                    IN THE COURT OF APPEALS OF IOWA

                                 No. 17-0274
                              Filed July 5, 2018


ELLEN MCCULLOUGH by and through her Conservator, LYNN COLLINS
SEABA,
     Plaintiff-Appellee,

vs.

EMERITUS CORPORATION d/b/a EMERITUS AT SILVER PINES, et. al,
     Defendants-Appellants.
________________________________________________________________

      Appeal from the Iowa District Court for Linn County, Christopher L. Bruns,

Judge.




      Defendants appeal from the district court’s ruling denying their motion to

compel arbitration. AFFIRMED.



      Skylar J. Limkemann of Scheldrup Blades Schrock Smith, P.C., Cedar

Rapids, for appellants.

         Benjamin P. Long and Pressley Henningsen of RSH Legal, P.C., Cedar

Rapids, for appellee.



      Heard by Vogel, P.J., and Doyle and Bower, JJ.
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DOYLE, Judge.

       Defendants appeal from the district court’s ruling denying their motion to

compel arbitration. Because the district court did not err in determining defendants

waived their right to arbitration, we affirm the district court’s ruling.

       I. Background Facts and Proceedings.

       In February 2015, Dennis McCullough, one of Ellen McCullough’s six

children, filed suit on Ellen’s behalf as her court-appointed guardian and

conservator (collectively “plaintiffs”) against various defendants related to the

Silver Pines residential care facility.         The defendants included Emeritus

Corporation and other legal entities that did business as Emeritus at Silver Pines

(collectively Silver Pines), as well as Silver Pines’s nursing director Jodie Bevans

and its administrator Michael Hunter (all defendants collectively “defendants”).

       The underlying facts related to this appeal are not in dispute. The parties

agree that in March 2013, Ellen was admitted to Silver Pines by James

McCullough, another of Ellen’s children, who, at that time, had Ellen’s power of

attorney. As a part of the admissions process, Jim signed an “Agreement to

resolve disputes by binding arbitration” with Silver Pines on Ellen’s behalf. The

agreement stated, among other things, that the parties to the agreement would

first attempt to settle any disputes between themselves, then, if they were unable

to do so, the matter “shall be resolved exclusively by binding arbitration and not by

lawsuit or resort to the judicial process, except to the extent that applicable law

provides for judicial review of arbitration proceedings.”

       Plaintiffs filed their petition in the Iowa District Court in February 2015.

Defendants filed their answer in April 2015, generally denying the claims asserted
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against them. They also asserted affirmative defenses, including “that some or all

of the plaintiffs have committed a prior breach of contract with the defendants.”

The arbitration agreement was not mentioned nor was arbitration demanded.

Defendants never amended their answer.

        The matter proceeded forward in district court, and a jury trial was set for

November 7, 2016. Additionally, in May 2015, the parties agreed to a case

schedule and discovery plan, including that plaintiffs’ expert witnesses would be

disclosed no later than 210 days before trial and defendants’ expert witnesses

disclosed no later than 150 days before trial. In August 2015, the parties agreed

to a twenty-day extension of their expert designation deadlines. Plaintiffs filed their

designation of expert witnesses September 22, 2015.

        On May 20, 2016, defendants filed a motion to extend their expert witness

disclosure deadline. For reasons unknown to the district court, defendants’ motion

was not administratively placed in the court’s pending-motions queue and did not

come before the court until August 10, 2016. On that date, the court filed an order

noting defendants’ requested extension date had passed.            The parties were

directed to advise the court as to whether an issue remained regarding the relevant

expert report. The court informed the parties that if an issue remained, the court

would take up the matter at an upcoming hearing set for August 24, 2016, when

the court was also to hear plaintiffs’ pending motion to compel discovery.

Following that hearing, the court denied defendants’ motion, finding that good

cause for an extension of the expert deadline had not been established. The

court’s order granting plaintiff’s motion to compel was granted September 11,

2016.
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       On September 13, 2016, about two months before the trial date, defendants

served on plaintiffs a written arbitration demand demanding plaintiffs “submit to

arbitration,” with the scope of arbitration to include “the allegations giving rise to

[plaintiffs’] lawsuit” pending in district court. Plaintiffs were requested “respond no

later than September 16, 2016.” On September 16, 2016, defendants filed a notice

of arbitration demand in district court.   Defendants subsequently filed a motion to

compel arbitration, stating plaintiffs had refused to arbitrate. Plaintiffs resisted.

Following a hearing, the district court denied the defendants’ motion to compel

arbitration. The court concluded defendants waived their right to arbitrate under

the facts of the case, explaining:

               Although they had the arbitration agreement in hand no later
       than October 3, 2015, the defendants did not demand arbitration or
       amend their answer to raise the existence of the arbitration
       agreement as an issue until September [16], 2016, when they filed
       their demand for arbitration. Thus, the demand for arbitration was
       not served until the last day for filing motions in the case. The court
       notes that the defendants now argue that they were not providing
       witnesses for depositions and were not completing discovery
       because they were essentially mulling over whether they wanted to
       demand arbitration. Yet, nothing about the arbitration agreement
       was mentioned at the hearing on the motion to compel or during any
       of the motion practice prior to September 8. Instead, counsel argued
       at the hearing on the motion to compel that he was having problems
       locating witnesses and getting cooperation from his client. Thus, the
       court finds this contention is not credible.

In a footnote, the court added:

              The fact that arbitration was demanded just a few days after
       the court denied the defendants’ request for additional time to
       designate experts and/or provide expert opinions is not lost on the
       court. The court’s denial of the motion prevented the defendants
       from calling one of their experts as a witness. The court’s indications
       at the hearing on the motion to compel and in ruling on the [Iowa
       Rule of Civil Procedure] 1.944 motion were also a strong indication
       to defendants that the court was likely to try the case as scheduled
       and not likely to grant a continuance. It appears that these may have
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       been factors in the late decision to demand arbitration. At a
       minimum, filing the motion to compel arbitration forced the court to
       stay the case, and thus gave the defendants the continuance they
       wanted.

       Defendants appeal.

       II. Discussion.

       Defendants’ arguments on appeal are twofold. First, they argue the waiver

of arbitration by litigation conduct is an issue to be decided by an arbitrator rather

than the district court. Second, they contend that even if the district court had

jurisdiction to determine whether they waived their right to arbitration, the court

incorrectly answered the question.

       A. Who Decides the Waiver Issue?

       Defendants assert federal law applies to this case and mandates an

arbitrator, rather than the district court, decide whether they waived their right to

arbitrate the matter. This is relevant to our standard of review, because our review

of the issue is de novo under federal law but is for correction of errors at law under

state law. See Kelly v. Golden, 352 F.3d 344, 349 (8th Cir. 2003) (“We review de

novo the district court’s interpretation of the contract provision regarding arbitration

and examine for clear error the factual findings that formed the basis for the court’s

ruling.”); Wesley Ret. Servs., Inc. v. Hansen Lind Meyer, Inc., 594 N.W.2d 22, 29

(Iowa 1999) (“[O]ur review is for the correction of errors of law.”). Even applying

the more generous standard and reviewing the record de novo, we find no error

with the district court’s determination that defendants waived their right to arbitrate

the matter under the facts of this case.

       Applying federal law without further analysis, we note:
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               A party to an arbitration agreement can waive its right to
       arbitrate disputes in different ways. The Eighth Circuit has held that
       claims of waiver based on some types of conduct must be decided
       by courts, while claims of waiver based on other types of conduct
       must be decided by arbitrators. In N & D Fashions, Inc. v. DHJ
       Industries, Inc., the Eighth Circuit explained that courts generally
       decide whether a party has waived its right to arbitrate by “actively
       participat[ing] in a lawsuit or tak[ing] other action inconsistent with
       the right to arbitration.” N & D Fashions, Inc. v. DHJ Industries, Inc.,
       548 F.2d 722, 728 (8th Cir. 1976) (quotations omitted). By contrast,
       arbitrators generally decide claims of waiver based on arguments
       that arbitration “would be inequitable to one party because relevant
       evidence has been lost due to the delay of the other. ” Id. The Eighth
       Circuit described this second kind of waiver as “‘waiver’ . . . in the
       sense of ‘laches’ or ‘estoppel.’” Id.

Lovelace Farms, Inc. v. Marshall, 442 S.W.3d 202, 206-07 (Mo. Ct. App. 2014)

(internal footnote omitted). As in Lovelace Farms, Inc., the record before us

confirms that this case involves an assertion of the first kind of waiver—waiver

through litigation conduct. See id. at 207. “Under N & D Fashions, waiver through

litigation conduct is clearly a matter for the court to decide.” Id. (citing N & D

Fashions, 548 F.2d at 728); see also Grumhaus v. Comerica Secs., Inc., 223 F.3d

648, 650 (7th Cir. 2000) (stating waiver of arbitration right is for the courts); Perry

Homes v. Cull, 258 S.W.3d 580, 587 n.17 (Tex. 2008) (citing federal cases). Under

federal law, the district court did not err in determining in the first instance that it

was the decider.

       Defendants also argue that under state law, the issue of waiver must be

decided by the arbitrator, citing Des Moines Asphalt & Paving Co. v. Colcon

Industries Corp., 500 N.W.2d 70, 73 (Iowa 1993).           In Modern Piping, Inc. v.

Blackhawk Automatic Sprinklers, Inc., the Iowa Supreme Court explained why, in

Des Moines Asphalt, it found the arbitrator was to decide whether the request for

arbitration was timely—“the contract [in the Des Moines Asphalt case] so provides
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the arbitrator is allowed to make this initial decision regarding timeliness of the

request for arbitration.” 581 N.W.2d 616, 620 (Iowa 1998), (discussing Des Moines

Asphalt, 500 N.W.2d at 73), overruled on other grounds by Wesley Ret. Servs.,

Inc. v. Hansen Lind Meyer, Inc., 594 N.W.2d 22, 29 (Iowa 1999). Unlike the

contract in the Des Moines Asphalt case, the contract in Modern Piping, Inc. did

not contain “such provision.”      See id.       Though both contracts at issue were

arbitration agreements, only one specified the arbitrator was to decide the

timeliness of the request for arbitration. See id. This case is like Modern Piping,

Inc., and not Des Moines Asphalt. Consequently, even under state case law, the

district court did not err in determining in the first instance that it was the decider.

       B. Did Defendants Waive Their Right to Arbitration?

       Turning to the substantive argument presented in this appeal, defendants

argue that even if the district court had the jurisdiction to decide the issue, it erred

in concluding defendants waived their right to arbitration. We disagree.

       “The party seeking arbitration may be found to have waived his right to it,

however, if he ‘(1) knew of an existing right to arbitration; (2) acted inconsistently

with that right; and (3) prejudiced the other party by these inconsistent acts.’” Kelly,

352 F.3d at 34 (citation omitted). Every one of these boxes is checked under the

facts of this case. As the district court pointed out, defendants “clearly had custody

and control of the agreement in question at all times material to this action.” In

fact, they drafted the agreement that Jim signed when Ellen was admitted to Silver

Pines. Nevertheless, they continued to litigate the suit in district court. They filed

an answer to the suit, asserting various affirmative defenses, but they did not

mention the arbitration agreement. We agree with the district court’s conclusion
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that “[p]laintiffs were prejudiced because they incurred substantial expense and

engaged in significant effort as a result of [defendants’] early litigation activities.”

       Even after defendants had the arbitration agreement in hand some time

prior to disclosing it on October 3, 2015, they continued to litigate. Again, as the

district court pointed out:

       However, even if the court accepts the defendants’ argument and
       considers only activity in the case after October 3, 2015, it is clear
       the defendants waived the right to compel arbitration in this case.
       First, [the defendants] never raised the existence of the arbitration
       agreement in their answer. They never moved to amend the answer
       to raise this issue. Second, after they produced the arbitration
       agreement, [the defendants] continued to litigate this case. The
       defendants designated experts, sought additional time to designate
       experts and disclose opinions, resisted the plaintiffs’ motion to
       compel, and participated in the hearing on the motion to compel
       before they demanded arbitration. After [the defendants] demanded
       arbitration but before they sought to compel arbitration, they sought
       additional time to submit filings on the motion to compel, sought and
       obtained a protective order, filed supplemental discovery responses,
       and filed a motion in limine.

Finally, plaintiffs clearly incurred expenses and inconvenience as the result of

defendants sitting on their hands.       This case could be the legal dictionary’s

definition of how a party waives their right to arbitration.

       III. Conclusion.

       The district court did not err in determining it was to decide the issue of

whether defendants waived their right to arbitration based on their litigation

conduct. Additionally, under the facts of this case, the district court did not err in

determining defendants waived their right to compel the matter to arbitration.

Accordingly, we affirm the ruling of the district court denying defendants’ motion to

compel arbitration. We do not retain jurisdiction.

       AFFIRMED.
