Decided: November 28, 2012
Santander Consumer USA (“Santander”) appealed from the district court’s order denying its motion to compel arbitration and stay court proceedings of Antonia Rota-McLarty’s (“Rota-McLarty”) claims against it. The Fourth Circuit, after concluding it had jurisdiction, concluded that the record failed to support the district court’s finding of waiver by Santander, and thus reversed and remanded with instructions to refer the claims to arbitration.
Rota-McLarty purchased a car, executing a Buyer’s Order, providing an agreement to arbitrate, and a Retail Installment Sale Contract (“RISC”), which provided, inter alia, an integration clause. Rota-McLarty returned the car without having made a payment on her loan and Santander sought collection of the outstanding debt. Rota-McLarty filed a putative class action in state court, alleging violations of Maryland consumer protection laws. Santander removed to federal court on the basis of diversity, filed an answer, and the parties entered discovery. Santander moved to compel arbitration and to stay the proceedings, claiming that uncertainty in the law caused the delay. The district court denied the motion, finding that Santander waived its right to compel arbitration by its unjustified delay and by having participated in discovery. On appeal, Santander argued that the district court erred in failing to apply the Federal Arbitration Act (“FAA”) and in finding waiver.
The Fourth Circuit noted that the FAA provides for appeals from orders “refusing a stay of any action under section 3” of the FAA, or “denying a petition under section 4…to order arbitration to proceed.” The FAA is read broadly to include “a contract evidencing a transaction involved in [interstate] commerce.” The Fourth Circuit agreed with other circuits and found that “reliance upon funds from a foreign source in a transaction is sufficient to implicate the FAA.” As to whether Santander’s motion adequately invoked the FAA as to create appellate jurisdiction, the Fourth Circuit found that Santander’s motion “clearly invoke[d] the relief provided in [sections 3 and 4]” of the FAA, and thus the denial of the motion was immediately appealable. The Fourth Circuit then held that the facts supported the district court’s findings that the Buyer’s Order and RISC were made as part of a single transaction, thus the arbitration clause in the Buyer’s Order was enforceable. The Fourth Circuit concluded that the district court erred in assessing whether Santander waived its right to enforce arbitration. The district court erroneously applied the law of “waiver,” rather than the FAA’s law of default, which is exceptionally difficult to prove. Default typically occurs where a litigant “so substantially utilizes the litigation machinery that to subsequently permit arbitration would prejudice the party opposing the stay.” Forrester v. Penn Lyon Homes, Inc., 553 F.3d 340, 343 (4th Cir. 2009). In this case, the delay of several months and Santander’s limited use of litigation machinery were insufficient to demonstrate that Rota-McLarty suffered actual prejudice. Accordingly, the Fourth Circuit reversed the district court’s finding that Santander defaulted on its right to enforce the arbitration agreement.