Summary
The United States Court of Appeals for the Third Circuit considers whether Avis Budget Group and related entities waived their contractual right to compel arbitration through litigation conduct in a putative class action. The Court holds that pre-certification conduct may be considered in determining waiver, although seeking to compel arbitration against unnamed putative class members before class certification would have been futile. The Court vacates the District Court’s order denying the motion to compel arbitration and remands for consideration of enforceability issues.
Topics
Practice areas
Questions Presented
- Whether Avis waived its contractual right to compel arbitration of claims by unnamed members of a putative class through pre-certification litigation conduct.
- Whether futility excuses Avis's failure to move to compel arbitration before class certification.
- Whether the arbitration provision's small-claims carve-out excluded the aggregated class action from arbitration.
- Whether the enforceability challenge based on Avis's addition of the arbitration provision during the litigation was preserved for appellate review.
Holdings
- Pre-certification conduct may be considered in determining whether a party waived arbitration even when a motion to compel arbitration directed at unnamed putative class members would have been futile before class certification.
- Avis did not waive its right to compel arbitration because it promptly asserted arbitration as an affirmative defense, repeatedly preserved its prospective arbitration rights, did not specifically pursue discovery concerning arbitration-bound class members, and moved to compel promptly after certification made the motion viable.
- The small-claims exception did not exclude this action from arbitration because the case was brought as an aggregated class action alleging more than $5 million in controversy, rather than as an individual small-claims action.
- The argument that Avis's addition of the arbitration provision during the litigation rendered it unenforceable was forfeited because Plaintiffs raised it for the first time on appeal.
Key quotations
“where an earlier motion to compel would have been “almost certain to fail,” the failure to file such a motion is not inconsistent with the right to arbitrate.” (at 13-14)
“We therefore hold that when enforceability of a right to arbitration hinges on the occurrence of a foreseeable procedural event—in this case, certification of a class—futility excuses only the failure to seek judicial action which the court could not then grant.” (at 23-24)
“In that setting, a party must give clear, reasonably prompt record notice of its intent to exercise its arbitration right and then promptly move to do so once the event occurs.” (at 24)
“In sum, and viewed in context, Avis’s conduct does not “evince a preference for litigation over arbitration.”” (at 30)
Factual background
Valli rented a vehicle from Avis in June 2014, and the rental agreement required her to reimburse Avis for traffic fines and a reasonable administrative fee. After a camera-generated speeding infraction, Avis paid the $150 fine, charged Valli a $30 administrative fee, and sought reimbursement. Valli and later Dubinsky filed a putative class action concerning Avis's payment and collection practices. Avis added arbitration and class-waiver provisions to its rental terms prospectively in 2016, while the named Plaintiffs' rentals predated those provisions.
Procedural history
Valli filed a putative class action in the District of New Jersey in 2014 asserting New Jersey consumer-fraud and unjust-enrichment claims arising from Avis's payment of traffic fines and collection of administrative fees. Avis litigated through motions to dismiss, answers asserting arbitration as an affirmative defense, discovery, mediation, and class-certification proceedings. After the District Court certified a subclass in October 2023, Avis moved to compel individual arbitration in February 2024. The District Court denied that motion on September 30, 2024, finding waiver. The Third Circuit vacated and remanded for consideration of enforceability issues not reached below.
Remand instructions
Vacate the District Court's September 30, 2024 order denying Avis's motion to compel arbitration and remand for further proceedings. The District Court must address enforceability issues not previously reached, including any properly presented challenge under Rule 23(d), in the first instance.