Brad Warrington v. Rocky Patel Premium Cigars, Inc., et al.

[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 22-12575
Non-Argument Calendar
____________________
BRAD WARRINGTON,
Plaintiff-Appellee
versus
ROCKY PATEL PREMIUM CIGARS, INC.,
RAKESH PATEL,
Defendant-Appellants
____________________
Appeal from the United States District Court
for the Middle District of Florida
D.C. Docket No. 2:22-cv-00077-JES-KCD
____________________
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2 Opinion of the Court 22-12575
Before N EWSOM , G RANT, and L UCK , Circuit Judges.
PER C URIAM :
Rocky Patel Premium Cigars, Inc. and Rakesh Patel1 appeal
the district court’s denial of their motion to stay and compel arbi-
tration. We affirm.
See 9 U.S.C. § 16(a)(1)(A);
Arthur Andersen
LLP v. Carlisle, 556 U.S. 624, 627 (2009) (Under 9 U.S.C. section
16(a)(1)(A), “any litigant who asks for a stay under § 3 [of the Fed-
eral Arbitration Act] is entitled to an immediate appeal from denial
of that motion—regardless of whether the litigant is in fact eligible
for a stay.”).
This case is about a shareholder dispute. Brad Warrington,
the minority shareholder in Rocky Patel Premium Cigars, wants to
divest from his holdings in the company. To do so, he must com-
ply with the terms of the buy–sell agreement governing ownership
in the company, under which the company has the right of first
refusal. The agreement also includes a provision under which “any
controversy or claim arising out of this [a]greement [that] cannot
be settled by the parties . . . shall be settled by arbitration.”
In 2015, when Warrington told Patel he wanted out, Patel
decided to purchase Warrington’s shares and made an offer based
on a valuation he’d commissioned. Warrington thought the offer
was too low and counteroffered. A dispute ensued. Patel accused
1 We will refer to them together as Patel.
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22-12575 Opinion of the Court 3
Warrington of failing to make a bona fide offer, and Warrington
accused Patel of various bookkeeping and disclosure improprieties.
Six years later, Warrington found a private buyer and noti-
fied Patel that he intended to sell. Patel refused to acknowledge
the notice and facilitate the sale, claiming the notice was inade-
quate. When Patel didn’t respond within the thirty-day period re-
quired under the agreement, Warrington tried to proceed with the
sale. In July 2021, Patel sued Warrington in Florida state court
seeking a declaratory judgment that he’d complied with the re-
quirements governing the information Warrington requested in
the process of selling his shares under the agreement. A few
months later, Patel amended his complaint to include claims for
breach of contract and breach of good faith and fair dealing, seeking
specific performance of the agreement’s purchase option provi-
sion. Warrington moved to dismiss, and Patel later filed for volun-
tary dismissal.
While the state action was pending, Warrington sued Patel
in federal court in February 2022, bringing seven counts: (1) breach
of contract; (2) breach of the covenant of good faith and fair deal-
ing; (3) tortious interference; (4) breach of fiduciary duty (direct ac-
tion); (5) breach of fiduciary duty (shareholder derivative action);
(6) securities fraud; and (7) punitive damages. In light of Patel’s
still-pending state court lawsuit, Patel moved to dismiss, remand,
abate, or stay, which the district court denied. In June 2022, Patel
moved to stay and compel arbitration under the agreement. The
district court denied that motion, too, finding that Patel had waived
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4 Opinion of the Court 22-12575
his right to arbitrate because he’d both filed (and amended) the in-
itial action in state court and moved to dismiss or remand Warring-
ton’s action in the district court. Patel appealed the district court’s
denial.
We review de novo a district court’s denial of a motion to
compel arbitration on the ground that the movant waived its right
to arbitrate.
Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309,
1316 (11th Cir. 2002). Like any other right or obligation under a
contract, an agreement to arbitrate may be waived.
Id. at 1315. “A
party has waived its right to arbitrate if, under the totality of the
circumstances, the party has acted inconsistently with the arbitra-
tion right . . . .”
S & H Contractors, Inc. v. A.J. Taft Coal Co., 906
F.2d 1507, 1514 (11th Cir. 1990) (cleaned up),
abrogated on other
grounds by Morgan v. Sundance, Inc., 142 S. Ct. 1708 (2022).
There’s no set rule as to what constitutes waiver of an arbi-
tration agreement, so we review whether a waiver has occurred
based on the facts of each case.
Burton–Dixie Corp. v. Timothy
McCarthy Constr. Co., 436 F.2d 405, 408 (5th Cir. 1971). “A key
factor in deciding this is whether a party has substantially invoked
the litigation machinery prior to demanding arbitration.”
Gutierrez v. Wells Fargo Bank, NA, 889 F.3d 1230, 1236 (11th Cir.
2018) (cleaned up). “[T]he purpose of the waiver doctrine is to pre-
vent litigants from abusing the judicial process.”
Id. “Acting in a
manner inconsistent with one’s arbitration rights and then chang-
ing course mid-journey smacks of outcome-oriented gamesman-
ship played on the court and the opposing party’s dime.”
Id.
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22-12575 Opinion of the Court 5
“[T]he key ingredient in the waiver analysis is fair notice to the op-
posing party and the [d]istrict [c]ourt of a party’s arbitration rights
and its intent to exercise them.”
Id.
We agree with the district court that Patel has waived his
right to arbitration. As the district court explained, Patel initially
filed suit in state court to enforce his rights under the agreement,
then he attempted to force Warrington’s federal action down to
the state court to be joined with his action there—all before seeking
to compel arbitration.
Patel argues that he hasn’t “substantially invoked the litiga-
tion machinery” and therefore never waived his right to arbitrate.
Patel points to the district court’s finding, in its order denying his
motion to dismiss or remand, that both actions were in the “begin-
ning stages” and that “discovery ha[d] yet to commence in either
action” at that point.
True, neither case on its own had made it very far. But view-
ing the facts “under the totality of the circumstances,” as we must,
we conclude (as the district court did) that Patel evinced a clear in-
tent to litigate this matter prior to asserting his right to arbitrate
and thus “has acted inconsistently with [his] arbitration right.”
S &
H Contractors, 906 F.2d at 1514.
Patel initially sued Warrington in state court and even
amended his complaint to expand the scope of rights under the
agreement he sought to assert in that forum. Once Warrington
brought the matter to federal court, Patel participated in the district
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6 Opinion of the Court 22-12575
court’s case management proceedings. He then moved to dismiss,
abate, stay, or remand Warrington’s federal complaint, arguing
that the case should be remanded to state court because it con-
tained “the exact same issues” as Patel’s state suit. Patel then filed
for multiple extensions in the district court, forcing Warrington to
file a motion to compel discovery. Only after nearly a year of try-
ing to get this dispute into state court did Patel attempt to invoke
his right to arbitrate.
Taken together, Patel substantially invoked the litigation
machinery prior to demanding arbitration. Accordingly, the dis-
trict court’s order denying Patel’s motion to stay and compel arbi-
tration is affirmed.
AFFIRMED.
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