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From Antitrust Law Daily, June 25, 2015

Order denying cable service provider’s request for arbitration upheld

By Michael Menzhuber, J.D., LL.M.

A federal district court’s decision that a cable service provider waived its right to compel arbitration was affirmed by the U.S. Court of Appeals in Denver. Because the right to compel arbitration had been waived, the appeals court determined that it was unnecessary to resolve a claim that the arbitration contracts were illusory or otherwise unenforceable. (In re Cox Enterprises, Inc. Set-Top Cable Television Box Antitrust Litigation, June 24, 2015, Lucero, C.).

Background. Cox Enterprises (Cox) is the defendant in a class-action antitrust suit that alleged that the company illegally tied its premium cable service to rental of a Cox set-top box. During the pendency of its motion to dismiss, Cox began inserting mandatory arbitration clauses into the contracts of some of its customers, including putative class action members. There was no record evidence that Cox notified the district court about the insertion of these clauses.

The case at issue was originally brought in the Western District of Oklahoma, in April of 2012, on behalf of certain individuals who resided in Cox’s Oklahoma City Market. In September of 2012, Cox moved unsuccessfully to dismiss the case for failure to state a claim. Cox did not mention the arbitration agreements in that motion. After the motion to dismiss was denied, the parties agreed to stay the other cases, proceed with discovery in only two of the cases, and use the Oklahoma case as a bellwether.

The parties then engaged in extensive pretrial discovery. In September of 2013, Richard Healy moved to certify a class. Cox opposed the motion but, in its answer, did not inform the district court of its arbitration agreements or raise the presence of the agreements as an impediment to the alleged numerosity, typicality, and commonality of the class. Cox also filed a surreply in opposition to the motion for certification but, again, did not mention the arbitration provisions.

After the district court granted class certification, Cox moved for reconsideration on several grounds but the impact of the arbitrations clauses was not among them. The motion for reconsideration was denied and, in March of 2014, Cox sought permission to appeal the certification decision. It did not mention arbitration in its petition. The petition was denied and, in April of 2014, Cox moved to compel arbitration and, on that same day, also moved for summary judgment.

The district court determined that Cox’s prior conduct constituted waiver and it denied the motion to compel arbitration. Cox then appealed the denial of its motion.

Waiver of Right to Arbitrate. The appeals court noted the six-factor Peterson test to determine if the right to arbitrate has been waived: (1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties are well into preparation of a lawsuit before the opposing party is notified of the intent to arbitrate; (3) whether arbitration was requested close to the trial date or delayed for a long period before requesting a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party. Peterson v. Shearson/Am. Express, Inc., 849 F.2d 464 (1988).

The appeals court agreed with district court’s finding that Cox’s failure to inform it about the presence of the arbitration agreements until after the certification was inconsistent with an intent to arbitrate. It also agreed that the second and third Peterson factors cut strongly against Cox because Cox had multiple opportunities to evoke its intent to arbitrate but did not do so until the parties were well into preparation of the lawsuit and close to trial. The appeals court found that the fifth Peterson factor also cut strongly against Cox because, as the district court explained, the parties made ample use of every available discovery device and Cox’s actions this regard were incompatible with the use of arbitration, where discovery is more limited. Finally, the appeals court found that sixth factor also supported waiver of a right to arbitrate because the district court expended a significant amount of judicial resources, at great expense to the public, which could have been conserved if Cox had timely mentioned the arbitration clauses and its intent to arbitrate.

Cox argued that waiver was the intentional relinquishment of a known right and, that as a matter of law, its right to arbitrate against the class members could not have been known until after the class was certified. The appeals court determined that the district court properly rejected this argument because the 10th Circuit has held that this narrow sense of waiver, typically used in the criminal-law context, does not narrow the scope of waiver in the context of contract enforcement, including arbitration agreements. Hill v. Ricoh Ams. Corp., 603 F.3d 766 (2010).The appeals court also noted that, even under Cox’s narrow definition of waiver, it could have moved to compel arbitration after the class was first certified but, instead, continued to litigate the case.

The appeals court agreed with the district court’s determination that, in light of the specific facts of its conduct, allowing Cox to compel arbitration would be inconsistent with governing precedent and concluded that overturning the district court would provide a license for parties to “cynically game the federal courts and abuse the judicial process.”

The case number is 14-6158

Attorneys: Margaret M. Zwisler and Jennifer L. Giordano (Latham & Watkins LLP, Washington D.C.), Kent Meyers (Crow & Dunlevy), Alfred C Pfeiffer, Jr. (Latham & Watkins LLP, San Francisco, California), and Robert G. Kidwell (Mintz, Levin, Cohn, Ferris, Glovsky & Popeo P.C.) for Richard Healy. Todd M. Schneider and Jason Kim (Schneider Wallace Cottrell Brayton & Konecky, LLP), Rachel Lawrence Mor (Rachel Lawrence Mor, P.C.), Michael J. Blaschke (Michael J.Blaschke, P.C.), Randall Sullivan (Randall Sullivan, P.C.), A. Daniel Woska (Woska, Hasbrook & Dowd), Allan Kanner and Cynthia St.Amant (Kanner & Whitely), Garrett W. Wotkyns (Schneider Wallace Cottrell Brayton & Konecky, LLP, Scottsdale, Arizona), Joe R. Whatley Jr. (Whatley, Drake & Kallas, LLC), W. Tucker Brown (Whatley Kallas, LLP, Birmingham, Alabama), and Henry C. Quillen (Whatley Kallas,LLP, Portsmouth, New Hampshire) for Cox Communications, Inc.

Companies: Cox Communications, Inc.

MainStory: TopStory Antitrust OklahomaNews

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