## Facts

- Menorah Insurance Co., Ltd. (an Israeli insurer) and INX Reinsurance Corp. (a Puerto Rico reinsurer) entered multiple reinsurance contracts containing arbitration clauses requiring arbitration in Israel.
- A dispute arose over amounts INX allegedly owed Menorah under the contracts.
- In July 1992, Menorah demanded arbitration in Israel; INX declined, citing financial difficulty.
- Menorah sued in Israel in September 1992 and obtained a default judgment exceeding $800,000 after INX did not appear; INX did not pay.
- In September 1993, Menorah filed an exequatur action in the Superior Court of Puerto Rico to recognize and enforce the Israeli judgment.
- INX later moved to dismiss the Puerto Rico enforcement action, asserting the dispute was subject to mandatory arbitration.
- The Puerto Rico court denied the motion, finding INX had waived arbitration; INX nonetheless filed a counterclaim and removed the case to federal district court.
- The U.S. District Court (D.P.R.) also found waiver and substantial prejudice to Menorah, declined to compel arbitration, and remanded; INX appealed.

## Issues

1. Whether INX waived its contractual right to arbitrate by refusing Menorah’s initial arbitration demand and later asserting arbitration only after Menorah pursued foreign litigation and enforcement proceedings.
2. Whether Menorah suffered sufficient prejudice from INX’s delay and litigation conduct to bar INX from compelling arbitration.

## Decision

- The First Circuit affirmed the district court.
- The court held INX waived any right to compel arbitration through conduct inconsistent with arbitration, including an express refusal to arbitrate and later litigation activity.
- The court agreed Menorah suffered substantial prejudice from INX’s refusal and delay, including expenses and delay associated with obtaining and enforcing the Israeli judgment.
- Arbitration was not compelled, and the enforcement litigation could proceed.

## Legal Principles

- A contractual right to arbitrate can be waived by actions inconsistent with an intent to arbitrate, including refusing arbitration when demanded and later seeking arbitration after engaging in or provoking litigation.
- Waiver of arbitration generally requires a showing of prejudice to the opposing party, such as significant litigation expense, delay, or procedural disadvantage attributable to the moving party’s conduct.
- Courts may deny a motion to compel arbitration where belated invocation of an arbitration clause would unfairly impose costs and delay after the opposing party pursued judicial remedies in reliance on the movant’s earlier refusal.

## Conclusion

INX’s refusal to arbitrate when first demanded, followed by delayed reliance on the arbitration clause after Menorah obtained a foreign default judgment and began enforcement proceedings, constituted waiver and caused substantial prejudice; therefore, INX could not compel arbitration.


Menorah Ins. Co. v. INX Reinsurance Corp., 72 F.3d 218 (1st Cir. 1995)