Federal Arbitration Case Update

[author: Richard Birke]

Following is an interesting and recent federal court ruling related to arbitration.

Litigation Activity Results in Waiver of Right to Arbitrate
Healy v. Cox Communications
United States Court of Appeals, Tenth Circuit
June 24, 2015

In 2009, Cox’s cable service subscribers sued, arguing that Cox had illegally tied premium cable to its “set-box” rental. Cox moved to dismiss. While the motion was pending, Cox inserted mandatory arbitration clauses and a class waiver in all its contracts, including those of putative class members.

Class certification failed, but smaller sub-classes began to file many class actions – each of which was designed to overcome the objections the court had with the original, national attempt to certify a class.

Richard Healy became the lead plaintiff in an Oklahoma-based case. Cox moved to dismiss, and when that was unsuccessful, the parties agreed to stay other cases and use Oklahoma as a bellwether.

After substantial activity, including a grant of class certification, Cox moved again to compel arbitration. The district court denied the motion, ruling that Cox’s litigation activity amounted to a waiver. Cox appealed.

The Court of Appeals for the Tenth Circuit affirmed. It found that “the parties then engaged in extensive pre-trial discovery, issuing interrogatories, submitting declarations, exchanging 10s of thousands of documents, locating and hiring experts, and deposing witnesses. In September 2013, named plaintiff Healy moved to certify a class. Cox opposed the motion and moved to exclude the testimony of Healy’s experts in support of the motion. Nowhere in its answer did Cox inform the district court of its arbitration agreements or raise the presence of these agreements as an impediment to the alleged numerosity, typicality, and commonality of the class. During the pendency of the motion for class certification, the parties continued to engage in discovery. Cox also filed a surreply in opposition to the motion for certification, which again did not mention the arbitration provisions.”

The Court used a six-part test to determine waiver.  The factors are “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.”

The Court analyzed each and found that they “strongly cut against Cox.”  The district court’s denial of the motion to compel arbitration was affirmed, and the case remanded for an increasingly rare class action trial on the merits.