In Richards v. Ernst & Young, LLP, No. 11–17530 (9th Cir. Aug. 21, 2013) (click here for a copy of the decision), the district court had denied the defendant’s motion to compel arbitration because the defendant had waived its right to arbitrate. The case involved a class action regarding wage and hour claims. Because years of litigation had occurred before the defendant asked the district court to compel arbitration of the plaintiff’s claims, the district court refused to enforce an arbitration agreement on the grounds of waiver.
The Ninth Circuit recently held that waiver had not taken place, and thus, the Ninth Circuit reversed the lower court’s denial of the motion to compel arbitration. Because the arbitration agreement, which contained a class action waiver, should have been enforced, the Ninth Circuit also reversed a class certification order.
Regarding the issue of waiver, the Ninth Circuit found that a party arguing waiver has a high burden to demonstrate the following three factors:
(1) the opposing party had knowledge of an existing right to compel arbitration;
(2) the opposing party had engaged in acts inconsistent with that existing right; and
(3) the party resisting arbitration suffered prejudice resulting from such inconsistent acts.
Here, the Ninth Circuit found that the defendant’s delay in seeking arbitration did not prejudice the plaintiff. The plaintiff argued that she was prejudiced because there was litigation on the merits. However, the Ninth Circuit found that there was no decision on the merits. The district court had dismissed one of the plaintiff’s claims without prejudice, and the district court had also dismissed another claim for lack of standing, which is a jurisdictional dismissal not on the merits. The plaintiff also argued that the high cost of discovery in litigation was prejudicial. However, the plaintiff had failed to demonstrate that such discovery would not take place in arbitration.
The plaintiff also tried to convince the Ninth Circuit to affirm the lower court’s decision by relying on the National Labor Relations Board’s 2012 decision in D.R. Horton. In D.R. Horton, the National Labor Relations Board found that an employer engaged in an unfair labor practice and violated the National Labor Relations Act by requiring employees to arbitrate on an individual basis. However, the Ninth Circuit found that the plaintiff had not properly raised and developed this argument below, and moreover, the Ninth Circuit noted that other courts had overwhelmingly decided not to follow the D.R. Horton ruling since it conflicted with the FAA, as interpreted by the Supreme Court’s decision in Concepcion.