 (2d Cir. 1991) (“Kramer’s actions
suggest a disingenuousness that the presumption in favor of arbitration was not
intended to protect. He invoked the arbitration clause only after raising a
number of substantive issues. . . . Only when Kramer had exhausted his pretrial
maneuvers did he finally abandon the litigation playing field and retreat to his
contractual right to arbitration.”).
The UBS Defendants’ decision to first seek full and final resolution of the
claims against them in federal court is inconsistent with the right to arbitrate
those same claims. See Southland Corp. v. Keating, 465 U.S. 1, 7 (1984) (“Contracts
to arbitrate are not to be avoided by allowing one party to ignore the contract
and resort to the courts. Such a course could lead to prolonged litigation, one of
the very risks the parties, by contracting for arbitration, sought to eliminate.”).
That the main focus of the UBS Defendants’ motion to dismiss was
Colorado River abstention renders the UBS Defendants’ decision to file a motion to
dismiss particularly inconsistent with the right to arbitrate. “Under the Colorado
River exception the court may abstain in order to conserve federal judicial
resources only in exceptional circumstances, where the resolution of existing
22 concurrent state-court litigation could result in comprehensive disposition of
litigation.” Woodford v. Cmty. Action Agency of Greene Cnty., Inc., 239 F.3d 517, 522
(2d Cir. 2001) (citation and quotation marks omitted). If a motion to abstain
under Colorado River is granted, no further action may be taken by the federal
court; it may not grant an order compelling arbitration. See Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 28 (1983) (“[T]he decision to invoke
Colorado River necessarily contemplates that the federal court will have nothing
further to do in resolving any substantive part of the case, whether it stays or
dismisses.” (emphasis added)). The whole point of a Colorado River motion is to
remove the case from the jurisdiction of the federal courts. If the UBS
Defendants had succeeded in their Colorado River motion, they could not then
have asked the District Court to compel arbitration. 10 Thus, the filing of their
motion to dismiss is inconsistent with the right to arbitrate. 11
10Likewise, of course, a party’s moving to dismiss a complaint on the basis of failure to state a claim would preclude any motion to compel arbitration.
11 We conclude that the UBS Defendants waived the right to seek arbitration by seeking dismissal of the claims against them in the District Court. But that is not to say that a motion to dismiss is necessary to a finding of waiver under Morgan; it is simply one way that a party can act inconsistently with the right to arbitrate. It is, in this case, sufficient for a finding of waiver, and we therefore need not consider whether any of the UBS Defendants’ other actions would also support waiver. 23 Finally, we observe that although the District Court did not address the
issue of waiver, denying the motion to compel arbitration on other grounds, the
issue was squarely presented below. Specifically, Plaintiffs argued that “there is
ample evidence that [the UBS Defendants] intended to litigate the instant suit in”
the District Court, rather than arbitrating, and contended:
[W]hile arguing that this litigation should be stayed under Colorado River, UBS and Jay Blair expressly failed to state that it should be stayed for another reason: that UBS would be seeking to compel arbitration. It is only now, having lost their motion to dismiss and facing the prospect of answering discovery and defending the claims in federal court, that UBS and Jay Blair suddenly claim they are entitled to compel arbitration against Plaintiffs. It is too late for them to take that position.
Doyle, 1:22CV00276(FPG), ECF No. 44 at 23 (citation and footnote omitted). We
agree. And we conclude that, following Morgan’s instruction to focus on the
moving party’s litigation “conduct” prior to the filing of the motion to compel
arbitration, 596 U.S. at 419, the UBS Defendants knowingly relinquished their
right to arbitrate in this case by acting inconsistently with that right.
IV. CONCLUSION
In sum, we hold that following Morgan, a party “knowingly relinquish[es]
the right to arbitrate by acting inconsistently with that right,” id., including by
first affirmatively seeking a resolution of its dispute in the district court. Here,
24 the UBS Defendants acted inconsistently with their right to arbitration by first
filing a motion to dismiss.
Accordingly, the District Court’s denial of the UBS Defendants’ motion to
compel arbitration is AFFIRMED.