Defendant Did Not “Waive” Goodbye to Arbitration Despite Litigating For 6 Months

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Explore:  Arbitration Discovery

[author: Liz Kramer]

http://arbitrationnation.com/wp-content/uploads/2012/12/MarylandFlag-190x178.gifIn contrast to recent decisions from other circuit courts, the Fourth Circuit found a defendant did not waive its right to arbitrate, despite litigating for more than 6 months and conducting discovery.  Rota-McLarty v. Santander Consumer USA, Inc., __ F.3d __, 2012 WL 5936033 (4th Cir. Nov. 28, 2012).

In this potential class action, the named plaintiff alleged a finance company violated Maryland consumer protection laws.  The finance company answered the complaint (asserting arbitration as an affirmative defense) and participated in discovery, including agreeing to phased discovery, taking and defending multiple depositions, and producing documents.  After six and a half months, the defendant moved to compel individual arbitration.  It explained its delay by pointing to “uncertainty” in the federal law regarding class arbitration, and saying it waited until after Stolt-Nielsen was decided and the district courts began applying it.

The district court found that the defendant’s actions waived its right to arbitrate, but the Fourth Circuit reversed.  It said the dispositive test in the Fourth Circuit is whether the opposing party has suffered actual prejudice (and noted that the reason for delay should not be considered).  It concluded that the plaintiff had not been prejudiced because six and a half months of litigation is “relatively short” and because the mere fact of participating in discovery does not equate to prejudice.

Recent cases shows significant difference among the federal circuit courts in how they are evaluating claims that a party waived its right to arbitrate.  For example:

  • In the Fourth Circuit, 6.5 months and significant discovery is not enough to waive the right to arbitrate.  In the Third Circuit, however, 10 months and no discovery is enough to waive the right to arbitrate, if a dispositive motion was filed.
  • In the Eleventh Circuit, a litigant who delays moving to compel arbitration until the law develops in a favorable direction waives its right to arbitrate.  While in the Fourth Circuit, a litigant who delays moving to compel arbitration until the law develops in a favorable direction does not waive its right to arbitrate.

Because there is so much flux in the law, defendants who want to retain their right to arbitrate should err on the side of caution and make their motion to compel early.

Topics:  Arbitration, Discovery

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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