Today’s decision from the Third Circuit as to waiver of arbitration reflects some of the dangers raised by protracted delays in litigation.
In 2014, Dawn Valli commenced a putative class action against Avis related to its practices related to fines and penalties incurred by car rental consumers. There were amendments and motions to dismiss over the next two years. Meanwhile, in 2016, Avis amended its rental terms and conditions to include a forced arbitration clause. New amendments and motions practice continued, resulting in certification of an issue class including renters from 2008 through present, in 2023. Avis objected on the grounds that some of the class members’ arbitration clause raised typicality and predominance issues, and sought certification pursuant to Rule 23(f), which the Third Circuit denied.
In 2024, Avis then moved to compel arbitration, arguing that it had not waived its rights by waiting til then to act, since it would have been futile to do so until class certification, since no plaintiff was bound by an arbitration agreement until then. The district court denied the motion, finding that Avis’s participation in the litigation since it had commenced constituted waiver.
Avis appealed and, now 11 years after the case was filed, the Third Circuit reversed and remanded. Describing the question as “may pre-certification conduct be considered in analyzing whether a party waived its right to arbitration as to unnamed members of a putative class, when no motion to compel could have been granted?” the court said “Yes.” The court held that:
when enforceability of a right to arbitration hinges on the occurrence of a foreseeable procedural event—in this case, certification of a class—futility excuses only the failure to seek judicial action which the court could not then grant. It does not remove all pre-event conduct from the waiver inquiry. In that setting, a party must give clear, reasonably prompt record notice of its intent to exercise its arbitration right and then promptly move to do so once the event occurs.
Applying this new standard to the case before it, the Third Circuit held that Avis had not waived its right to compel arbitration, pointing to Avis’s pleading of arbitration as an affirmative defense in response to the amended complaint and repeated reference to it in opposing class certification and at other times.
The court rejected the plaintiffs’ alternative argument that their claims were subject to a small-claims carveout, and remanded to the district court to consider whether the arbitration provision was unenforceable because it was added to the terms while the litigation was pending.
