The Court of Appeals for the Seventh Circuit has affirmed a ruling that a defendant waived its right to compel arbitration in a Telephone Consumer Protection Act class action after litigating the case for more than four years without raising the issue.
The background: The dispute grew out of a telemarketing campaign for a Florida vacation resort.
- To promote the resort in 2018, the defendant hired third-party vendors who bought “leads,” the phone numbers of people said to have opted in through various websites, and reached tens of thousands of potential customers with scripted, pre-recorded calls.
- The plaintiff received two of those calls and, the following year, filed a lawsuit alleging the calls went out without consent in violation of the TCPA.
- Over the next four years, the defendant filed pleadings and affirmative defenses, took part in class discovery, moved on the merits of the claims, and opposed class certification, none of which mentioned arbitration.
- Although the defendant had reviewed the opt-in websites that contained the purported arbitration agreements, it built a record on consent rather than arbitrability, and at one point maintained that as much as 70% of the class, roughly 47,000 people, was bound by such agreements.
- Only after the class of 66,682 was finalized and the plaintiff had moved for summary judgment did the defendant move to compel arbitration, and by then it pointed to just 1,026 class members.
The ruling: The Appeals Court affirmed the trial court’s finding of waiver, holding that a party’s conduct before a class is certified can be weighed in deciding whether it gave up the right to arbitrate.
- The panel explained that waiver turns on whether a party acted inconsistently with the right to arbitrate under the totality of the circumstances, and that a party’s diligence, or lack of it, carries the most weight.
- Judge Brennan wrote that by pressing a consent defense through two years of discovery and class briefing while never raising arbitration, the defendant signaled it meant to fight the class claims on their merits in court.
- The judge rejected the argument that the defendant had no reason to seek arbitration until the class existed, reasoning that a party who sits on known arbitration agreements through discovery and certification implies it intends to litigate.
- The judge gave no weight to the explanation that newly hired counsel had only recently spotted the agreements, warning that otherwise “parties could revive their rights simply by hiring a new lawyer.”
- The trial judge had called the belated motion “out of the blue,” and the panel agreed that four and a half years was too long to wait.
The panel also used the case to tidy up its own rules, acknowledging that its earlier standards for reviewing these orders were, as one judge had put it, “in shambles.” Going forward, aspects of a waiver decision that set precedent get a fresh look on appeal, while the fact-bound waiver finding itself gets deferential review for clear error.
