Bank Did Not Waive Arbitration Rights Against Unnamed Class Members

In the latest appeal emanating from the Checking Account Overdraft Litigation MDL proceeding pending in the Southern District of Florida, the Eleventh Circuit returned to a question that it dodged in a previous appeal: whether Wells Fargo waived its arbitration rights as to unnamed members of a certified class. Gutierrez v. Wells Fargo Bank, NA, No. 16-16820 (11th Cir. May 10, 2018).

Early on in the underlying litigation, consolidated class-action challenges to overdraft fees, Wells Fargo had decided not to file a motion to compel arbitration as to the named class representatives. Instead, Wells Fargo joined a motion to dismiss while stating that it reserved its arbitration rights against unnamed class members in the event of class certification. In later answering the complaints, Wells Fargo asserted its arbitration rights as a defense. After the Federal Arbitration Act preemption decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), Wells Fargo reconsidered, and moved to compel the named class representatives to arbitrate their claims. The district court held that Wells Fargo had waived its right to arbitrate by failing to move to compel arbitration until after extensive discovery and litigation proceedings. Wells Fargo appealed that decision to the Eleventh Circuit and lost. Garcia v. Wachovia Corp., 699 F.3d 1273 (11th Cir. 2012).

After remand to the district court, the plaintiffs moved for class certification. Wells Fargo opposed that motion on grounds including lack of numerosity, because the unnamed class members had entered into arbitration agreements requiring individual arbitration. Wells Fargo also filed a conditional motion to compel arbitration as to the unnamed class members. The district court denied the arbitration motion, without ruling on class certification. Wells Fargo again appealed. The Eleventh Circuit, in an opinion by Judge Tjoflat, held that the district court lacked jurisdiction to rule on whether the unnamed class members were required to arbitrate and vacated the district court’s order. In re Checking Account Overdraft Litig., 780 F.3d 1031 (11th Cir. 2015).

Unsurprisingly given its prior rulings, on remand the district court granted the class certification motion. Wells Fargo then moved to compel arbitration as to the unnamed class members. The district court denied that motion on the ground of waiver of arbitration through prior litigation. Wells Fargo appealed for a third time, and this time scored a major victory. In his opinion for the court, Judge Tjoflat first pointed out that a party asserting waiver of arbitration faces a heavy burden of proof. To establish waiver requires a showing that the party seeking arbitration has “substantially invoked the litigation machinery” prior to seeking arbitration and that the opposing party has in some way been prejudiced. The court observed that “the key ingredient in the waiver analysis is fair notice to the opposing party and the District Court of a party’s arbitration rights and its intent to exercise them.” The court held that, even though Wells Fargo had waived its arbitration rights as to the named class representatives, it had consistently reserved all its arbitration rights against unnamed class members. The court also noted that “it would have been impossible in practice to compel arbitration against speculative plaintiffs and jurisdictionally impossible for the District Court to rule on those motions before the class was certified.” The court rejected the argument that, to avoid waiver, filing a conditional motion to compel was required much earlier in the litigation, because the district court would lack jurisdiction over such a motion until the class was certified.

Posted by Tom Byrne.

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