Meritless Motions to Compel Arbitration in Class Actions Follow Concepcion

There has been a  surge in the number of motions to compel arbitration filed in consumer class actions since the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011) this spring.

Some may have been warranted, but a surprising number clearly were not.

Concepcion overturned Discover Bank v. Superior Court, 36 Cal.4th 148 (2005), in which the California Supreme Court ruled that an arbitration clause was unenforceable because the subject class action waiver would exculpate Discover Bank from liability for wrongdoing involving small sums of money. Perceived as a bright line rule rendering other similar provisions unenforceable as a matter of law, some claims were litigated although the plaintiff was party to an arbitration agreement. But whether that narrow category of cases should continue to be litigated was cast in doubt on April 27, 2011 when Concepcion was decided.

However, a number of motions to compel purportedly filed in response to Concepcion concerned arbitration provisions that were totally silent as to class arbitration and/or concerned large sums of damages, taking them outside the Discovery Bank rule. Because defendants in those cases were never precluded from moving to compel arbitration in the first instance, such motions were clearly not warranted, at least insofar as their timeliness was tied to the Concepcion ruling.

For example, in an action against the California School of Culinary Arts, Career Education and a number of lending institutions, which the parties had been actively litigating for over three years, defendants filed a motion to compel arbitration immediately following Concepcion, although the arbitration clause at issue did not contain a class action waiver.

The Court found that Concepcion did not excuse the defendants’ failure to file the motion sooner and, as plaintiffs generally urge the courts to do in these cases, focused its analysis on whether the defendants had actually waived their right to arbitration. Vasquez, et al., v. Calif. Sch. of Culinary Arts, Inc., et al., Case No. BC393129, slip op. (Ca. Super. Ct. Nov. 21, 2011).

The Court applied the following standard: “[W]aiver may be found where the party seeking arbitration has (1) previously taken steps inconsistent with an intent to invoke arbitration, (2) unreasonably delayed in seeking arbitration, or (3) acted in bad faith or with willful misconduct.” Id. at 1, citing Davis v. Continental Airlines, 59 Cal.App.4th 205, 211 (1997).

In holding that the defendants had waived the right to arbitration, the Court found that they had taken a range of steps inconsistent with an intent to invoke arbitration, including taking discovery of the plaintiffs. Vasquez, slip op. at 3-4. The extent of the discovery and the costs incurred by the plaintiffs supported a finding of prejudice to the plaintiffs. Id. at 5-6.The defendants’ delay of over three years was unreasonable, particularly given that the plaintiffs had accumulated over $3 million in attorney fess and costs in connection with responding to defendants discovery requests. Id. at 4-5.

Vasquez is just one of many examples of defendants wrongfully attempting to pile on to recent U.S. Supreme Court rulings that, while potentially game-changing within a limited universe, bear no relation whatsoever to the particular claims they are actually defending.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm, with experience opposing motions to compel arbitration.