California defendants in class actions should be wary of seeking a strategic advantage by litigating before seeking to compel arbitration. The Court of Appeal held recently in Sprunk v. Prisma LLC that a defendant in class action litigation can waive its right to seek arbitration against absent, unnamed class members by deciding not to compel arbitration against the named plaintiff within a reasonable timeframe.
Sprunk was the named plaintiff in a wage and hour class action against defendant Prisma, LLC, doing business as Plan B Club (“Plan B”). Because Plan B delayed compelling arbitration against Sprunk for several years, the trial court held that Plan B had waived its right to arbitrate as to Sprunk’s claims. After the class was certified, Plan B filed two separate motions to compel arbitration directed at the unnamed plaintiffs who had signed arbitration agreements. The trial court held Plan B had also waived its right to compel arbitration against the unnamed plaintiffs because the delay in compelling arbitration as to Sprunk was inconsistent with an intent to arbitrate. Plan B appealed.
The appeal centered around whether Plan B’s actions as to Sprunk could determine whether Plan B had waived its right to compel arbitration against the unnamed plaintiffs. Plan B argued the Court should only consider its reasons in delaying compelling arbitration as to the unnamed plaintiffs themselves: specifically, that Plan B could not have moved to compel arbitration against these individuals until the class was certified, and therefore its delay in doing so was reasonable. The Court of Appeal disagreed, holding it was proper for the trial court to consider Plan B’s actions regarding delaying arbitration as to Sprunk in determining whether Plan B had acted inconsistently with its right to arbitrate against all class members. The Court of Appeal found that substantial evidence supported the trial court’s finding that Plan B had delayed its motions to compel arbitration, both against Sprunk and against the other plaintiffs, not for any legitimate reason, but rather to obtain a strategic advantage: it hoped to give itself another opportunity to win the case by first defeating the class certification in court. The Court of Appeal agreed that Plan B’s strategy was inconsistent with a desire to arbitrate, finding that “an attempt to gain a strategic advantage through litigation in court before seeking to compel arbitration is a paradigm of conduct that is inconsistent with the right to arbitrate.”
The Court of Appeal also agreed with the trial court’s findings that the four-year delay had caused prejudice by stretching out the litigation process, unreasonably requiring the opposing party to engage in procedures that would not have been necessary in arbitration. The Court of Appeal affirmed the trial court’s ruling that Plan B had waived its right to compel arbitration against the absent class members due to unreasonable delay.
The Sprunk v. Prisma LLC decision illustrates that a defendant may lose its right to compel arbitration if it delays compelling arbitration as to the named plaintiff to obtain a strategic advantage against the class. It is possible that, where a defendant has a bona fide reason to delay compelling arbitration, like waiting for an expected clarification in the law, such a delay will not be unreasonable and thus would not constitute a waiver. But where, as here, a defendant’s actions may be construed as purely strategic, defendants should act with caution.