Q: May a party lose its contractual right to compel arbitration if, when negotiating and seeking approval of a class action settlement, it misrepresents the benefits of the proposed settlement to the court, opposing counsel and others?
In Aviation Data, Inc. v. American Express Travel Related Services Company, Inc., the trial court refused to approve a class action settlement when it concluded that counsel for defendant American Express Travel misled the plaintiffs in the course of negotiations by offering to make significant modifications to its travel insurance program that, unbeknownst to the plaintiffs, it had already made for reasons unrelated to the lawsuit. The trial court then ruled that, that due to its misleading conduct, Amex lost its right to compel arbitration. The Court of Appeal affirmed.
By soliciting amendment of the complaint to allege a nationwide class and then crafting a proposed settlement structured around largely illusory relief, Amex forced ADI to intervene in the California action and required ADI and the plaintiff class to engage in protracted and costly discovery and appearances before the court as its deception about the implementation of the TAA code gradually surfaced. Only after the truth was unearthed and the settlement failed did Amex move to compel arbitration. Amex’s conduct smacks both of “substantive” prejudice “such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration”; and of the situation in which a party “too long postpones his invocation of his contractual right to arbitration, and thereby causes his adversary to incur unnecessary delay or expense.” (Thyssen, Inc. v. Calypso Shipping Corp., S.A., supra, 310 F.3d at p. 105.)