I haven’t seen this federal arbitration issue pop up too often, so it stands out when it does. In Newirth v. Aegis Senior Communities (9th Cir. July 24, 2019), the Ninth Circuit applied the federal waiver standard when reviewing the District Court’s denial of a motion to compel arbitration.
The Ninth Circuit reaffirmed prior Ninth Circuit precedent, holding that, under federal law, a party seeking to prove that the right to compel arbitration has been waived must carry the burden of showing: (1) knowledge of an existing right to compel arbitration; (2) intentional acts inconsistent with that right; and (3) prejudice to the person opposing arbitration from the inconsistent behavior. Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986). The Court held that because defendant Aegis was aware of its right to compel arbitration, but made a choice not to do so in order to take advantage of the judicial forum, and because the plaintiffs were prejudiced by incurring costs in defending against a motion to dismiss, the district court was well within its right to conclude that Aegis waived the right to arbitrate.
The Court reached this conclusion despite noting that waiver of a contractual right to arbitration is not favored. Aegis didn’t help its position by filing a motion to compel arbitration and then withdrawing it to, instead, file a motion to dismiss. Oops.