The Tenth Circuit issued an opinion with a good discussion of the multiple factors used to determine whether a party waived its right to arbitrate under the Federal Arbitration Act. In re Cox Enterprises, Inc. Settop Cable Television Box Antitrust Litigation, No. 14-6158 (10th Cir. June 24, 2015) (click here for a copy of the decision).
The defendant cable company moved to compel arbitration in connection with class action litigation. However, the defendant filed the motion after extensive discovery and judicial resolution of discovery disputes, class certification, the filing of potentially dispositive motions, and a petition to the court of appeals regarding class certification.
In a key part of the Eleventh Circuit’s decision, the Eleventh Circuit set forth the following six-factor test to determine whether waiver of the right to arbitrate occurred:
(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.
The Eleventh Circuit applied these factors to the case at hand and easily affirmed the district court’s order finding that the cable company had waived its right to enforce its arbitration agreements.
Near the end of the opinion, there is an interesting discussion about compelling absent class members to arbitrate. The defendant cable company tried to argue against a finding of waiver by asserting that it was futile to seek an order compelling arbitration of the absent class member’s claims until after a class was certified, and hence, there was no delay in seeking arbitration. However, the Eleventh Circuit rejected the defendant’s argument and explained that the defendant could have at least moved to compel the named plaintiff’s claims at a much earlier stage, as well as notified the court of a defense of arbitration in opposition to class certification. I fully agree with the Eleventh Circuit that the defendant waived its right to arbitrate by engaging in multiple actions inconsistent with arbitration, such as extensive discovery and the filing of summary judgment motions, and the defendant should have notified the court about the purported arbitration agreements at the earliest possible stage.
There is another potential flaw with the defendant’s arguments that the Eleventh Circuit did not address. The defendant argued against waiver by saying it was futile to compel the entire class to arbitrate until a class had been certified. However, I believe the premise of the defendant’s argument is flawed. I am skeptical of a court’s ability to broadly compel an entire group of absent class members to arbitrate. The FAA requires individualized proceedings to examine the circumstances regarding the “making” of a particular agreement, 9 U.S.C. 4. As a part of these individualized proceedings, the FAA guarantees 5 days’ notice and the right to a jury trial if the making of an arbitration agreement is at issue. Although class members may each have the same identical arbitration clause, the circumstances regarding each person’s “making” of the agreement or entering into the agreement may differ, and the FAA’s individualized proceedings should be followed.