Three federal appellate courts recently affirmed lower courts’ refusal to compel arbitration. These cases show that the federal policy favoring arbitration is not absolute – the parties must have agreed to arbitrate the claims at issue and the defendant cannot have waived its right to arbitrate by engaging in significant discovery and motion practice.
In Lloyd v. J.P. Morgan Chase & Co., __ F.3d __, 2015 WL 3937978 (2d Cir. June 29, 2015), the issue was whether putative class and collective actions by former financial advisors could proceed in court. The employment agreements call for arbitration of “any claim or controversy … required to be arbitrated by the FINRA Rules … no claims shall be arbitrated on a … collective or class-wide basis.” The current FINRA Rules prohibit arbitration of any class or collective claims. The employer moved to compel arbitration and the district court denied the motion, finding that plaintiffs’ class and collective action claims fall outside the scope of the arbitration clause. The Second Circuit affirmed. It engaged in a grammatical analysis of the arbitration clause (rejecting the employer’s argument about the “rule of the last antecedent”) and found that the phrase “required to be arbitrated by the FINRA Rules” modifies “claim or controversy.” Therefore, because the current FINRA Rules did not require arbitration of class or collective actions, the claims could proceed in federal court.
In another case about whether the parties really intended to arbitrate their claims, the Eighth Circuit found that the plaintiff never accepted the terms of the contract containing the arbitration agreement, despite starting to perform under that contract. LoRoad, LLC v. Global Expedition Vehicles, LLC, __ F.3d __, 2015 WL 3449847 (8th Cir. June 1, 2015). The plaintiff and defendant had exchanged multiple revisions of the contract, until finally the defendant sent a version that plaintiff appeared to accept by wiring a deposit on the funds due under the contract and faxing the contract back with the signature of an (unauthorized) principal and “minor handwriting notations and changes.” Later, however, plaintiff asserted “unfinished business” and threatened to rescind the contract, and the defendant suggested revising the contract. Applying UCC and Missouri law, the Eighth Circuit found the plaintiff never accepted the contract. Furthermore, even though every version of the agreement contained the same arbitration provision, the Eighth Circuit found “there was an enforceable agreement to arbitrate if, and only if, [plaintiff] proved there was a final, enforceable [contract].” (Plaintiff had filed suit to compel arbitration.)
Finally, in a class action antitrust case, In re Cox Enterprises, Inc. Settop Cable Television Box Antitrust Litig., ___ F.3d __, 2015 WL 3875726 (10th Cir. June 24, 2015), the defendant’s motion to compel arbitration was denied because the court found the defendant waived its right to compel. The appellate court found that the defendant waived its right by waiting until two years into the litigation – after moving to dismiss the claim, engaging in “extensive pretrial discovery,” and opposing class certification. In particular, the district court was offended that the defendant’s failure to inform the court of the arbitration agreement until after class certification had wasted significant court resources and suggested an attempt at “multiple bites at the apple” and to “play heads I win, tails you lose.”
By Liz Kramer