PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

AMERICAN RECOVERY CORPORATION,
Plaintiff-Appellee,

v.

COMPUTERIZED THERMAL IMAGING,
INCORPORATED; DAVID B. JOHNSTON,
Defendants-Appellants,
                                                                  No. 96-1207
and

RICHARD V. SECORD; LOOPER, REED,
MARK, AND MCGRAW, INCORPORATED;
DONALD R. LOOPER; FLUOR-DANIEL,
INCORPORATED,
Defendants.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
T. S. Ellis, III, District Judge.
(CA-95-1323-A)

Argued: May 6, 1996

Decided: September 3, 1996

Before MURNAGHAN, WILLIAMS, and MOTZ, Circuit Judges.

_________________________________________________________________

Vacated and remanded by published opinion. Judge Williams wrote
the opinion, in which Judge Murnaghan and Judge Motz joined.

_________________________________________________________________

COUNSEL

ARGUED: Wayne Lee Emery, Warsaw, Virginia, for Appellants.
Lovida Hardin Coleman, Jr., SUTHERLAND, ASBILL & BREN-
NAN, Washington, D.C., for Appellee. ON BRIEF: Jay Y. Mandel,
SUTHERLAND, ASBILL & BRENNAN, Washington, D.C., for
Appellee.

_________________________________________________________________

OPINION

WILLIAMS, Circuit Judge:

Computerized Thermal Imaging, Incorporated, and David B. John-
ston (collectively, CTI) appeal from the district court's denial of their
motion for a stay pending arbitration. Relying on Mediterranean
Enterprises v. Ssangyong, 708 F.2d 1458 (9th Cir. 1983), the district
court held that American Recovery Corporation's (ARC) claims
against CTI neither arose out of nor related to the consulting agree-
ment that contained the arbitration clause upon which CTI based its
motion. Concluding that the district court used the improper legal
standard for determining whether ARC's claims were arbitrable, we
hold that ARC's claims against CTI relate to the consulting agree-
ment. Accordingly, we vacate the district court's order denying CTI's
motion for a stay pending arbitration and remand the case to the dis-
trict court for further proceedings.

I.

CTI was a member of a consortium of business firms that formed
a joint venture for the purpose of installing thermal imaging, hospital
services, and related medical technology in a network among the hos-
pitals and medical centers in the Peoples Republic of China. CTI
retained ARC, a corporation that specializes in facilitating national
and international transactions and joint ventures, to provide assistance
in seeking the services of a professional communications engineering
firm for the project.

ARC and CTI memorialized their compact in a consulting agree-
ment. The agreement provided that ARC would introduce representa-
tives of a professional communications engineering firm to CTI or
another member of the consortium with the ultimate goal of persuad-
ing the engineering firm to provide its services to the consortium in

                     2
conjunction with the China venture. In addition to the consulting
agreement with CTI, ARC entered into noncircumvention agreements
with two engineering firms, Fluor-Daniel and Parsons Engineering,
which prevented those engineering firms from negotiating with the
consortium except through ARC. In the consulting agreement, CTI
acknowledged the existence of the noncircumvention agreements and
agreed not to enter into any agreements with engineering firms except
in compliance with the consulting agreement and the noncircumven-
tion agreements. Additionally, the consulting agreement contained an
arbitration clause that provided that "[a]ny dispute, controversy, or
claim arising out of or related to this Consulting Agreement shall be
resolved by binding arbitration." (J.A. at 132.)

The consulting agreement was later amended to provide incentives
to ARC to secure funding for the China project through the sale of
medical identification cards. Finding itself in need of additional
financing, CTI requested that ARC enter negotiations with Electronic
Data Systems (EDS) to contribute capital in addition to systems man-
agement and systems integration services for the China project.
Through the efforts of ARC, CTI obtained the capital it sought from
EDS. Although Richard V. Secord, director, president, and one-third
shareholder of ARC, informed ARC that he was negotiating with CTI
for an amendment to the consulting agreement to compensate ARC
for these efforts, ARC alleges that it never received compensation
from CTI.

Shortly after the negotiation with EDS, Secord resigned as a direc-
tor and officer of ARC and entered into a personal services agreement
with CTI. Pursuant to that agreement, Secord assisted CTI in obtain-
ing a letter of intent from Fluor-Daniel to assist in the China project,
which ARC alleges is in violation of the noncircumvention and con-
sulting agreements.

In July 1995, CTI filed a declaratory judgment action in the United
States District Court for the Southern District of Texas seeking to
have the court declare that Secord's personal services agreement with
CTI did not violate the terms of his stockholder's agreement with
ARC and that CTI owed no compensation to ARC under the consult-
ing agreement. On CTI's motion, that lawsuit was dismissed for lack
of jurisdiction before responsive pleadings were due from ARC. In

                    3
September 1995, CTI refiled an identical lawsuit in the same district;
ARC successfully moved the district court to dismiss this suit, again
on jurisdictional grounds, before any discovery had taken place.

Later that month, ARC filed a ten-count complaint in the United
States District Court for the Eastern District of Virginia against CTI,
Secord, a law firm that formerly represented ARC (Looper, Reed,
Mark, and McGraw), and Donald R. Looper, the lawyer who negoti-
ated Secord's personal services agreement with CTI. On November
1, CTI filed a notice of arbitration pursuant to the arbitration clause
of the consulting agreement for the three claims 1 ARC asserted
against it: (1) that CTI induced Secord's breach of his fiduciary duty
to ARC; (2) that CTI induced Fluor-Daniel's breach of the noncir-
cumvention agreement; and (3) under a theory of quantum meruit,
that CTI owed ARC compensation for securing financing from EDS
for the China venture. Also on November 1, CTI filed a motion to dis-
miss ARC's Virginia complaint for lack of personal jurisdiction and
improper venue. The district court later denied this motion.

After receiving notice of the arbitration filing on November 10,
ARC informed CTI and the arbitrators of its intent not to participate
in the arbitration proceedings and, on November 22, filed its first dis-
covery requests in the Virginia action. On December 6, CTI answered
ARC's complaint, raising arbitration as an affirmative defense, and
filed a motion pursuant to the Federal Arbitration Act to stay proceed-
ings pending arbitration, see 9 U.S.C.A.§ 3 (West 1970) (providing
for a stay of proceedings in the district court upon any issue which
is referable to arbitration under a written arbitration agreement). After
the district court denied the motion to stay, reasoning that ARC's
claims were not within the scope of the arbitration clause, CTI timely
filed this appeal, see 9 U.S.C.A. § 16(a)(1)(A) (West Supp. 1996)
("An appeal may be taken from an order refusing a stay of any action
under section 3 of this title . . . .").

Before us, CTI raises three issues: (1) whether the district court
erred in denying CTI's motion to stay proceedings pending arbitra-
_________________________________________________________________
1 The parties to the lawsuit do not dispute that the other seven claims,
lodged by ARC against Secord, Looper, and the law firm, do not fall
within the scope of the arbitration clause and are thus not arbitrable.

                     4
tion; (2) if we determine that the district court erred in denying the
stay, whether CTI waived its right to the stay pending arbitration; and
(3) if we determine that the district court erred in denying the stay and
that CTI did not waive its right to that stay, whether we should
remand this case to the district court with the direction to stay the
non-arbitrable claims pending the resolution of the arbitration pro-
ceedings. We address each of CTI's contentions in turn.

II.

CTI contends that the district court erred in denying its motion to
stay proceedings pending arbitration. In contesting the ruling of the
district court, CTI argues that the district court incorrectly concluded
that the claims ARC asserts did not fall within the scope of the arbi-
tration clause of the consulting agreement. We review de novo the
district court's conclusions regarding the arbitrability of the disputes
between ARC and CTI. See Kansas Gas & Elec. Co. v. Westinghouse
Elec. Corp., 861 F.2d 420, 422 (4th Cir. 1988). After briefly review-
ing the governing principles that guide a court in determining whether
a dispute is arbitrable, we find that the district court applied the incor-
rect legal standard in reaching its decision and conclude that each of
ARC's claims falls within the scope of the arbitration clause of the
consulting agreement.

A.

Whether a party has agreed to arbitrate an issue is a matter of con-
tract interpretation: "[A] party cannot be required to submit to arbitra-
tion any dispute which he has not agreed so to submit." United
Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S.
574, 582 (1960). Nevertheless, the Supreme Court has announced its
"healthy regard for the federal policy favoring arbitration" and has
explained that the Federal Arbitration Act, 9 U.S.C.A. §§ 1-16 (West
1970 & Supp. 1996), "establishes that, as a matter of federal law, 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." Moses H. Cone Memorial Hosp. v. Mer-
cury Constr. Co., 460 U.S. 1, 24-25 (1983). To that end, "the heavy
presumption of arbitrability requires that when the scope of the arbi-

                     5
tration clause is open to question, a court must decide the question in
favor of arbitration." Peoples Sec. Life Ins. Co. v. Monumental Life
Ins. Co., 867 F.2d 809, 812 (4th Cir. 1989). Thus, we may not deny
a party's request to arbitrate an issue "unless it may be said with posi-
tive assurance that the arbitration clause is not susceptible of an inter-
pretation that covers the asserted dispute." Warrior & Gulf
Navigation Co., 363 U.S. at 582-83. Having established our principles
for review, we turn to CTI's arguments.

B.

As an initial matter, CTI contends that the district court applied an
improper legal standard in concluding that ARC's three claims
against CTI did not fall within the scope of the arbitration clause in
the consulting agreement. Relying on the Ninth Circuit's decision in
Mediterranean Enterprises, the district court reasoned that the
tortious-interference-with-contract claim and the inducement-of-
breach-of-fiduciary-duty claim did not arise out of or relate to the
consulting agreement because the claims sounded in tort rather than
contract and because the resolution of the claims in no way turned
upon the interpretation of the terms of the consulting agreement. See
Mediterranean Enters., 708 F.2d at 1464 (holding that a tortious
interference claim did not fall within the scope of an arbitration clause
because the claim "allege[d] activity and raise[d] issues which [were]
predominantly unrelated to the central conflict over the interpretation
and performance of the Agreement" containing the arbitration clause).
Regarding the quantum meruit claim, the district court again relied on
Mediterranean Enterprises in finding that ARC's claim did not fall
within the scope of the arbitration clause. The district court held that
ARC's quantum meruit claim by its very definition arose outside the
scope of the consulting agreement. See id. at 1464-65 (holding that a
quantum meruit claim could not arise out of a contract containing an
arbitration clause because "[a]n action does not lie on an implied con-
tract where there exists between the parties a valid express contract
which covers the identical subject matter").

We agree with CTI that the standard in Mediterranean Enterprises
was an improper foundation for the district court's decision. In
Mediterranean Enterprises, the Ninth Circuit construed the scope of
a clause in a joint venture agreement that provided:"`Any disputes

                     6
arising hereunder or following the formation of joint venture shall be
settled through binding arbitration.'" Id. at 1461 (emphasis added)
(quoting the arbitration clause in part). The court found that the
phrase "arising hereunder" was synonymous with"arising under the
Agreement[,]" a phrase that had previously been construed to be "`rel-
atively narrow as arbitration clauses go.'" Id. at 1464 (quoting Sinva,
Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc. , 253 F. Supp.
359, 364 (S.D.N.Y. 1966)). The court then concluded that the clause
limited the arbitration of disputes to those that"relat[ed] to the inter-
pretation and performance of the contract itself[,]" noting that this for-
mulation was much narrower than "the arising out of or relating to"
standard recommended by the American Arbitration Association. Id.
Thus, the Ninth Circuit explicitly held that the tortious interference
and quantum meruit claims were not arbitrable in the presence of a
narrow arbitration clause, the scope of which was limited to disputes
relating to the interpretation and performance of the contract contain-
ing the arbitration clause itself.

In contrast, ARC and CTI agreed through the arbitration clause in
the consulting agreement to arbitrate any dispute that "ar[ose] out of
or related to" the consulting agreement. (J.A. at 132.) Both the
Supreme Court and this court have characterized similar formulations
to be broad arbitration clauses capable of an expansive reach. See
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 398
(1967) (labelling as "broad" a clause that required arbitration of
"[a]ny controversy or claim arising out of or relating to this Agree-
ment"); J.J. Ryan & Sons v. Rhone Poulenc Textile, S.A., 863 F.2d
315, 321 (4th Cir. 1988) (after declaring that the scope of a clause
providing for the arbitration of "[a]ll disputes arising in connection
with" a contract was identical to that of a clause providing for the
arbitrability of disputes that "may arise out of or in relation to" an
agreement, construing the arbitration clause "to encompass a broad
scope of arbitrable issues" (alteration in original)). In J.J. Ryan &
Sons, we distinguished narrow arbitration clauses that required only
the arbitration of claims arising under the contract and we explained
that the sweeping language of a similarly broad arbitration clause
"d[id] not limit arbitration to the literal interpretation or perfor-
mance of the contract[, but] embrace[d] every dispute between the
parties having a significant relationship to the contract regardless of
the label attached to the dispute." Id. (emphasis added).

                     7
Because the broad arbitration clause negotiated by ARC and CTI
rendered arbitrable all disputes having a significant relationship to the
consulting agreement regardless of whether those claims implicated
the terms of the consulting agreement, the district court erred in con-
cluding that ARC's claims did not fall within the scope of the arbitra-
tion agreement because they did not turn upon the interpretation of
the terms of the consulting agreement. Thus, the district court
employed an improper legal standard in determining whether ARC's
claims against CTI were arbitrable.

Consequently, we must now determine whether the arbitration
clause in the consulting agreement encompasses the disputes between
ARC and CTI, applying the proper legal standard by examining the
significance of the relationship between each of ARC's claims and the
consulting agreement. See id. In applying this standard, we "must
determine whether the factual allegations underlying the claim are
within the scope of the arbitration clause, regardless of the legal label
assigned to the claim." Id. at 319. Bearing in mind the strong federal
policy in favor of arbitration and the broad nature of this arbitration
clause, we examine each of ARC's claims seriatim.

1.

In its first claim against CTI, ARC contends that CTI tortiously
induced Secord's breach of fiduciary duty by secretly negotiating the
personal services agreement with Secord. In its complaint, ARC
asserts that Secord's personal services agreement with CTI "was a
continuation of the services ARC was already providing to CTI under
the CTI Consulting Agreement[ because b]oth the CTI Consulting
Agreement and the Personal Services Agreement . . . essentially
require the services of a `liaison' between CTI and other participants
in the China Project, including the engineers." (J.A. at 24-25.) In
effect, ARC contends that CTI, through the personal services agree-
ment, induced Secord to misappropriate a corporate opportunity that
rightly belonged to ARC.

We agree with CTI that ARC's claim significantly relates to the
consulting agreement and is thus arbitrable. To prove that the benefits
accruing to Secord under the personal services agreement were a cor-
porate opportunity, ARC must prove that it had "a legitimate interest

                     8
or expectancy in . . . a particular business opportunity." See, e.g.,
Alexander v. Sturkie, 909 S.W.2d 166, 169 (Tx. Ct. App. 1995); 3
Beth A. Buday & Gail A. O'Gradney, Fletcher Cyclopedia of the Law
of Private Corporations § 861.10 (perm. ed. rev. vol. 1994) ("[T]he
doctrine of corporate opportunity . . . prohibits one who occupies a
fiduciary relationship to a corporation from acquiring, in opposition
to the corporation, property in which the corporation has an interest
or tangible expectancy . . . ."). To establish that it had a legitimate
interest, ARC posits in its complaint that the personal services agree-
ment encompasses its obligations under the consulting agreement in
addition to other duties that are a logical extension of the services pro-
vided by ARC under the consulting agreement. To strengthen its
claim, ARC asserts that "[t]he compensation under the Personal Ser-
vices Agreement is compensation for work ARC was already per-
forming under the CTI Consulting Agreement." (J.A. at 28.)
Therefore, the proof of ARC's claim that CTI induced Secord to
breach his fiduciary duty is rooted in the existence and terms of the
consulting agreement.

ARC argues that its claim regarding CTI's inducement of Secord's
breach of fiduciary duty is not related to the consulting agreement
because the personal services agreement would have breached
Secord's duty of loyalty even without the existence of the consulting
agreement. This contention, although arguably plausible given the
appropriate factual circumstances, is belied by ARC's clear reliance
on the consulting agreement to establish its claim in the complaint;
thus, we reject it. ARC further argues that we should not find the
claim to be arbitrable because the parties did not intend for the arbi-
tration clause to be this broad. Although ARC is correct in noting that
the intention of the parties is relevant, the intentions of parties to an
arbitration agreement are generously construed in favor of arbitra-
bility, see Peoples Sec. Life Ins. Co., 867 F.2d at 813, and here, ARC
and CTI explicitly agreed on an arbitration clause that by its plain lan-
guage has a broad scope. Because the factual allegations underlying
ARC's claim fall within the scope of the consulting agreement's arbi-
tration clause, we hold that the district court erred in finding this
claim not to be arbitrable.

2.

In its second claim against CTI, ARC contends that CTI tortiously
interfered with its contractual relationship with Fluor-Daniel by

                     9
inducing Fluor-Daniel to breach its noncircumvention agreement with
ARC. ARC alleges that Fluor-Daniel breached the noncircumvention
agreement by agreeing to provide project management services and
a financing commitment to CTI for the China project without com-
pensating ARC for its release from the noncircumvention agreement
as agreed. In the consulting agreement, CTI had expressly promised
"not [to] enter any agreements with [Fluor-Daniel] except in compli-
ance with [the] Noncircumvention Agreement[ ] and this Consulting
Agreement." (J.A. at 21 (second alteration in original).)

ARC's claim of tortious interference with contractual relations
clearly relates to the consulting agreement: An express term of the
consulting agreement mandates that CTI will not enter into any agree-
ment with Fluor-Daniel in violation of the noncircumvention agree-
ment. Thus, the conduct of which ARC complains explicitly
contravenes a term of the consulting agreement.

ARC attempts to minimize this relationship by pointing out that its
claim arises under the noncircumvention agreement, not the consult-
ing agreement. We find this argument unpersuasive: As explained
above, the test for an arbitration clause of this breadth is not whether
a claim arose under one agreement or another, but whether a signifi-
cant relationship exists between the claim and the agreement contain-
ing the arbitration clause. See J.J. Ryan & Sons , 863 F.2d at 321.
Because we find such a relationship clearly exists here, we hold that
ARC's tortious interference claim is properly referable to arbitration.

3.

In its third claim against CTI, ARC contends that it is entitled to
compensation from CTI for securing a financing commitment from
EDS for the China project. ARC alleges a prior pattern of compensa-
tion in which CTI requested that ARC find additional funding for the
China project, ARC secured that funding, and then CTI compensated
ARC for its efforts through an amendment to the consulting agree-
ment. Furthermore, ARC alleges in its complaint that"Secord told
ARC that he . . . w[as] negotiating another amendment to the CTI
Consulting Agreement which would provide compensation to ARC
for its efforts to secure funding for the China Project from EDS."
(J.A. at 23.)

                    10
As with ARC's first and second claims, we likewise find that
ARC's quantum meruit claim relates to the consulting agreement:
ARC again clearly relies on the terms of the consulting agreement to
prove its claim. To establish its entitlement to compensation, ARC
relies on a prior amendment to the consulting agreement as well as
its allegation that Secord informed ARC that its efforts in securing the
EDS funding would be compensated through the vehicle of an amend-
ment to the consulting agreement, as had been done before.

In urging us to find that the quantum meruit claim does not relate
to the consulting agreement, ARC argues, as the district court held,
that a quantum meruit claim by its definition arises outside of the con-
sulting agreement. As we have explained, however, a claim may arise
outside of an agreement and yet still be related to that agreement; we
must analyze the relationship between the claim and the agreement
without regard to "the legal label assigned to the claim." See J.J. Ryan
& Sons, 863 F.2d at 319. Because we find that ARC's quantum
meruit claim is sufficiently related to the consulting agreement as to
fall within the scope of the arbitration clause, we hold that the district
court erred in not referring it to arbitration. Having concluded that
ARC's claims against CTI fell within the scope of the arbitration
clause in the consulting agreement, we must next consider whether
CTI has waived its right to a stay pending arbitration.

III.

ARC contends that even if its claims against CTI were arbitrable
under the consulting agreement, CTI waived its right to invoke the
Federal Arbitration Act by filing the two Texas declaratory judgment
actions and by failing in the Virginia action to raise arbitration as an
affirmative defense in a timely manner.2 See 9 U.S.C.A. § 3 (provid-
_________________________________________________________________
2 Because the district court concluded that ARC's claims against CTI
were not arbitrable, it did not rule on whether CTI had waived its right
to arbitration. In any event, because a district court's ruling on waiver
under the Federal Arbitration Act is subject to de novo review, Fraser
v. Merrill Lynch Pierce, Fenner & Smith, Inc., 817 F.2d 250, 252 (4th
Cir. 1987), we may reach this issue, see Maxum Foundations, Inc. v.
Salus Corp., 779 F.2d 974, 981-83 (4th Cir. 1985) (reaching waiver issue
not ruled on by the district court after concluding that the district court
erred in holding that the plaintiff's claims were not arbitrable).

                     11
ing that a party with an arbitrable claim may apply for a stay of the
trial of that action if "the applicant for the stay is not in default in pro-
ceeding with such arbitration"). Because we find that CTI has not so
substantially utilized the litigation machinery as to prejudice ARC, we
decline to hold that CTI waived its right to arbitration.

Under the Federal Arbitration Act, "[a] litigant may waive its right
to [arbitration] by so substantially utilizing the litigation machinery
that to subsequently permit arbitration would prejudice the party
opposing the stay." Maxum Foundations, Inc. v. Salus Corp., 779
F.2d 974, 981 (4th Cir. 1985). Because of the strong federal policy
favoring arbitration, however, we will not lightly infer the circum-
stances constituting waiver. Id. Our key inquiry is whether the party
opposing the stay has suffered any actual prejudice. Id. at 982.
Although "mere delay, without more, will not suffice to constitute
waiver," id., "delay and the extent of the moving party's trial-oriented
activity are material factors in assessing a plea of prejudice," Fraser
v. Merrill Lynch Pierce, Fenner & Smith, Inc., 817 F.2d 250, 252 (4th
Cir. 1987). The party opposing the stay bears the heavy burden of
proving waiver. Britton v. Co-op Banking Group , 916 F.2d 1405,
1412 (9th Cir. 1990).

ARC first contends that CTI waived its right to arbitration by filing
the consecutive, identical declaratory judgment actions in the United
States District Court for the Southern District of Texas. We disagree.
ARC is unable to state how it was prejudiced by CTI's filing of the
declaratory judgment actions. Neither ARC nor CTI ever initiated dis-
covery in either action, and we cannot consider CTI's defense to
ARC's motion to dismiss in the second action to be a"`substantial[ ]
invok[ation] [of] the litigation machinery,' which would support a
finding of waiver." See Marlin Oil Corp. v. Colorado Interstate Gas
Co., 700 F. Supp. 1076, 1081 (W.D. Okla. 1988) (holding that
defense to motion to dismiss declaratory judgment action insufficient
to waive right to arbitration) (alterations in original) (quoting E.C.
Ernst, Inc. v. Manhattan Constr. Co., 559 F.2d 268, 269 (5th Cir.
1977), cert. denied, 434 U.S. 1067 (1978)). Without more, CTI's
mere filing of the declaratory judgment actions in the Southern Dis-
trict of Texas does not constitute legally sufficient prejudice for CTI
to have waived its rights to arbitration. See Carolina Throwing Co.
v. S & E Novelty Corp., 442 F.2d 329, 330-31 (4th Cir. 1971) (per

                      12
curiam) (holding that filing of a counterclaim alone is insufficient to
waive right to arbitration; prejudice must be proven); Marlin Oil
Corp., 700 F. Supp. at 1081.

Next, ARC argues that by failing to raise arbitration as an affirma-
tive defense in the Eastern District of Virginia until December 6,
1995, ARC experienced sufficient prejudice that CTI should be held
to have waived its right to arbitration. ARC contends that by the time
CTI raised arbitration as a defense, ARC had already expended con-
siderable efforts in serving discovery requests on all parties. ARC
asserts that it was further prejudiced after CTI raised arbitration as an
affirmative defense because CTI "vigorously pursued full discovery
from ARC" after its motion to stay was denied. Appellee's Brief at
15.

We cannot accept ARC's arguments: CTI's conduct in the Eastern
District of Virginia is not legally sufficient to constitute a default of
its arbitration rights under the Federal Arbitration Act. Although CTI
did not raise arbitration as an affirmative defense until after ARC had
served discovery requests, ARC received notice that CTI intended to
pursue arbitration when ARC received a notice on November 10 from
the arbitration authority. By the time it propounded its first discovery
requests on November 22, ARC had known for nearly two weeks that
CTI planned to pursue arbitration of the claims and also that ARC had
not yet filed its answer, the pleading where the affirmative defense of
arbitration must be raised, see Fed. R. Civ. P. 8(c) (providing that
arbitration is required to be raised as an affirmative defense in the
answer). Under these circumstances, we cannot find that CTI waived
its right to arbitration. See Maxum Foundations, Inc., 779 F.2d at 982-
83 (holding that defendant had not waived its right to arbitrate when
it did not raise arbitration as an affirmative defense in its answer, it
delayed three months after the complaint to file a motion to dismiss
because of arbitrability, and it filed the motion to dismiss after discov-
ery had been initiated in the action). Regarding the alleged prejudice
suffered by ARC because of CTI's pursuit of discovery after the dis-
trict court denied its motion to stay pending arbitration, we observe
that a "party seeking arbitration does not lose its contractual right by
prudently pursuing discovery in the face of a court-ordered deadline."
Id. at 982 ("declin[ing] to create a rule that would require a party
seeking arbitration to avoid a finding of default by ignoring court-

                     13
ordered discovery deadlines and assuming the risk that its motion
under the Federal Arbitration Act will be unsuccessful"). Thus, we
hold that ARC has failed to carry its burden of proving that CTI's
actions constituted a default of its right to arbitrate under the Federal
Arbitration Act. ARC's claims against CTI therefore are subject to
arbitration.

IV.

Finally, ARC and CTI disagree on whether the non-arbitrable
claims remaining before the district court should be stayed pending
the resolution of the arbitration proceedings. CTI contends that we
should stay the entire action before the district court because many of
the issues underlying the arbitrable claims are the same as those
underpinning the non-arbitrable claims, and allowing arbitration to
proceed and staying the district court action would preserve judicial
resources by narrowing the issues eventually set for trial. ARC
responds with the opposite contention: Because a trial would con-
clude before the completion of the arbitration proceedings, the trial
should continue. A trial would narrow the issues and potentially obvi-
ate the need for arbitration, ARC argues.

We believe that the answer to this question lies within the sound
discretion of the district court. Enforcement of agreements to arbitrate
under the Federal Arbitration Act may require piecemeal litigation,
see Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985), and
the decision to stay the litigation of non-arbitrable claims or issues is
a matter largely within the district court's discretion to control its
docket, Moses H. Cone Mem. Hosp., 460 U.S. at 20 n.23; Summer
Rain v. Donning Co./Publishers, Inc., 964 F.2d 1455, 1461 (4th Cir.
1992). Therefore, we leave this issue for the district court to resolve
on remand.

V.

In summary, we hold that the district court erred in denying CTI's
motion for a stay pending arbitration because ARC's claims fall
within the scope of the consulting agreement's arbitration clause and
CTI has not waived its rights to arbitration through its utilization of
the litigation machinery. We remand for further proceedings not

                     14
inconsistent with this opinion and for a determination by the district
court of whether to stay the non-arbitrable claims pending resolution
of the arbitration proceedings.

VACATED AND REMANDED

                    15
