If at First You Don’t Succeed: Res Judicata and the Revival of Motions to Enforce Class Arbitration Waivers post-Concepcion
If at First You Don’t Succeed: Res Judicata and the Revival of Motions to Enforce Class Arbitration Waivers post-Concepcion

            The U.S. Supreme Court’s April, 2011 decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) marked a significant change in the class action landscape with its validation of class arbitration waivers pursuant to the Federal Arbitration Act (“FAA”), despite state laws which previously held such waivers unconscionable and unenforceable.  Post-Concepcion, an arbitration clause that requires the arbitration of all disputes between parties and precludes any class or representative actions could potentially safeguard defendants against costly and time-consuming class actions. Businesses and plaintiffs embroiled in potential class actions have been pushing to define the reach of Concepcion and its limitations, questioning the ruling’s impact on cases involving federal claims or small value claims, and in contexts other than consumer class actions.  Looking forward, many businesses have considered incorporating class arbitration waivers in their contracts or revising existing waiver clauses to bolster their enforceability.  A recent California case should prompt corporate defendants also to look back and consider reviving motions to enforce class arbitration waivers that courts previously determined to be unenforceable.  Phillips et al. v. Sprint PCS et al., 209 Cal. App. 4th 758, 2012 Cal. App. LEXIS 101 (Cal. Ct. App. 2012) tells us that the change ushered in by Concepcion is so significant that it may not be too late…even if the case has been pending for nearly a decade.     

            Phillips is a testament to the old adage: If at first you don’t succeed, try try again!  Nine years after the initial case was filed against Sprint, six years after Sprint’s motion to compel arbitration was denied, and four years after a class was certified, Sprint succeeded in getting its motion to compel individual arbitration granted due to Concepcion.  We will highlight several issues raised in Phillips that can serve other defendants in considering whether to renew a motion to compel arbitration based upon a class arbitration waiver, including (1) the court’s discretion to reconsider a motion based on a change in the law, (2) the application of res judicata to renewed motions, and (3) waiver of the right to arbitration for failure to appeal a court’s ruling.  

            Reconsideration Based on a Change in the LawSprint filed, and the court granted, its motion to stay the proceedings in the Phillips case pending the outcome of Concepcion after the Supreme Court granted certiorari in 2010Despite the fact that the Phillips case had been pending since 2003 and a class had been certified in 2008, the trial court considered and granted Sprint’s renewed motion to compel arbitration based on Concepcion.  The Phillips appellate court agreed that Sprint’s renewed motion was properly brought since there was a change in the law, and the lower court did not abuse its discretion to review the issue anew and compel arbitration.  The factors affecting the courts’ decisions:

  •  Materiality of the change in the state of the law: Concepcion was a significant decision that addressed a critical legal issue that was relevant to this and other pending class action cases.
  • Advancement of the case in the trial court:  despite the age of the Phillips case, only limited discovery had been permitted while the case was stayed and there had been little done to prepare for trial. 
  • Potential prejudice to any party:  the Phillips courts found no showing of prejudice in this case, even though a class had already been certified and the case had been pending for nine years.    

            Res Judicata and Renewed Motions.  The doctrine of res judicata precludes the relitigation of claims or issues on which a final determination has been made.  The plaintiff in Phillips argued that Sprint’s renewed motion to compel arbitration was improper and the court had no authority to reconsider the issue based upon res judicata principles.  However, the court focused on a key aspect of the application of res judicata in rejecting the plaintiff’s argument - there must be two separate proceedings for the doctrine to apply.  The following principles were critical to the court’s analysis:

  • Res judicata gives conclusive effect to a former judgment only when the former judgment was in a different action; an earlier ruling in the same action cannot be res judicata.
  • Generally, a trial court's ruling on an ordinary motion is not res judicata and the court can permit the renewal of motions even though they were previously denied on the merits.
  • To determine whether there are two separate proceedings, a distinction must be made between a motion to compel arbitration filed within an existing court action and a petition to compel arbitration that commences an independent action

            In Phillips, the court agreed with Sprint’s position that res judicata did not apply because the original motion to compel arbitration and the renewed motion were raised in a single ongoing class action lawsuit.  The original motion was not a judgment in a prior special proceeding, as the plaintiff argued. 

Waiver for Failure to Appeal.  When the current state of the law makes an appeal futile, do you run the risk of waiving your rights to reconsideration if the law changes in the future?  The Phillips plaintiff argued that Sprint waived its right to compel arbitration because it did not appeal the trial court’s denial of its motion in 2006.  In 2006, however, the law in California would have made an appeal of the order futile and it was not until Concepcion was decided in 2011 that the law in California was changed. In Phillips, as in similar federal cases, the court rejected the notion that arbitration was waived by failing to appeal a pre-Concepcion order denying a motion to compel arbitration. 

            There will be cases in which it is too late to revisit the class arbitration waiver issue.  But Phillips reminds us to look beyond the age of the case and beyond the fact that a class has been certified to consider whether there is still a chance that Concepcion could revive a class arbitration waiver.

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