Unpublished Disposition, 934 F.2d 325 (9th Cir. 1990)

MEMORANDUM^** 

The district court denied Team Air's motion to stay under Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3. The district court found that Team Air had waived its right to enforce the arbitration provision in its contract with Transportation Handlers Air Truck Service in the United States, Inc. (Transportation Handlers). We reverse and remand.

* In March 1985, Team Air and Transportation Handlers entered into a written agreement permitting Transportation Handlers to operate as the broker handling Team Air's domestic and international freight forwarding business in Southern California. Paragraph 11 of the agreement set forth the terms under which either party could terminate the contract. Transportation Handlers could terminate on 10 day's written notice; Team Air could terminate if Transportation Handlers failed to comply with certain covenants.

The front page of the agreement specifically states that the agreement is subject to binding arbitration as set forth in paragraph 19. Paragraph 19 provides:

Any controversy arising under, out of, in connection with, or relating to, this contract, and any amendment thereof, or the breach thereof, shall be determined and settled by arbitration in Texas, in accordance with the rules of the AMERICAN ARBITRATION ASSOCIATION. Any award rendered therein shall be final and binding on each and all of the parties thereto and their personal representatives, and judgment may be entered thereon in any court having jurisdiction thereon.

On September 5, 1989, Team Air terminated the agreement on the ground that Transportation Handlers had failed to comply with certain covenants in the agreement. On December 11, 1989, Transportation Handlers filed a complaint in California Superior Court for breach of contract. On February 5, 1990, Team Air removed the action to federal court and simultaneously filed a motion to stay pursuant to Section 3 of the Federal Arbitration Act. On March 12, 1990, the district court denied Team Air's motion on the ground that Team Air had waived its right to enforce the arbitration clause.

Team Air timely appealed the denial of its motion to stay, and on April 23, 1990, the district court stayed the proceedings pending the outcome of this appeal. We have jurisdiction pursuant to 9 U.S.C. § 16(a) (1) (A).

II

The facts are undisputed. We therefore review de novo the district court's determination that Team Air waived its right to enforce the arbitration clause. See Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 693 (9th Cir. 1986). In determining whether Team Air waived its right to compel arbitration, we must keep in mind the strong federal policy favoring the enforcement of arbitration agreements. See Moses H. Cone Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1983).

In Fisher, 791 F.2d at 694, we held that:

A party seeking to prove waiver of a right to arbitration must demonstrate: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.

There is no dispute over the fact that Team Air had knowledge of its right to compel arbitration. The issues therefore are whether Team Air acted in a way that was inconsistent with that right and, if so, whether Team Air's inconsistent actions prejudiced Transportation Handlers.

The district court held that after terminating the contract, Team Air had a duty to submit any disputes concerning the agreement to arbitration. The district court further held that Transportation Handlers was prejudiced by the termination and by Team Air's failure to timely demand arbitration. The district court found that the monetary losses suffered by Transportation Handlers might have been mitigated in a timely arbitration proceeding. We disagree.

The agreement between Team Air and Transportation Handlers did not create a duty on behalf of Team Air to demand arbitration as soon as it terminated the contract under paragraph 11. The arbitration provision in paragraph 19 simply states that any disputes arising out of such a termination must be submitted to binding arbitration.

Team Air terminated the contract for what it believed were valid reasons under paragraph 11. There was no need to demand arbitration until specific disputes arose over its interpretation and application of paragraph 11. Those disputes materialized when Transportation Handlers filed suit in state court for breach of contract. At that point, it was incumbent upon Team Air to submit the matter to arbitration, and that is exactly what Team Air did; it removed the matter to federal court and filed a motion to stay pursuant to Section 3 of the Federal Arbitration Act.

Team Air, therefore, did not act in any way that was inconsistent with its right to compel arbitration. Nor was Transportation Handlers prejudiced by Team Air's actions of demanding arbitration only after the state suit was filed. Transportation Handlers had an equal right to compel arbitration at the time the contract was terminated. Transportation Handlers violated the arbitration agreement by initiating this action in state court. Any injury suffered by Transportation Handlers as a result of pursing litigation in state court prior to a demand for arbitration was self-inflicted. Cf. Fisher, 791 F.2d at 698.

Transportation Handlers has failed to demonstrate that Team Air acted inconsistently with its right to compel arbitration, and it has failed to demonstrate any prejudice resulting from Team Air's acts. The district court's order denying Team Air's motion to stay pursuant to Section 3 of the Federal Arbitration Act is reversed. This case is remanded to the district court with directions that the district court enter a stay of these proceedings pursuant to 9 U.S.C. § 3.

REVERSED and REMANDED.