Uncertainty In Law Warrants Delay In Seeking Arbitration

In McGuire v. 99 Cents Only Stores LLC, the California Court of Appeal has reversed a lower court’s decision finding that a company waived its right to arbitrate by participating in the litigation for fourteen months, holding that the company’s fear that, under applicable law, moving to compel the claim would trigger an obligation to defend a class action arbitration. However, as the court explained, the United States Supreme Court decision in Lamps Plus, Inc. v. Varela (2019) _ U.S. __, 139 S.Ct. 1407, 203 L.Ed.2d 636, issued during the McGuire litigation, “eliminated all risk that the arbitration agreement could be interpreted as a basis for classwide arbitration under the Federal Arbitration Act (FAA),” leading the McGuire defendant to invoke its contractual arbitration right.

According to the court, the company did not act unreasonably in initially foregoing the risk of class arbitration, and the delay and litigation efforts prior to the issuance of the U.S. Supreme Court’s Lamps Plus decision did not constitute sufficient prejudice to warrant the finding of a waiver of the company’s right to arbitrate.

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