Echoing a holding already issued by four other circuits, the Third Circuit recently found that a defendant does not waive its right to arbitration by continuing to litigate in court, if the reason it failed to move to compel arbitration is that the motion would have been futile.  Chassen v. Fidelity Nat’l Fin., Inc., 2016 WL 4698256 (3d Cir. Sept. 8, 2016).

The case involves a class of real estate purchasers who claim they were overcharged for recording documents in New Jersey.  Although there were arbitration agreements in the relevant contracts, the defendants did not move to compel “bipolar” arbitration for two and a half years.  (Where did that term come from, Third Circuit?  Are we equating individual arbitration to a mental health condition now?)  In that time, plaintiffs served 150 non-party subpoenas and spent $50,000 on experts.

Although defendants did not attempt to explain their inaction, the Court concluded the long delay in seeking arbitration was excused.  In short, New Jersey law had nearly outlawed class action waivers in consumer arbitration clauses, so until SCOTUS decided Concepcion in 2011 (finding California’s similar rule preempted by federal law), it would not have made sense for defendants to compel arbitration.  The court reasoned that unlike in other cases of inaction, the prejudice to plaintiffs “is attributable to a change in the applicable law, not to any negligent action on the part of either party.”  It also noted that futility is a recognized exception to ripeness and administrative exhaustion, two analogous doctrines.

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