The Court of Appeals for the Third Circuit has overturned a lower court’s ruling that had denied a defendant’s motion to compel arbitration because it had litigated the case for too long before playing the arbitration card. In doing so, the appellate panel provided a significant clarification on what conduct actually amounts to a waiver of arbitration rights in a class action, and how futility interacts with waiver when a defendant cannot yet compel arbitration of unnamed class members.
The background: The plaintiffs filed a class action alleging that after incurring traffic violations during rental periods, renters were charged fines and administrative fees without being given a chance to contest the underlying infractions. The complaint asserted violations of state consumer protection laws and unjust enrichment.
- Two years into the litigation, the defendant updated its rental terms to include an arbitration clause and a class action waiver.
- Although the named plaintiffs’ rentals occurred before the update, many putative class members’ did not.
- The defendant raised arbitration as an affirmative defense but did not move to compel arbitration until after a class was certified.
- When the defendant finally sought to compel individual arbitration for affected class members, the District Court ruled that the company had waited too long, having “engaged fully in the litigation for five years” before asserting arbitration.
The ruling: The Third Circuit disagreed. It held that the District Court applied the waiver analysis too rigidly and ignored a key factor: before the class was certified, the defendant could not legally compel arbitration of unnamed class members. Any such motion would have been futile.
- The panel wrote that futility “excuses only the failure to seek judicial action which the court could not then grant,” and therefore pre-certification participation in litigation does not automatically show a preference for litigation over arbitration. What mattered was whether the defendant had intentionally abandoned the right. The court found it had not.
- The appellate court emphasized that the defendant consistently signaled its intent to invoke arbitration by raising it in its answers, its briefing, and its class-certification arguments. Once the class was certified and arbitration became enforceable, the defendant moved within the court-ordered schedule. That timing did not amount to waiver.
