Six-and-a-half-month discovery ‘implicitly waived’ employer’s right to arbitrate

Dive Brief:

  • United Wholesale Mortgage implicitly waived its right to arbitrate a former employee’s disability discrimination claims when it “participated in extensive discovery” for more than six months before moving to compel arbitration, the 6th U.S. Circuit Court of Appeals held March 27.
  • The plaintiff, who is deaf, requested on-site sign language interpreters as an accommodation to allow him to participate in team meetings. UWM allegedly declined this and asked the employee to use lower-cost alternatives, which “did not work well” for him. He was subsequently fired. The plaintiff sued UWM in January 2021, alleging retaliation and failure to accommodate.
  • The plaintiff’s contract with UWM included an arbitration clause, but UWM did not initially raise this, the court said. Instead, UWM produced “tens of thousand of pages of documents,” took depositions and issued third-party subpoenas over a six-and-a-half month period before filing a motion to dismiss or stay proceedings and compel arbitration in August 2021. The district court denied the motion and the 6th Circuit affirmed.

Dive Insight:

The case, Schwebke v. United Wholesale Mortgage LLC, had been litigated in the district court just as the U.S. Supreme Court handed down its decision in Morgan v. Sundance. In Morgan, the high court unanimously rejected federal courts’ arbitration-specific procedural rules. It also vacated the 8th Circuit’s finding that a Taco Bell franchisee did not waive its right to arbitrate by acting inconsistently with that right and waiting months to compel arbitration.

According to the 6th Circuit, the district court in Schwebke denied UWM’s motion to dismiss after parties to the case filed supplemental briefs in response to SCOTUS’ decision. The 6th Circuit, like the 8th, applied rules stipulating that a party waived its right to arbitrate when acting inconsistently with this right and prejudicing another party.

Morgan effectively eliminated such prejudice requirements, the 6th Circuit said; “Given this posture, we assume without deciding that our precedent asking whether a party’s actions are ‘completely inconsistent’ with reliance on arbitration survives Morgan.”

Ultimately, the 6th Circuit found that under its precedent, “UWM implicitly waived its right to compel arbitration because its conduct was completely inconsistent with reliance on its arbitration right.” The court noted that “discovery was nearly complete” in Schwebke before the company moved to compel arbitration.

Mandatory arbitration agreements have drawn the scrutiny of federal courts and lawmakers in recent years, particularly where allegations of workplace sexual assault and harassment are concerned. Congress passed the Ending Forced Arbitration for Sexual Assault and Sexual Harassment Act in 2022, effectively prohibiting mandatory arbitration for such claims. But the Biden administration has signaled an interest in addressing mandatory arbitration in other contexts, too.

There are also questions concerning which categories of workers are exempt from arbitration under the Federal Arbitration Act, specifically those in the transportation industry. The Supreme Court is expected to hand down a decision this term in the case of Bissonnette v. LePage Bakeries, which posed the question of whether transportation workers employed by nontransportation industry companies are included in the FAA’s exemption.