A defendant can waive a right to compel arbitration if it intentionally relinquishes or abandons its known right. One way to waive a right to compel arbitration is by implied waiver: acting inconsistently with an intent to assert the right to arbitrate.  But what should a defendant do to preserve future arbitration rights it cannot presently enforce?  According to an opinion issued in late December by the Third Circuit in Valli v. Avis Budget Grp. Inc., — F.4th —-, 2025 WL 3638356, at *3 (3d Cir. Dec. 16, 2025), the answer for a defendant in this situation is to “provide clear, reasonably prompt record notice of its intent to compel arbitration.” 

Valli is a class action regarding Avis Budget Group’s practice of paying fines for traffic violations incurred by its renters and subsequently charging them for the fine and an administrative fee.  Ms. Valli first filed a putative class action complaint in 2014 on behalf of renters who were charged such fines and fees.  In 2016, when Avis’ motion to dismiss was pending, the company updated its terms and conditions to include an arbitration and class-waiver provision, which applied to future renters but not to Ms. Valli and other renters before the 2016 update.  After Avis’ motion to dismiss was denied, Avis answered the complaint and raised its affirmative defenses, including arbitration-related defenses.  In 2019, Plaintiffs moved to certify a class, which they defined to include all renters from 2008 to the present.  Avis opposed class certification by arguing, among other things, that putative class members who first rented a car after the 2016 update were subject to arbitration.  The district court rejected that argument and certified the class, finding that Avis waived its right to arbitration by engaging in the litigation for five years without moving to arbitrate.  The district court also denied Avis’s motion to compel arbitration on similar grounds.

On appeal, the Third Circuit noted that “where an earlier motion to compel would have been almost certain to fail, the failure to file such a motion is not inconsistent with the right to arbitrate.”  Id. at *6 (cleaned up).  In Avis’ case, for example, it would have been futile to move to compel arbitration before the class was certified, because putative class members who agreed to arbitration were not part of the case until the district court certified the class.

The “harder inquiry” for the Third Circuit was whether, even though Avis’ right to compel arbitration may not have been enforceable until class certification, Avis’ pre-certification conduct nonetheless impliedly waived its known (not merely enforceable) right to compel arbitration.  See id. at *7.  The court agreed with the Fourth, Ninth, Tenth, and Eleventh Circuits that defendants must provide clear, reasonably prompt notice of an intent to compel arbitration to preserve a future arbitration right that may not be presently enforceable.  See id. at *8.

Applying that rule to Avis, the court held that the company had satisfied that standard and had not waived its right to compel arbitration.  For example, Avis’ answer promptly pled arbitration as an affirmative defense.  And plaintiffs did not define their class to include renters who agreed to arbitration until they moved for class certification five years after the initial complaint, at which point Avis promptly argued that the class should not be certified because of the arbitration agreements.  Avis’ discovery efforts were also directed at the putative class in general rather than targeted at only customers who agreed to arbitration.  Finally, Avis quickly moved to compel arbitration once it was no longer futile to do so.  Accordingly, the Third Circuit vacated the district court’s order denying Avis’ motion to compel. 

The court also addressed two final matters.  First, Plaintiffs had argued that the arbitration agreement excluded claims falling in the scope of a small claims court’s authority, so the arbitration agreement carved out their claims.  The court rejected this “novel theory” because there is no “small claims exception” to class action disputes; Rule 23 is a procedural device to “aggregate[] numerous small claims into a single action, which then acquires an independent legal status once it is certified under Rule 23.”  Id. at *12 (cleaned up).  Second, the court rejected Plaintiffs’ argument that Avis improperly attempted to alter the litigation by adding an arbitration agreement while the litigation was pending.  The court held that Plaintiffs forfeited this argument by raising it for the first time on appeal, but the court nonetheless remanded the case to the district court to consider if the arbitration provision is enforceable under Rule 23(d).  See id. at *13–14.

Avis is an important reminder to defendants who may have viable arbitration defenses of the need to promptly, clearly, and repeatedly inform plaintiffs and the court of an intent to pursue a right to arbitration—even if such a right is not yet enforceable.  Raising an arbitration defense in an answer, noting such a defense in early motion practice, and declining to engage in discovery that is related to only putative class members who agreed to arbitration may all help demonstrate that the defendant intends to compel arbitration once it can do so.