836 F.3d 291
3rd Cir.2016Background
- Putative class: New Jersey homebuyers/refinancers alleging title/settlement agents overcharged $70–$350 per recording, total > $50M in class damages. Plaintiffs sued in D.N.J. in Jan 2009 asserting breach and New Jersey Consumer Fraud Act claims.
- Defendants answered but did not move to compel individual (bilateral) arbitration until after the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion (Apr. 2011). Defendants demanded arbitration June 8, 2011 and moved to compel Aug. 1, 2011.
- District Court found that, under pre-Concepcion New Jersey law (Muhammad and Homa), a motion to compel individual arbitration would have been futile because the contracts were adhesive and individual claims were low-value, effectively blocking relief absent class treatment; it therefore compelled individual arbitration post-Concepcion.
- Plaintiffs had litigated for ~2.5 years, conducted broad discovery (130+ non-party subpoenas, expert costs), and opposed arbitration as prejudicial and waived by Defendants’ delay.
- The Third Circuit considered whether futility excuses delay in invoking arbitration and whether Defendants waived the right; it ruled futility can excuse delay and held pre-Concepcion efforts to compel individual arbitration would almost certainly have failed, so Defendants did not waive the right.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether futility can excuse delayed invocation of arbitration defense | Plaintiffs: delay prejudiced them; defendants waived arbitration by litigating 2.5 years | Defendants: could not be required to make a futile motion under then-prevailing law; futility should excuse delay | Futility can excuse delay; courts should not require futile gestures before invoking arbitration |
| Whether a motion to compel individual (bilateral) arbitration prior to Concepcion would have been futile under New Jersey law | Plaintiffs: Muhammad doesn’t apply because contracts lack explicit class-waivers; motion would not have been futile | Defendants: Muhammad/Homa made compelled individual arbitration almost certain to fail because of adhesive contracts and low-value claims | Held: motion to compel individual arbitration pre-Concepcion was almost certain to fail under Muhammad/Homa facts; futility applies |
| Whether post-Concepcion delay (Apr–Aug 2011) caused waiver or unfair prejudice | Plaintiffs: additional delay + litigation costs = waiver/prejudice | Defendants: they promptly notified plaintiffs and moved within months; no substantive litigation in that window | Held: pre-Concepcion delay excused; post-Concepcion ~3-month delay was not prejudicial and did not constitute waiver |
| Whether NJCFA claims fall within arbitration clauses' scope | Plaintiffs: NJCFA claims not arbitrable | Defendants: arbitration clauses broadly cover disputes arising from policies | Held: clauses are broad; NJCFA claims are arbitrable; court decides scope absent clear and unmistakable delegation to arbitrator |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA preempts state rules prohibiting enforcement of certain arbitration provisions and favors enforcing arbitration agreements according to their terms)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (federal policy favors arbitration; doubts about arbitrability resolved in favor of arbitration)
- Muhammad v. County Bank of Rehoboth Beach, 189 N.J. 1 (N.J. 2006) (class-arbitration waiver in adhesive consumer contract was unconscionable where individual claims were too small to be vindicated)
- Homa v. American Express Co., 558 F.3d 225 (3d Cir. 2009) (applying Muhammad to hold class-waiver unenforceable where claims were low-value and contract was adhesive)
- Opalinski v. Robert Half Int’l, Inc., 761 F.3d 326 (3d Cir. 2014) (class and bilateral arbitration are substantively distinct; courts decide availability of class arbitration absent clear and unmistakable evidence otherwise)
- Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207 (3d Cir. 2007) (defendant may waive arbitration if plaintiff demonstrates unfair prejudice from delay)
- Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912 (3d Cir. 1992) (nonexclusive factors for evaluating waiver/prejudice from delayed arbitration)
- Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691 (9th Cir. 1986) (no requirement to make futile motions to avoid waiver when controlling law made arbitration unenforceable)
- Miller v. Drexel Burnham Lambert, Inc., 791 F.2d 850 (11th Cir. 1986) (courts do not require litigants to engage in futile gestures to avoid waiver)