Ninth Circuit: Defendants Waived Arbitration Through Litigation Conduct and Waiver Determined by Court, Not Arbitrator | Practical Law

Ninth Circuit: Defendants Waived Arbitration Through Litigation Conduct and Waiver Determined by Court, Not Arbitrator | Practical Law

In Martin v. Yasuda, the U.S. Court of Appeals for the Ninth Circuit confirmed that the determination as to whether defendants waived their right to arbitration through their participation in litigation was an issue for the court, not the arbitrator. The Court went on to hold that the defendants' conduct in waiting nearly 17 months before making a motion to compel arbitration resulted in prejudice to the plaintiffs and a waiver of the defendants' rights to invoke the agreement's arbitration provision.

Ninth Circuit: Defendants Waived Arbitration Through Litigation Conduct and Waiver Determined by Court, Not Arbitrator

by Practical Law Litigation
Published on 26 Jul 2016 • USA (National/Federal)
In Martin v. Yasuda, the U.S. Court of Appeals for the Ninth Circuit confirmed that the determination as to whether defendants waived their right to arbitration through their participation in litigation was an issue for the court, not the arbitrator. The Court went on to hold that the defendants' conduct in waiting nearly 17 months before making a motion to compel arbitration resulted in prejudice to the plaintiffs and a waiver of the defendants' rights to invoke the agreement's arbitration provision.
On July 21, 2016, the U.S. Court of Appeals for the Ninth Circuit confirmed in Martin v. Yasuda that the determination as to whether defendants waived their right to arbitration through their participation in litigation was an issue for the court, not the arbitrator. The Court went on to hold that the defendants conduct in waiting nearly 17 months before making a motion to compel arbitration resulted in prejudice to the plaintiffs and a waiver of the defendants' rights to invoke the agreement's arbitration provision ( (9th Cir. July 21, 2016)).
On October 28, 2013, the plaintiffs commenced a class action on behalf of individual students enrolled at the Milan Institute of Cosmetology. The students alleged that the college was an employer and that it violated the Fair Labor Standards Act (FLSA) and state labor laws by failing to compensate them for services rendered to the college that were unrelated to their education. Each student signed an enrollment agreement that contained a binding arbitration clause.
The defendants engaged in several litigation activities before the district court, including engaging in discovery and filing an unsuccessful motion to dismiss. At a conference about 13 months into the litigation, the defendants' attorney advised the court that the defendants had not yet decided whether to move to compel arbitration and that "frankly" the defendant was "probably better off being here in the court . . ." The district court warned the defendants about the possibility of waiving their right to arbitration. On March 25, 2015, nearly 17 months after the plaintiffs commenced the action, and shortly after the deposition of the defendants' Chief Financial Officer, the defendants made a motion to compel arbitration. The district court denied the motion on three grounds:
  • The defendants had knowledge of their existing right to compel arbitration.
  • The defendants engaged in conduct inconsistent with that right by failing to make their motion to compel sooner and actively participating in the litigation.
  • Compelling arbitration at that stage of the litigation would prejudice plaintiffs.
The defendants appealed, arguing that:
  • The arbitrator, rather than the district court, should decide the waiver issue.
  • The defendants did not waive their right to arbitration by participating in the litigation. The defendants noted that they included arbitration as an affirmative defense in their answer and memorialized their right to enforce the arbitration agreement in a footnote to the Rule 26(f) report that the parties jointly submitted.
The Ninth Circuit affirmed, citing Howsam v. Dean Witter Reynolds, Inc., and confirmed that waiver is a question of arbitrability, which, unlike procedural issues, is presumptively for judicial determination (123 S.Ct. 588 (2002)). The defendants attempted to overcome the presumption by contending that the broad language of the enrollment agreement's arbitration clause required that an arbitrator determine the waiver question. The Ninth Circuit disagreed, stating that the arbitration agreement's language that "all determinations as to the scope, enforceability and effect of this arbitration agreement shall be determined by an arbitrator, and not by a court" was insufficient to overcome the presumption. If the parties intend for an arbitrator to decide the issue of waiver, they must place "clear and unmistakable language to that effect in the agreement."
The Ninth Circuit agreed that the plaintiffs were prejudiced by the defendants' delay because:
  • The plaintiffs had spent considerable time and money on the litigation that they would not otherwise have incurred, but for the defendants' delay in moving to compel arbitration.
  • If arbitration were permitted, the plaintiffs would have to relitigate a key issue on which the district court had already ruled in their favor when denying the defendants' motion to dismiss.
For these reasons, the Ninth Circuit affirmed the district court's denial of the defendants' motion to compel arbitration.