Whether a defendant has waived its right to arbitrate as to unnamed class plaintiffs has been a troubling issue. Some courts base their analysis on their lack of jurisdiction over unnamed putative class members. Still others focus on how long the case has been pending and whether the defendant knew that some putative class members had arbitration agreements. Now, the Eleventh Circuit in Gutierrez v. Wells Fargo Bank, NA, No. 16-16820 (11th Cir. May 10, 2018), has added greater clarity to the analysis. The Gutierrez opinion resulted from five class actions brought by bank customers in 2008 and 2009 claiming that they were unlawfully charged overdraft fees by their banks. The opinion details a lengthy history of arbitration-related issues in the district and appellate courts.
The Procedural History
In November 2009, the district ordered all defendant banks to file motions directed to the complaints, including those to compel arbitration, by Dec. 8, 2009. Rather than move to arbitrate the claims of the named plaintiffs, Wells Fargo joined several other banks in filing a comprehensive motion to dismiss.
In 2010, the district court noted that only a small number of banks had sought to compel arbitration, and ordered any defendant who wished to seek arbitration to do so by April 19, 2010. Wells Fargo responded that it would not file for arbitration with the named plaintiffs, but reserved its right to seek arbitration as to plaintiffs who joined “individually or as putative class members, in this litigation,” and took the position that its arbitral rights for a “nationwide class, for newly added plaintiffs, and/or plaintiffs from newly added states [were] not yet at issue.” Later, Wells Fargo filed answers to the five complaints, stating that “[a]bsent members of the putative classes have a contractual obligation to arbitrate any claims they have against Wells Fargo.”
After the AT&T Mobility LLC v. Concepcion decision, 563 U.S. 333 (2011), Wells Fargo sought to compel the named plaintiffs to arbitrate, but the district court found the bank waived its right to arbitrate. The Eleventh Circuit affirmed that decision.
Upon remand, the plaintiffs sought certification. Wells Fargo opposed it on the grounds of lack of numerosity, and also filed conditional motions to compel arbitration as to unnamed class members if the district court certified the class. On April 8, 2013, the district court denied Wells Fargo’s motions to compel, but, the Eleventh Circuit vacated the lower court’s decision. See In re Checking Account Overdraft Litigation, 780 F.3d 1031, 1037-1039 (11th Cir. 2015). The appellate court held that “because no class including unnamed putative class members had been certified,” the lower court “lacked jurisdiction to rule on the arbitration obligations of unnamed putative class members,” and that the named plaintiffs “lacked third-party standing to assert waiver or other arguments against arbitration on behalf of the unnamed putative class members.” Id.
When the Eleventh Circuit remanded the cases in 2015, the district court granted the plaintiffs’ motion to certify the class. Wells Fargo then moved to compel arbitration of the claims of unnamed class members. The district court denied the motion, finding that the bank waived its rights to seek arbitration of unnamed members’ claims, as it “acted inconsistently with its arbitration rights” during its precertification conduct and that “significant prejudice would result” if arbitration were permitted.
Legal Issues on Appeal
As a threshold matter, the Eleventh Circuit panel held that a waiver determination required a two-part analysis: first, under the totality of the circumstances, whether the party “acted inconsistently with the arbitration right,” and second, if the party has acted “inconsistently,” whether the conduct “has in some way prejudiced the other party.” In the panel’s view, the waiver doctrine was “to prevent litigants from abusing the judicial process.”
Ultimately, the panel found no waiver, without addressing the prejudice prong of the waiver test. It reached this conclusion, in part based on an analysis of the district court’s jurisdiction over unnamed class members. Wells Fargo did not act inconsistently with its arbitral rights because “it would have been impossible to compel arbitration against speculative plaintiffs and jurisdictionally impossible for the [d]istrict [c]ourt to rule on those motions before the class certified.” The Eleventh Circuit held in In re Checking Account Overdraft Litig. (Spears & Haymond I), 780 F.3d at 1034 (2015), that the district court lacked jurisdiction to rule on motions to compel arbitration before class certification.
The appellate panel also disputed the district court’s position that Wells Fargo could have sought to compel arbitration as to the named plaintiffs, which “would have had the practical effect of extinguishing the unnamed class members’ claims.” The panel declared:
[W]e have found no authority that requires a party to file a conditional arbitration motion against possible future adversaries – at a juncture in which adjudicating, much less exercising jurisdiction over, those claims is impossible – in order to avoid waiving its rights with regard to those parties.
The Gutierrez opinion presents a forceful statement against a court requiring the pursuit of arbitration as to unnamed putative plaintiffs when the court would have no jurisdiction over their claims. This bright line pronouncement should add clarity to the waiver analysis in the class action context.
A party does act inconsistently with its right to arbitrate when it fails to file a conditional motion to compel arbitration against “possible further adversaries” – unnamed class members.