abandon it in the very same decision in favor of a totality of circumstances test. See id. The court rejected the rigidity of the rule pronounced in Galion and held that the central inquiry is whether, under a totality of the circumstances, the defaulting party acted inconsistently with the right to arbitration. Id. While this circuit still applies the totality of circumstances test set forth in Midwest Window, the test has undergone significant changes since 1980, some of which are relevant to this discussion.
In St. Mary's Medical Ctr. of Evansville, Inc. v. Disco Aluminum Prod. Co., Inc., 969 F.2d 585, 590 (7th Cir. 1992), the Seventh Circuit clarified the role of prejudice in the test, holding that while it is a factor to consider, it was not a prerequisite for finding waiver. The court reiterated that no rigid rule exists as to what constitutes a waiver of the right to arbitrate. Id. at 587-88. In addition, while it recognized the strong federal policy favoring arbitration, embodied in the FAA, it noted that this federal policy is a policy favoring the enforcement of contracts, not a preference for arbitration over litigation Id. at 590. Thus, a court should treat a waiver of the right to arbitrate the same as it treats the waiver of any other contract right. Id. In the Seventh Circuit's most recent pronouncement, Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390-91 (7th Cir. 1995), the doctrine was further modified to reduce the significance of a party's invocation of the judicial process. The court held that the invocation of the judicial process merely creates a presumption of waiver which, in a variety of circumstances, may be rebutted or rescinded. Id. at 391.
Arguably, DBP's conduct does not support even a finding of presumptive waiver. DBP filed suit over defendants' alleged breach of the restrictive covenants contained in the Agent Agreement. The counterclaim, which relates to DBP's withholding of commissions, is separate and distinct from DBP's claims advanced in the first amended complaint. Thus, the matters DBP seeks to arbitrate were not injected into the litigation until JEI filed its counterclaim. Moreover, DBP did not answer the counterclaim; instead, DBP immediately moved to compel mediation/arbitration of JEI's counterclaim and stay proceedings pending resolution of those matters.
DBP has, at no time during the course of this litigation, acted inconsistently with its right to arbitrate JEI's counterclaim. The circumstances in this case, therefore, do not support a finding of waiver. Cf. Commercial Union Ins. Co. v. Gilbane Bldg. Co., 992 F.2d 386, 390 (1st Cir. 1993) (finding no waiver where plaintiff sought to compel arbitration of defendant's counterclaim which was separate and distinct from the claims in the complaint).
Even if DBP's act of filing suit somehow created a presumption of waiver in this case, the counterclaim can be seen as an "unexpected development" which justifies granting relief from the initial waiver. Cabinetree, 50 F.3d at 391. JEI's counterclaim significantly altered the nature of this litigation and operated to rejuvenate the right to demand arbitration. See Envirex, Inc. v. K.H. Schussler Fur Umwelttechnik GMBH, 832 F. Supp. 1293, 1296 (E.D. Wis. 1993) (holding that new allegations in amended complaint operated to rejuvenate right to demand arbitration) cited with approval in Cabinetree, 50 F.3d at 391. While in such circumstances prejudice to the party resisting arbitration weighs heavily in this analysis, see Cabinetree, 50 F.3d at 391, JEI has not advanced any claim of prejudice in this case. Thus, even if DBP initially waived its right to arbitration, JEI's counterclaim altered the nature of this litigation to a significant degree so as to justify rescission of DBP's waiver. Accordingly, DBP has not defaulted on its right to compel mediation/arbitration of JEI's counterclaim.
Next, the court considers whether the mandatory mediation/arbitration provision in the Agent Agreement is unenforceable on the grounds that the provision is illusory because it lacks mutuality of obligation. The choice-of-law provision in the Agent Agreement provides that Illinois law governs the agreement. Thus, the court applies Illinois law in considering this contractual defense. See Perry v. Thomas, 482 U.S. 483, 492 n.9, 96 L. Ed. 2d 426, 107 S. Ct. 2520 (1987); Doctor's Assocs., Inc. v. Distajo, 66 F.3d 438, 451 (2d Cir. 1995), cert. denied, 134 L. Ed. 2d 520, 116 S. Ct. 1352 (1996); Cindy's Candle Co., Inc. v. WNS, Inc., 714 F. Supp. 973, 975 (N.D. Ill. 1989).
The mandatory mediation/arbitration clause at issue in this case states the following:
Except as otherwise provided in this Agreement, all claims, disputes, and controversies arising out of or in any manner relating to this Agreement, or any other agreement executed in connection with this Agreement, or to the performance, interpretation, application or enforcement hereof, including but not limited to breach hereof (in each case, "Dispute"), shall be referred to mediation before, and as a condition precedent to, the initiation of any adjudicative action or proceeding, including arbitration, and any suit, action or arbitration shall be barred unless mediation has been attempted in good faith....