Defendants Should Not Have Moved to Dismiss, Negotiated an ESI Protocol, and Engaged in Discovery Before Moving to Compel Arbitration

In Parkin v. Avis Rent a Car System LLC, 2025 WL 484588 (D.N.J. Feb. 13, 2025), defendants waived their right to arbitration by moving to dismiss for failure to state a claim, negotiating an ESI Protocol, and engaging in discovery for 17 months.

Plaintiffs rented vehicles from defendants on several occasions.  They alleged that, although they purchased supplemental insurance pursuant to defendants’ promise to procure third-party coverage, defendants retained the fees and, instead, indemnified renters directly.  “ Plaintiffs argue that this practice violated the terms of their rental agreements and forms the basis of their breach of contract claims.”

Defendants cited a contractual arbitration provision that mandated individual arbitration proceedings. The court explained that:

Plaintiffs, however, contend that Defendants waived any purported right to arbitration by actively litigating this action for seventeen months.

The lawsuit was filed on September 9, 2022.  Shortly after that, defendants moved to dismiss under Rule 12(b)(6)(failure to state a claim), but did not raise arbitration. The motion was denied in part on June 16, 2023.

Defendants filed an answer on June 30, 2023, “asserting arbitration as one of thirty-one affirmative defenses for the first time.”  Id. at *2.  The Parkin court wrote:

Defendants also indicated in the Joint Discovery Plan, filed on August 8, 2023, that they reserved the right to move to compel arbitration and stated they were seeking discovery on any agreements to arbitrate…. Discovery commenced after the Court’s initial scheduling conference on August 15, 2023…. Over the next several months, the Parties engaged in extensive discovery, including depositions and disputes requiring multiple conferences before the magistrate judge…. The Parties also negotiated and entered a confidentiality order and ESI protocol….

Id. Then, defendants moved to compel arbitration on July 22, 2024.

The Parkin court recited the general law covering arbitration agreements. Id. at *2-3. It wrote:

The central dispute in the instant Motion is whether Plaintiffs entered into an agreement to arbitrate and, if so, whether Defendants waived their right to enforce it by litigating in federal court for over seventeen months before filing their Motion to Compel Arbitration…. For the reasons set forth below, the Court finds that Defendants have waived their rights. Therefore, the Motion to Compel Arbitration is denied.

The waiver standard is whether the party seeking to arbitrate knowingly relinquished the right to arbitrate by acting inconsistently with that right.  Id. at *3.

The Parkin court held that defendants having engaged in substantive litigation before filing the motion to compel arbitration “evinced a preference for litigation over arbitration.”

Specifically, despite being aware of the Arbitration Provision from the outset, Defendants actively litigated for over seventeen months before filing their Motion to Compel Arbitration. While they eventually asserted arbitration as an affirmative defense and referenced it in the Joint Discovery Plan, these steps came only after they had already pursued a motion to dismiss on the merits—and lost. At no point in their motion to dismiss did Defendants invoke their rights to compel arbitration. Instead, they litigated the case fully, seeking dismissal based on substantive legal arguments. Only after the Court denied that motion did Defendants assert arbitration as one of thirty-one affirmative defenses in their answer. Even then, they did not immediately move to compel arbitration. Instead, they participated in extensive pretrial litigation, including multiple discovery conferences, negotiating an ESI protocol and confidentiality order, and engaging in written discovery and depositions. Although the Joint Discovery Plan referenced arbitration, Defendants’ delay and continued participation in pretrial litigation, including motion practice and procedural negotiations, nevertheless demonstrates that they had elected to resolve this dispute in court. It was only after significant litigation had already occurred—and when it became clear that they would not be able to obtain an early dismissal—that Defendants pivoted to arbitration. Under these circumstances, Defendants’ conduct is inconsistent with a genuine intent to arbitrate, supporting a finding of waiver. [Emphasis added].

The Parkin court added that “Defendants initially moved to dismiss this case on the merits without raising arbitration and only invoked arbitration after their motion was denied. Then, Defendants litigated extensively before ultimately invoking arbitration. This conduct is inconsistent with a genuine intent to arbitrate and supports a finding of waiver.”

The Parkin court rejected defendants’ argument that the Complaint failed to identify the contract at issue and discovery was needed to support the arbitration motion.  It found that there was only one contract.  Id. at *4.  The court wrote that:  “Defendants’ attempt to justify their delay by claiming they required discovery to confirm an agreement’s existence is undermined by the fact that they possessed and produced the relevant contracts well before filing their Motion to Compel Arbitration.”  Id.  Additionally:

Despite Defendants’ arguments that discovery was needed so that Defendants could obtain proof of an agreement to arbitrate…, Defendants did not seek to bifurcate or otherwise limit discovery.

Id. at n. 2.

The court added: “Here, Defendants only pursued discovery on arbitrability after litigating other substantive issues for over seventeen months….  This timeline demonstrates a strategic shift rather than a genuine attempt to determine arbitrability early in the case.”