Defendants waived arbitration by litigation conduct

I don't quite get it. Why would any defendant who actually wanted to arbitrate go ahead and litigate for 17 months before filing a motion to compel arbitration? Well, here it is, Martin v. Yasuda (9th Cir 07/21/2016).

Class action plaintiffs are cosmetology students. In case you didn't know, it's standard practice that these students perform a vast number of services for the benefit of their school, for which they are paid nothing. So they sued claiming violation of California statutes and the Fair Labor Standards Act, saying they should have been paid wages, overtime, etc.

Defendants filed a motion to compel arbitration. The trial court said "no," the 9th Circuit affirmed. Why? Defendants waived their right to arbitrate by litigation conduct, which prejudiced the plaintiffs.

Here, the defendants engaged in conduct inconsistent with their right to arbitrate. They spent seventeen months litigating the case. This included devoting “considerable time and effort” to a joint stipulation structuring the litigation, filing a motion to dismiss on a key merits issue, entering into a protective order, answering discovery, and preparing for and conducting a deposition. The defendants did not even note their right to arbitration until almost a year into the litigation and did not move to enforce that right until well after that time. Indeed, fourteen months into the litigation, they told the district judge and opposing counsel that they were likely “better off” in federal court. We agree with the district court that the totality of these actions satisfies this element.

Oh, and this was prejudicial to the plaintiffs.

In closing, the 9th Circuit said:

Here, we reject the defendants’ attempt to manipulate the judicial and arbitral systems and to gain an unfair advantage by virtue of their litigation conduct. Accordingly, they have waived their right to compel arbitration.