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Eleventh Circuit: No waiver of arbitration rights despite waiting for class certification

In a win for defendants, the Eleventh Circuit recently held that a party does not waive its right to compel arbitration for the claims of unnamed class members even if it has waived that right as to the named class representatives. In Gutierrez v. Wells Fargo Bank, NA, the plaintiffs filed a putative class action against Wells Fargo alleging it had committed certain unlawful practices related to the charging of overdraft fees. The plaintiffs were all former Wells Fargo customers who had accounts governed by customer agreements containing arbitration provisions with class action waivers. After the trial court consolidated similar cases in late 2009, it ordered the defendant banks to file all “merits and non-merits motions directed to the operative complaints,” including motions to compel arbitration, by December 2009. Wells Fargo replied to the trial court’s order stating it would not seek to compel arbitration as to the named plaintiffs but reserved its right to compel arbitration against any plaintiffs “who [might] later join, individually or as putative class members, in this litigation.” Wells Fargo then filed its answer and proceeded with discovery.

In April 2011, the United States Supreme Court issued its decision in AT&T Mobility LLC v. Concepcion, which held that class action waivers in consumer agreements are generally enforceable. Two days later, Wells Fargo moved to compel arbitration as against the named plaintiffs. The trial court denied this motion to compel, finding Wells Fargo had waived its right to arbitration. The Eleventh Circuit affirmed that ruling. In 2013, the plaintiffs moved for class certification. At the same time, Wells Fargo moved to compel to arbitration the claims of the unnamed putative class members. The trial court denied the motion, finding Wells Fargo had “acted inconsistently with its arbitration rights during its pre-certification litigation efforts.” Wells Fargo appealed.

On appeal, the Eleventh Circuit reversed the trial court’s decision and found Wells Fargo had not waived its arbitration rights as to the unnamed members of the class. The court engaged in a two-part analysis to determine whether Wells Fargo had waived its right to arbitration: (1) whether, under the totality of the circumstances, Wells Fargo had acted inconsistently with its right to arbitration; and (2) if Wells Fargo had acted inconsistently with its arbitration rights, whether that conduct had in some way prejudiced the unnamed class members. The court determined the key factor in this inquiry is whether the opposing party and the trial court were put on fair notice of Wells Fargo’s right to arbitration and its intention to exercise that right.

The court determined the unnamed plaintiffs and the trial court had been put on notice of Wells Fargo’s right to arbitration and its intent to exercise that right. First, Wells Fargo explained to the trial court in its response to the trial court’s December 2009 order that it was not moving to compel arbitration against the named plaintiffs but reserved its right to compel arbitration as to future unnamed plaintiffs. Based on the fact that the trial court’s order was at best unclear as to whether Wells Fargo was obligated to compel arbitration against unnamed plaintiffs at that time, the court found no waiver of the arbitration right. Further, the court found it would have been “impossible in practice to compel arbitration against speculative plaintiffs and jurisdictionally impossible for the [trial court] to rule on those motions before the class was certified.” The fact that the class was not certified means “Wells Fargo would not even have been able to identify the specific plaintiffs against which it planned to seek arbitration, much less ascertain its arbitration-related rights as to them.” The court found no support for the proposition that before class certification a party must file a conditional motion to compel arbitration against unnamed plaintiffs. Therefore, the court held Wells Fargo did not waive its right to arbitration as against the unnamed plaintiffs in the newly-certified class and remanded the case to the trial court for further proceedings.

After Gutierrez, it is clear that defendants who wait until after class certification to move to compel to arbitration the claims of unnamed class members do not waive their right to arbitrate so long as they clearly reserve that right. Of course, most defendants who can compel arbitration will do so long before class certification. Post-Concepcion, the exact situation presented by Gutierrez may be unlikely to arise; however, there are many other likely application of the reasoning of this order. For instance, if there is some contract formation defense as to the arbitration provision as to the named plaintiff only, the reasoning of this case would seem to indicate that the defendant can still enforce as to the absent class members (perhaps the named representative did not sign the arbitration rider, or claim their signature is forged, or perhaps they claim they did not receive and assent to the updated terms and conditions in the mail which included an arbitration clause).  Likewise, some class members may have agreed to arbitration clauses (perhaps during a certain time period) but these would not apply to other class members (from a different time period).