No Waiver of Arbitration Clause Even After Years of Litigation, Because Arbitration Demand, Pre-AT&T v. Concepcion, Would Have Been Futile

Chassen v. Fidelity Nat’l Financial, Inc., 836 F.3d 291 (3d Cir. 2016).  [Disclosure:  I was an expert witness for plaintiffs in this case, but my Declaration and deposition testimony was not the subject of, or referred to in, this opinion].  This was a putative class action involving allegedly improper charges, ranging from $70 to $350, stemming from the recording of deeds and mortgages.  Though there were arbitration clauses in defendants’ contracts with plaintiffs and class members, defendants litigated the case in court for nearly two and one-half years without invoking those clauses.  After the Supreme Court of the United States issued its 5-4 ruling in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), however, defendants for the first time demanded individual (or “bipolar,” as opposed to classwide) arbitrations with each plaintiff.

The District Court granted that motion as all but two plaintiffs, finding that because it would have been “futile” for defendants to have demanded arbitration prior to Concepcion, defendants had not waived bipolar arbitration..  Plaintiffs sought review under 28 U.S.C. §1292(b), and the Third Circuit certified issues for review.  Today, in a 2-1 decision, the Third Circuit affirmed.  Judge Smith wrote the majority opinion, in which Judge Roth joined.  Judge Rendell dissented, and hers was the more persuasive opinion.

The majority ruled that, due to the state of New Jersey law prior to Concepcion, it would have been futile for defendants to demand bipolar arbitration.  If defendants essentially had no right to bipolar arbitration, there was nothing to waive and therefore there could be no waiver of bipolar arbitration.  The majority adopted a definition of “futile” that entailed the question of whether relief sought was “almost certain” to be denied.  Viewing the issue of bipolar arbitration through the lens of Muhammad v. County Bank of Rehoboth Beach, 189 N.J.1 (2006), and Homa v. American Express Co., 558 F.3d 225 (3d Cir. 2009), the majority found that if defendants had tried to seek bipolar arbitration before Concepcion, such an application was “almost certain” to fail in light of those cases.

As often occurs in litigation, however, controlling the definition of the question to be answered was critical to the result here.  The arbitration clauses themselves, as Judge Rendell noted, did not (unlike in Muhammad) purport to prohibit class arbitration.  Instead, they were silent.  Thus, “[i]f the Defendants had sought individual arbitration at the outset of the case, this silence might have been interpreted to mean that the parties simply did not contemplate class arbitration.  Or it might have been construed as permitting class arbitration.  Surely, it would not have been futile for them to move to enforce these clauses at that time.”

Judge Rendell rightly focused on whether a motion to compel bipolar arbitration based on the arbitration clauses, whatever they might be found to mean, might have succeeded.  The majority, however, asked a different question:  could defendants have won a ruling in favor of bipolar arbitration, as opposed to class arbitration?  The majority opinion went on at length about how the two types of arbitration are different, and the fact that defendants prefer to avoid class arbitration.  These defendants might have ended up with a class arbitration had they invoked the arbitration clauses in timely fashion.  What they wanted, however, was bipolar arbitration, and the fact that cases involving differently worded arbitration clauses appeared to foreclose that meant that any attempt to seek bipolar arbitration prior to Concepcion was futile, according to the majority.

The real problem for defendants here, and for the majority opinion, was that the arbitration clauses left room for class arbitration.  That is likely why defendants  did not timely seek to invoke those clauses in order to obtain bipolar arbitration.  They might indeed have gotten what they wanted if they had asked, as Judge Rendell correctly concluded.  For the majority to have posed the question in terms other than whether the contractual language, defendants’ own verbiage, could have allowed bipolar arbitration had defendants timely sought it, was mistaken.

Other Circuits have ruled in different ways in this area.  It is likely that plaintiffs will seek en banc review, and such review deserves to be granted.

 

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