In a precedential decision, the United States Court of Appeals for the Third Circuit recently affirmed a decision that title insurers did not waive their ability to compel individual arbitration when attempting to do so earlier would have been futile under then-existing law.  See Chassen, et al. v. Fidelity National Financial, Inc., et al., 2016 WL 4698256 (3d Cir. Sept. 8, 2016).  There, the putative class of Plaintiffs claimed that they were overcharged between $70 and $350 from their settlement agents (title agencies and closing attorneys) to record deeds and mortgages in connection with New Jersey real estate purchases and refinancings from 2003 until the present.  Despite having never sought recovery of those purported overcharges from the settlement agents themselves, Plaintiffs looked to recover hundreds of millions of dollars in claimed damages on behalf of the alleged class from the title insurance companies that issued title insurance coverage for those transactions.

At the time Plaintiffs filed their complaint in 2009, arbitration provisions that did not permit class arbitration, like those at issue in Chassen, were deemed unconscionable and unenforceable under New Jersey law.  Thus, for two and a half years, the parties engaged in broad litigation, including extensive class discovery and dispositive motion practice.  Then, on April 27, 2011, the United States Supreme Court, in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), held that the Federal Arbitration Act preempted state laws that prohibited a party from compelling only individual arbitration.  Shortly thereafter, the Defendants in Chassen demanded that the Plaintiffs individually arbitrate their claims pursuant to the arbitration clauses contained in the title policies, and the Plaintiffs refused.  Following several motions by all the parties, as well as an evidentiary hearing, the District Court held that the Defendants had not waived their right to seek individual arbitration during the two and a half years of litigation because it would have been futile for the Defendants to have sought to exercise that right prior to Concepcion and further found that virtually all of the Plaintiffs had agreed to individual arbitration.  The District Court issued an order compelling those Plaintiffs to arbitrate individually, but certified the issues for interlocutory appeal to the Third Circuit.

On appeal, the Third Circuit affirmed and agreed with the District Court’s order compelling individual (and not class) arbitration under the title insurance policies.  After confirming that it would have been futile under then-existing law for the Defendants to have sought to compel individual arbitration prior to the Concepcion decision, the Third Circuit broke from its traditional waiver analysis and determined that the factors concerning delay and resulting prejudice applied differently in a futility context.  In short, the Third Circuit found that the Defendants could not be penalized for failing to pursue a right that did not exist under New Jersey law and that since they had sought individual arbitration shortly after Concepcion had been decided and no prejudice had resulted therefrom, the Defendants had not waived their right to compel individual arbitration.  As a critical component of that determination, the Third Circuit recognized the material distinction between arbitrating claims individually versus arbitrating a putative class action, holding that “the right to individual arbitration is a distinct right separate from the right to class arbitration” and that “each can be independently waived, thereby requiring that each receive a separate futility analysis.”  Accordingly, the Third Circuit affirmed the District Court’s order compelling Plaintiffs to individually arbitrate their claims, which right to compel Defendants had not waived.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.