Arbitration of Claims to Avoid Costly Putative Class Action Lawsuits

A Discussion of the Third Circuit’s Recent Decision in Chassen

Michael A. Rowe

I30f99b6e7bed5b995023622415728607n Chassen v. Fid. Nat’l Fin., Inc., 2016 U.S. App. LEXIS 16489 (3d Cir. N.J. Sept. 8, 2016), Plaintiffs represented a putative class of New Jersey real estate purchasers and refinancers who were allegedly overcharged fees in connection with the recording of their deeds and mortgage instruments. Plaintiffs alleged that Defendants charged them more than it cost to record these documents with the county clerk and pocketed the difference. Plaintiffs also alleged that the class claims totaled over $50 million.

In 2009, Plaintiffs filed a complaint in the U.S. District Court for the District of New Jersey alleging both breach of contract and violation of New Jersey law. Defendants moved to dismiss some of these claims and raised various affirmative defenses. Defendants did not seek to compel arbitration based upon arbitration clauses contained in contracts with Plaintiffs. The parties litigated the case for two and a half years, focusing primarily on class certification, during which the parties conducted broad discovery and filed several motions on the merits.

On April 27, 2011, the Supreme Court in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011) held that the Federal Arbitration Act (“FAA”) preempted state laws that prohibited contracts from disallowing class-wide arbitration.

On June 8, 2011, Defendants sent a letter to Plaintiffs demanding enforcement of the arbitration agreements in light of the change in the law. Plaintiffs rejected that demand and Defendants moved to compel bipolar arbitration. The District Court granted the motion, rejecting Plaintiffs’ claim that Defendants’ motion was too late and concluding that any attempt to compel bipolar arbitration prior to Concepcion would have been futile. After the parties filed a number of motions for reconsideration, the District Court conducted an evidentiary hearing and found that all but two Plaintiffs had agreed to bipolar arbitration and compelled bipolar arbitration. Plaintiffs appealed. The Third Circuit, after finding that “a motion to compel bipolar arbitration prior to Concepcion was almost certain to fail,” affirmed in favor of Defendants, holding that “the futility of raising a bipolar arbitration as a defense” prior to Concepcion “should excuse the delay in doing so.” The Third Circuit remanded with instructions that the District Court compel bipolar arbitration of all Plaintiffs’ arbitrable claims.

In addition to the precedential value of the decision relating to when a party seeks to excuse the delayed invocation of the right to compel arbitration, the Chassen decision has a more practical and widespread consequence. The Third Circuit followed the Supreme Court’s decision in Concepcion confirming that businesses which face possible putative class action lawsuits involving agreements which contain arbitration clauses may be able to avoid such lawsuits by either seeking arbitration of individual claims prior to the filing of such lawsuits or moving to compel bipolar arbitration after the filing of such lawsuits.

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