Issue Presented Is One Of First Impression And Perhaps Sui Generis
Our next case presents as a “threshold matter” an arbitration issue that turns out to be one of first impression. Guitierrez v. Wells Fargo Bank, N.A., Case Nos. 10-16959 and 10-17468 (9th Cir. Dec. 26, 2012) (McKeown, J.) (published). Wells Fargo sought to compel arbitration in a case after certain issues had been decided adversely to it, arguing that it would have been futile to seek to compel arbitration before the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) (holding that the Federal Arbitration Act preempted California’s Discover Bank rule that had rendered class-wide arbitration waivers unenforceable in consumer cases involving unequal bargaining power and large numbers of small consumer claims). However, Wells Fargo litigated at length before seeking to arbitrate after Concepcion was decided. “The effect of Concepcion, as intervening Supreme Court law, on a judgment on appeal after trial, is an issue of first impression.”
The Ninth Circuit waiver of arbitration test is a three-factor test requiring: “(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 v. A.G. Becker Paribas Inc., 791 F.2d 691 (9th Cir. 1986).
Wells Fargo’s strongest argument was that any “existing right” could exist only after Concepcion. However, the Ninth Circuit believed that the futility of an arbitration demand was “not clear cut here” because “[i]n contemporaneous consumer litigation, litigants did succeed in compelling arbitration despite the existence of the Discover Bank rule.” (Note: For a discussion of a California case, Sprint v. Phillips, in which the court concluded a pre-Concepcion effort to arbitrate would have been futile, see my September 27, 2012 post). This allowed the Court to focus on readily apparent prejudice to plaintiffs – time, expense, delay and uncertainty – given “Wells Fargo’s invocation of arbitration five years into this litigation . . . “
But the Fisher analysis was not the only argument in favor of rejecting the belated effort to invoke arbitration. The Court believed that belated arbitration here would be inconsistent with “the overarching purpose of the FAA . . . to facilitate streamlined proceedings.” Concepcion, 131 S.Ct. at 1748.
Finally, on the facts, denying arbitration seemed consistent with contractual intent. The arbitration clause was only “permissive”, not mandatory. Either party could demand arbitration, but was not required to do so. And Wells Fargo “never made a demand for arbitration, raised it as a defense, or even mentioned it until after the Concepcion decision, at which point the trial was over and the district court had issued its judgment.”
The Court has suggested that its ruling on the arbitration issue is likely to be limited: “This is an unusual, perhaps sui generis, case in which the specific circumstances counsel this result.”
By the way, the main ruling in the case is interesting. Wells Fargo was sued for engaging in a practice of posting payments to checking accounts in a particular order (highest to lowest amounts) so as to maximize the number of overdrafts and the amount of overdraft fees. The panel held that the bank’s decision to post payments to checking accounts in a particular order is a federally authorized pricing decision, and that the National Bank Act preempted affirmative disclosure requirements and liability based on nondisclosure. But the National Bank Act does not preempt claims for affirmative misrepresentations under the fraudulent prong of California’s Unfair Competition Law.
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