In Estrella v. Freedom Financial, 2011 WL 2633643 (N.D.Cal. 2011), Judge Illston granted a petition to arbitrate following 27 months of class action litigation.  Even though the Court had granted class certification and notice had been sent to the classmembers, Judge Illston followed Concepcion, and found no waiver of the right to arbitrate. 


In Concepcion, the Supreme Court said that the “overarching purpose” of the FAA is to “ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.” Concepcion, S.Ct. 131 at 1748. Because requiring the availability of classwide arbitration “interferes with fundamental attributes of arbitration,” the Court said the requirement is inconsistent with the FAA. Id. In support of its argument that a change from bilateral arbitration to class-action arbitration is “fundamental,” the Court cited the loss of arbitration’s informality, making the “process slower, more costly, and more likely to generate procedural morass,” and an increased risk to defendants. Id. at 1750–52. While the Concepcion dissent argued that class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the cracks of the legal system, the Court said that “States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.” Id. at 1753. The Court acknowledged that States are still able to take action to address concerns about adhesion contracts, providing as an example a requirement that class-action waivers be highlighted in arbitration agreements, but said “such steps cannot, however, conflict with the FAA or frustrate its purpose to ensure that private arbitration agreements are enforced according to their terms.” Id. at 1750 n. 6.     Twenty-seven months after this case was brought, but only nineteen days after the Supreme Court’s ruling in Concepcion, defendants moved to compel arbitration. They argue that they are now, for the first time, entitled to have the plaintiffs’ claims decided in arbitration on an individual basis.    Plaintiffs oppose the motion to compel arbitration on several grounds. They argue that defendants waived their right to arbitrate by litigating the case for over two years. They also argue that the arbitration clause does not govern claims against several of the defendants and that the clause does not govern the unlicensed prorater claim against any defendant. Plaintiffs also argue that a CROA claim is not arbitrable. In Fisher v. A.G. Becker Paribas, Inc., the Ninth Circuit held that a party seeking to prove waiver of a right to arbitration must show: “(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.” Fisher, 791 F.2d 691, 694 (9th Cir.1986). Because waiver of a contractual right to arbitration is not favored, “any party arguing waiver of arbitration bears a heavy burden of proof.” Id. ¶   In Fisher, the Ninth Circuit examined whether a defendant’s decision not to file a motion to compel arbitration prior to the Supreme Court’s rejection of the intertwining doctrine—which held that when it was impractical or impossible to separate nonarbitrable from arbitrable contract claims, a court should deny arbitration in order to preserve its exclusive jurisdiction over federal securities claims—constituted wavier. See id. at 695. Prior to the Supreme Court’s decision, the Ninth Circuit had approved of the intertwining doctrine and had said in De Lancie v. Birr, Wilson & Co., 648 F.2d 1255 (9th Cir.1981), that arbitration should be denied where common law claims are intertwined with securities law violations. Id. at 693. The defendant relied on the doctrine and the Ninth Circuit’s decision in De Lancie in deciding not to file a motion to compel arbitration because it would have been “futile” prior to the Supreme Court’s ruling. Id. The Ninth Circuit concluded that there was no waiver because the defendant was entitled to rely on the intertwining doctrine and that court’s prior decisions in deciding that it would be futile to file a motion to compel arbitration. Id. Because the arbitration agreement was unenforceable before the Supreme Court’s decision, the court held that the defendant did not act inconsistently with a known existing right to compel arbitration and had not waived the right to arbitration. Id. at 697.    *5 Plaintiffs argue that defendants waived the right to arbitrate by not seeking to arbitrate earlier and instead electing to litigate through class certification. However, this case is similar to Fisher because, prior to the Supreme Court’s decision in Concepcion, it would have been futile for the defendants to file a motion to compel arbitration: prior to Concepcion, California and Ninth Circuit law held that similar arbitration agreements with class action waivers were unconscionable and unenforceable. See Discover Bank, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100; Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976 (9th Cir.2007).    Plaintiffs try to distinguish their case from Fisher by saying that in Fisher the right to arbitration did not exist at all under controlling authority, whereas here the right to arbitration always existed because the “Discover Bank rule held that contractual provisions preventing class-wide arbitration were unenforceable; not that arbitration clauses were unenforceable.” Plaintiffs’ Opp. to Mot. to Compel Arbitration p. 6. However, the Supreme Court has held that “ ‘changes brought about by the shift from bilateral arbitration to class-action arbitration’ are ‘fundamental.’ “ Concepcion, 131 S.Ct. at 1750 (quoting Stolt–Nielsen S.A. v. Animal Feeds Int’l Corp., ––– U.S. ––––, ––––, 130 S.Ct. 1758, 1776, 176 L.Ed.2d 605 (2010)). This “fundamental” shift in how the arbitration would occur means that defendants did not act inconsistently with a known existing right to compel arbitration. Plaintiffs have failed to demonstrate that defendants waived their right to arbitration under the Fisher test.