Judge Sandra Segal Ikuta, of the U.S. Court of Appeals for the Ninth Circuit, speaking during a panel discussion at the Federalist Society's 2018 National Lawyers Convention, held at The Mayflower Hotel in Washington, D.C., on Nov. 16, 2018. (Photo: Diego M. Radzinschi/ALM)

The U.S. Court of Appeals for the Ninth Circuit has ruled that actively pursuing the advantages of litigation in court acts as a waiver of the right to arbitration.

The court on Wednesday affirmed a district court order rejecting a motion to compel arbitration in a class action between Aegis Senior Communities and its residents, who allege the company defrauded seniors. 

“Under the totality of these circumstances, we conclude that Aegis knowingly decided to defer its right to compel arbitration to avail itself of the benefits of the federal court forum, an intentional action inconsistent with its known right to compel arbitration,” wrote Sandra Ikuta for a panel, which also included Judge Clifford Wallace of the Ninth Circuit and U.S. District Judge Donald W. Molloy of the District of Montana, sitting by designation.

Residents June Newirth, Margaret Pierce and Barbara Feinberg asserted that the company lied about calculating staffing ratios based on need and not budget. When Newirth originally brought the class action complaint in 2016, Aegis filed a motion to compel arbitration, as well as a motion to dismiss the case. However, a week later, the senior living community withdrew its motions when it reached a stipulated agreement with the plaintiffs, who filed a second amended complaint.

After that, Aegis filed a motion to dismiss the second amended complaint and for nearly a year engaged in the discovery process without attempting to compel arbitration. The Ninth Circuit panel held that not actively pursuing arbitration and continuing to litigate a case to reap the benefits of being in court is inconsistent with the right to arbitrate. 

“Seeking a decision on the merits of a key issue in a case indicates an intentional and strategic decision to take advantage of the judicial forum,” Ikuta wrote.

Neither Aegis's attorney Lann G. McIntyre of Lewis Brisbois Bisgaard & Smith in San Diego, nor the plaintiffs' attorney Guy B. Wallace of Schneider Wallace Cottrell Konecky Wotkyns in Emeryville, California, immediately responded to a request for comment.

The court also turned back Aegis' argument that it did not explicitly waive its right to arbitration, finding that an implied waiver is enough to forfeit the right to pursue alternative dispute resolution.

However, merely engaging in litigation does not automatically waive the parties' right to arbitration. The circuit court said it's permissible to take court actions that do not seek to end the dispute via litigation instead of arbitration.  

Despite Aegis' contention that it only engaged in the minimum actions to comply with court rules, the panel decided that Aegis would not have waited a year to file a new motion to compel arbitration if that was its intention.

“In the meantime, Aegis sought a judgment on the merits from the district court. Nor did Aegis avail itself of local rules that would have allowed it to seek relief from case management and discovery obligations,” Ikuta wrote.