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SAGA v. Voornas
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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:	2000 ME 156
Docket:	Cum-00-82
Submitted
on Briefs:	March 6, 2000
Decided:	August 10, 2000

Panel:WATHEN, C.J., and CLIFFORD, RUDMAN, SAUFLEY, ALEXANDER, and CALKINS,
JJ.

SAGA COMMUNICATIONS OF NEW ENGLAND, INC. d/b/a WMGX

v.

LORI VOORNAS

WATHEN, C.J.

	[¶1]  Plaintiff Saga Communications of New England, Inc. d/b/a
WMGX ("Saga") appeals from an order entered in the Superior Court
(Cumberland County, Mills, J.) denying its motion to stay the proceedings
and compel arbitration.  The underlying action involves a claim that Lori
Voornas breached her agreement not to compete with Saga and that she
misappropriated Saga's trade secrets.  Saga argues on appeal that it was
entitled to arbitration pursuant to the employment agreement between it
and Voornas and that the Superior Court erred in finding that it waived that
right.  We agree that Saga has waived arbitration and we affirm the judgment.
	[¶2]  The relevant facts may be summarized as follows: From at least
August of 1996 when she signed a three-year contract of employment, Lori
Voornas was an on-air radio announcer and co-host of the morning show
broadcast by Saga's radio station WMGX in Portland.  Voornas's contract
came up for renewal in the summer of 1999, but she declined to renew,
choosing instead to leave Saga's employment on August 31st.  Voornas's
separation triggered a noncompete agreement contained in her employment
contract.  Under the terms of this agreement, Voornas was precluded for a
period of six months from performing services as an on-air announcer for
any radio station in a 75-mile radius that was in competition with Saga with
regard to format or targeted audience.  A list of competing stations was
attached to the contract, though the noncompetition agreement applied to
any competing station whether listed or not.  The noncompete provision
was to expire on March 1, 2000.
	[¶3]  Shortly after leaving Saga and well before March 1st, Voornas
began employment with Citadel Communications Corporation,{1} a
communications company that owns several radio stations in Portland that
compete with Saga and WMGX.{2}  Voornas, however, did not immediately
return to the air, but instead undertook general promotional activities for
Citadel. When Saga learned in October about Voornas's employment and
activities, it commenced the present suit against her. 
	[¶4]  From the first filing, this case has been litigated at a frenetic
pace.  On the day that Saga filed its complaint, it also moved for a temporary
restraining order and preliminary injunction, and asked that its motion be
expedited.  At that time, Saga sought only injunctive relief for the alleged
breach of the noncompetition agreement.  On November 3rd, the court
ordered an expedited schedule; the next day, Saga amended its complaint to
add a second count alleging misappropriation of trade secrets.  Though Saga
requested damages and injunctive relief for this count, it continued to ask
only for injunctive relief on its noncompete claim.  The day after Saga
amended its complaint, Voornas filed her opposition to Saga's request for
injunctive relief and moved to dismiss.  A hearing was scheduled for
November 8th, following which the court denied Saga's request for
injunctive relief, ruling that Saga had failed to show a likelihood of success
on the merits and that it had failed to show it would be irreparably harmed
absent an injunction.{3}  
	[¶5]  Ten days after this hearing, Voornas moved for a summary
judgment.  Saga answered her motion on the merits nearly a month later,
asking, in part, that the court grant a summary judgment against Voornas. 
At around the same time, Saga filed a notice of deposition for Voornas, with
the deposition scheduled for December 27th.  On December 20, 1999--
approximately two months before the expiration of the noncompete period--
Voornas appeared on-air for WCLZ (now WPNT), a radio station that is
owned by Citadel and that was one of the competitors listed in the
noncompetition agreement.  That same day, Saga filed a renewed motion for
temporary restraining order and preliminary injunction.  A hearing was held
three days later, and the court denied Saga's motion, again ruling that Saga
had failed to show it would suffer irreparable injury.
	[¶6]  It was only at this point in the proceedings that Saga first
indicated its intention to invoke the binding arbitration clause contained in
Voornas's contract.  Saga demanded that Voornas voluntarily submit their
dispute to arbitration pursuant to her employment agreement.  Voornas
refused, and Saga responded with yet another expedited motion, this time
seeking to stay the proceedings and compel arbitration pursuant to 14
M.R.S.A. § 5928 (1980).  Voornas objected to the demand for arbitration,
and on January 26th, the court denied Saga's motion.  Saga now appeals
from this order pursuant to 14 M.R.S.A. § 5945(1)(A) (1980) ("appeal may
be taken from an order denying an application to compel arbitration under
section 5928").{4}  
	[¶7]  We review the denial of a motion to compel arbitration for
errors of law and for facts not supported by substantial evidence in the
record.  See Iowa Grain Co. v. Brown, 171 F.3d 504, 509 (7th Cir. 1999);
Orthopedic Physical Therapy Ctr. v. Sports Therapy Ctr., Ltd., 621 A.2d 402
(Me. 1993).  Although motions to compel arbitration usually revolve around
the question of "the existence of the agreement to arbitrate," the parties
agree that under the contract between Voornas and Saga their dispute
should have been arbitrated.  See 14 M.R.S.A. § 5928(1) (1980).  Voornas,
however, argues that Saga waived its contractual right to demand arbitration
by repeatedly and persistently attempting to gain its remedy in the courts.{5} 
When, as in the present case, the facts upon which waiver is based are not in
dispute, the determination of whether a party has waived its contractual
right to arbitration is a question of law which we review de novo.  See
Doctor's Assoc., Inc. v. Distajo, 107 F.3d 126, 130 (2nd Cir. 1997) (Distajo
II).
	[¶8]  Saga puts forth two arguments in opposition to a finding of
waiver.  First, Saga argues that the plain language of the contract prevents a
finding of waiver no matter how extensive its litigation of the dispute.  In
support of this provision, Saga points to Rule 37 of the National Rules for the
Resolution of Employment Disputes (National Rules), published by the AAA
and incorporated into the arbitration clause by reference.  Subsection (a) of
this rule states that: "No judicial proceeding by a party relating to the
subject matter of the arbitration shall be deemed a waiver of the party's
right to arbitrate."  This provision is unambiguous and its interpretation is
therefore a question of law that we review de novo.  See Town of Lisbon v.
Thayer Corp., 675 A.2d 514, 516 (Me. 1996).
	[¶9]  While it is true that "every clause of a contract [should] be given
meaning if possible," this rule of construction does not compel the result
urged by Saga.  See Orthopedic Physical Therapy Ctr., 621 A.2d at 403. 
Other courts that have reviewed this clause have refused to find that it
creates the type of blanket protection urged by Saga.  See S & R Company of
Kingston v. Latona Trucking, Inc., 159 F.3d 80, 86 (2nd Cir. 1998) (citing
cases).  These courts have noted that this clause is intended to protect the
arbitration right of the party that seeks provisional application to the courts
in order to preserve the status quo.  See id.  In this sense, however, this
clause "does not alter the ordinary analysis undertaken to determine if a
party has waived its right to arbitration" because under that analysis
litigation to maintain the status quo pending arbitration would not be held to
constitute a waiver even in the absence of the "no waiver" clause.  See id. at
86.  Furthermore, granting the "no waiver" clause the broad reach that Saga
suggests would only serve to undermine a court's ability to control the
proceedings before it while potentially allowing "the losing party to test[]
the water before taking the swim."  See id. (quoting Home Gas Corp. v.
Walter's of Hadley, Inc., 532 N.E.2d 681, 685 (Mass. 1989)); Doctor's
Assoc., Inc. v. Distajo, 66 F.3d 438, 456 n.12 (2nd Cir. 1995) (Distajo I). 
	[¶10]  Saga next argues that, even if it could waive the arbitration
clause, there can be no finding of waiver under the facts of the present case. 
The Federal Arbitration Act, codified at 9 U.S.C. § 1 et seq., governs the
current case.  The FAA applies to "contract[s] evidencing a transaction
involving commerce" and requires that in such cases, arbitration clauses
"shall be valid, irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract."  9 U.S.C. § 2 (1999). 
"[T]he creation of an employment relationship which involves commerce is
a sufficient 'transaction' to fall within section 2 of the Act."  Dickstein v.
duPont, 443 F.2d 783, 785 (1st Cir. 1971); see also Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 401 (1967); Bernhardt v.
Polygraphic Co. of America, 350 U.S. 198, 200-01 (1956) (holding FAA did
not apply where employee was not engaged in activities that affect interstate
commerce).  In the present case, Voornas was hired to perform as a radio
announcer; such a contract affects interstate commerce and the FAA applies. 
See, e.g., Maye v. Smith Barney, Inc., 897 F. Supp. 100, 105 (S.D.N.Y. 1995)
(holding employees in Smith Barney's purchasing department to be in an
employment relationship involving commerce). 
	[¶11]  The FAA created a strong federal policy in favor of arbitration;
where it applies, it preempts all state rules that are applicable only to
arbitration clauses, leaving only those rules generally applicable to contracts. 
See KKW Enterprises, Inc. v. Gloria Jean's Gourmet Coffees Franchising
Corp., 184 F.3d 42, 50 (1st Cir. 1999).  Indeed, in evaluating an arbitration
agreement, "any doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration, whether the problem at hand is the
construction of the contract language itself or an allegation of waiver, delay,
or a like defense to arbitrability."{6}  Moses H. Cone Mem'l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24-25 (1983).  As a consequence, waiver is not to
be lightly inferred.  Leadertex, Inc. v. Morgantown Dyeing & Finishing Corp.,
67 F.3d 20, 25 (2nd Cir. 1995); Shinto Shipping Co. v. Fibrek Shipping Co.,
572 F.2d 1328, 1330 (9th Cir. 1978).  In evaluating whether waiver has
occurred, each case must be evaluated upon its specific facts; there are no
bright line rules.  See S. & R. Co. of Kingston, 159 F.3d at 83; Menorah Ins.
Co. v. INX Reinsurance Corp., 72 F.3d 218, 222 (1st Cir. 1995).  
	[¶12]  Although courts that have addressed the issue of waiver are
not in agreement over all elements required to find a waiver, there is
universal agreement that the party now seeking to compel arbitration must,
at the least, have undertaken a course of action inconsistent with its present
insistence upon its contractual right to arbitration.  See, e.g., P.P.G. Indus.,
Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 109 (2nd Cir. 1997).  "[A]
party may, by engaging in litigation, implicitly waive its contractual right to
arbitrate."  Navieros Inter-Americanos, S.A. v. M/V Vasilia Express, 120 F.3d
304, 316 (1st Cir. 1997).  The relevant question is whether the parties have
litigated "substantial issues going to the merits" of the arbitrable claims
without any indication that, despite the dispute's presence in court, a party
intends to exercise its contractual right to arbitration.  See Subway Equip.
Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999); Rush v.
Oppenheimer & Co., 779 F.2d 885, 887 (2nd Cir. 1985); Sweater Bee by
Banff, Ltd v. Manhattan Indus. Inc., 754 F.2d 457, 463 (2nd Cir. 1985). 
Such litigation does not need to involve dispositive motions, though many
courts finding waiver have noted the presence of such motions.  See S. & R.
Co. of Kingston, 159 F.3d at 84; Caribbean Ins. Serv., Inc. v. American
Bankers Life Assurance Co. of Florida, 715 F.2d 17, 19-20 (1st Cir. 1983)
(holding that party waived its right to arbitration by entering into a
stipulation providing for an expedited trial); Com-Tech Assoc., 938 F.2d at
1576 (holding that party opposing arbitration was forced to litigate a partial
summary judgment motion filed contemporaneously with the motion to
compel arbitration).  Essentially, the party now seeking to compel
arbitration must have demonstrated a "preference for litigation" over
arbitration.  See P.P.G. Indus., Inc., 128 F.3d at 109.  
	[¶13]  The filing of a complaint with a request for temporary
injunctive relief is not necessarily the litigation of substantial issues going to
the merits.  This is particularly true when the request for injunctive relief is
contemporaneous with the demand that the court compel arbitration.  See
Com-Tech Assoc. v. Computer Assoc. Int'l, Inc., 938 F.2d 1574, 1577 (2nd
Cir. 1991); Erving v. Virginia Squires Basketball Club, 468 F.2d 1064, 1066
(2nd Cir. 1972).  Indeed, in most cases, a preliminary injunction or like
measure "preserve[s] the status quo until trial can result in a final
determination of the rights of the parties."  2 Field, McKusick & Wroth,
Maine Civil Practice § 65.2 at 108 (2d ed. 1970).  
	[¶14]  Saga argues that its motions for injunctive relief were nothing
more than attempts to maintain the status quo.  This characterization is
disingenuous.  On the facts of this case, both of Saga's motions for injunctive
relief, but particularly its second motion, litigated substantial issues going to
the merits of its breach of contract claim against Voornas.  Saga did not
request damages for the breach.  Thus, the primary issue before the court
was whether Voornas's activities constituted a breach of the noncompete
agreement that should be enjoined.  Saga's second motion was not filed until
the end of December,{7} with only two months remaining in the non-compete
period, thus effectively litigating the propriety of enjoining Voornas during
that time period.  
	[¶15]  The two motions for injunctive relief did not, however,
litigate substantial issues going to the merits of Saga's trade secrets claim
against Voornas.  This count was not mentioned in the motions, and, in any
case, a request for an injunction would have preserved the status quo of the
trade secrets count pending trial by preventing the alleged misappropriation
until the propriety of Voornas's actions could be determined.  Our review of
the record reveals, however, that Voornas moved for a summary judgment
on both counts of the complaint well before Saga's request for arbitration.{8} 
Saga answered Voornas's motion on the merits while again failing to indicate
that Voornas was defending herself before the wrong tribunal.  Indeed, in
responding to this motion, Saga requested that the court enter a summary
judgment against Voornas.  In the particular context of the present case,
Saga has litigated substantial issues going to the merits of both its claims just
as surely as if it had moved for a summary judgment itself.{9}  Saga voluntarily
choose to initiate the present action in the courts.  It did so without
informing Voornas that she should conserve her defense lest she soon be
required to change forums.  Voornas's motion for a summary judgment was a
reasonable response of a diligent and vigorous defense given no notice that,
in attempting to gain a swift disposition of this dispute, she was expending
her energy in the wrong forum. Saga's actions are inconsistent with its
current insistence upon its arbitration rights. 
	[¶16]  Saga argues, however, that Voornas has not been prejudiced
and, absent that prejudice, there can be no waiver even if it demonstrated a
preference for litigation over arbitration.  It is true that a majority of the
federal courts have required a demonstration of prejudice as the sine qua
non of waiver.{10}  See Menorah Ins. Co. v. INX Reinsurance Corp., 72 F.3d
218, 221 (1st Cir. 1995); Leadertex, Inc. v. Morgantown Dyeing & Finishing
Corp., 67 F.3d 20, 25 (2nd Cir. 1995); Fraser v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 817 F.2d 250, 252 (4th Cir. 1987); Lawrence v.
Comprehensive Business Serv. Co., 833 F.2d 1159, 1164-65 (5th Cir. 1987);
Ritzel Communications, Inc. v. Mid-American Cellular Tel. Co., 989 F.2d 966,
969 (8th Cir. 1993); Hoffman Constr. Co. of Oregon v. Active Erectors and
Installers, Inc., 969 F.2d 796, 798 (9th Cir. 1992); Morewitz v. West of
England Ship Owners Mut. Protection and Indemnity Ass'n, 62 F.3d 1356,
1366 (11th Cir. 1995).  Other courts have adopted a "totality of the
circumstances" test{11} in evaluating waiver; under this test, prejudice is
considered, but waiver can be found even in its absence.  See Metz v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1489 (10th Cir. 1994);
National Found. for Cancer Research v. AG Edwards & Sons, Inc., 821 F.2d
772, 777 (D.C.Cir. 1987).  
	[¶17]  It is unnecessary in the present case to determine whether
waiver could be found even absent prejudice as we are unable to agree with
Saga that Voornas has not been prejudiced.  "[P]rejudice . . . refers to the
inherent unfairness--in terms of delay, expense, or damage to a party's legal
position--that occurs when the party's opponent forces it to litigate an issue
and later seeks to arbitrate that same issue."  Distajo II, 107 F.3d at 134.  

Prejudice can be substantive, such as when a party loses a
motion on the merits and then attempts, in effect, to
relitigate the issue by invoking arbitration, or it can be found
when a party too long postpones his invocation of his
contractual right to arbitration, and thereby causes his
adversary to incur unnecessary delay and expense.

Kramer v. Hammond, 943 F.2d 176, 179 (2nd Cir. 1991).  Although delay
alone, or expenses that would have also been incurred in arbitration, are not
enough to support a finding of prejudice, see Sweater Bee by Banff, Ltd, 754
F.2d at 463; Hibbard Brown & Co. v. ABC Family Trust, 772 F. Supp. 894,
896 (D.Md. 1991), prejudice can be found even though only a short time has
passed before arbitration is demanded; the proper focus is on the effect of
the delay upon the party opposing arbitration.  See American Express Fin.
Advisors, Inc. v. Zito, 45 F. Supp.2d 230, 234 (E.D.N.Y. 1999); Navieros
Inter-Americanos, S.A., 120 F.3d at 316 (holding a delay of a month "long
and prejudicial" where expedited schedule meant delay "lasted from the
filing of the complaint to the eve of trial").  
	[¶18]  Saga indicated its intention to change forums for the first
time in January, approximately two and a half months after it filed the
complaint in this case.  Though the time was short on the calendar, it was
long and prejudicial in terms of its effect upon Voornas and her legal
position.  In those two and a half months, the parties labored under an
expedited schedule, producing as many filings as usually occur over a more
protracted time period.  In addition to defending Saga's two motions,
Voornas litigated a motion to dismiss and a motion for summary judgment,
neither of which would have been necessary had Saga been timely in its
demand for arbitration. 
	[¶19]  Furthermore, Saga's breach of contract claim was significantly
impaired by the denial of its second motion for injunctive relief; at that
point, it was unlikely that the Superior Court could act in time to grant
injunctive relief during the noncompete period.  We need not now decide
whether Saga could impress upon the court the necessity of granting it
injunctive relief beyond the noncompete period except to note that
"[h]istorically, the Maine courts have taken a conservative attitude toward
injunctions, holding the injunction to be 'an extraordinary remedy only to be
granted with utmost caution when justice urgently demands it and the
remedies at law fail to meet the requirements of the case.'" Andrew M.
Horton & Peggy L. McGehee, Maine Civil Remedies § 5.1, at 5-2 to 5-3 (1991)
(citing R. Whitehouse, Equity Practice § 563 (1900), quoted in Bar Harbor
Banking & Trust Co. v. Alexander, 411 A.2d 74, 79 (Me. 1980)).  Saga
therefore asks through its request for a new forum that it be allowed to
revive a weakened claim, thus forcing Voornas to relinquish her current
favored position in this dispute.  The strong federal policy in favor of
arbitration was not intended to provide litigants with successive
opportunities to prevail through continued revisitation of the same issue in
different forums, particularly when those litigants are running from an
unfavorable result in the courts.  See Cabinetree of Wisconsin, Inc. v.
Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995).
	[¶20]  Finally, Saga's own appellate brief demonstrates that Voornas
would be prejudiced by compelling arbitration at this time.  Saga was aware
of the imminent expiration of the noncompete period when it filed its
appeal and was concerned that the passage of March 1st might render its
appeal moot.  See, e.g., Halfway House, Inc. v. City of Portland, 670 A.2d
1377, 1380 (Me. 1996).  Saga therefore argued that an arbitral panel would
have the power to extend the contractual noncompete period should it
determine that Voornas's conduct warranted the injunctive remedy Saga so
assiduously seeks.{12}  Were it not for Saga's attempt to first test the judicial
waters before seeking an arbitral forum, however, there would be no need to
discuss an arbitrator's ability to grant an extension of the noncompete
period.  Had Saga demanded arbitration from the beginning of this action,
almost four months would have remained before the expiration of the
noncompete period.  Voornas would now be faced with a possible arbitral
extension of the noncompete time period solely because of Saga's own delay
in seeking to enter that forum.  That Saga found the courts less congenial
than it had hoped is not sufficient reason to force Voornas into a forum that
Saga now believes is more pliable to its wishes than the one it initially and
voluntarily entered.  Saga has chosen its forum and may not now seek to
escape the consequences of that decision.
	The entry is:
			   Judgment affirmed.