Litigating Without Waiving Arbitration: The Third Circuit Draws the Line
Companies frequently reserve arbitration as an affirmative defense while simultaneously litigating threshold motions and engaging in discovery. The question is whether that litigation conduct can later be characterized as a waiver of the right to arbitrate.
In Parkin v. Budget Rent A Car System, Inc., No. 25-1385 (3d Cir. Aug. 24, 2026), the United States Court of Appeals for the Third Circuit held that it could not. Because the defendants consistently reserved their arbitration rights and discovery was necessary to determine whether the arbitration provision was enforceable against the plaintiffs, the Court concluded that there had been no waiver.
Background
Parkin is a putative class action filed by two United Kingdom citizens who rented vehicles from Budget during separate trips to the United States. The plaintiffs alleged that Budget’s disclosures regarding its rental insurance coverage were misleading. Contained within a separate packet of documents known as the “rental jacket” was an arbitration provision. Under the Third Circuit's earlier decision in Bacon v. Avis Budget Group, Inc., however, that arbitration provision could be unenforceable if the customers did not know of its terms when signing the rental agreement. As a result, defendants took discovery to determine whether the plaintiffs had notice of the arbitration provision.
Approximately eighteen months into the litigation, after deposing the plaintiffs, the defendants moved to compel arbitration. The district court denied the motion, concluding that the defendants had impliedly waived their arbitration rights through their litigation conduct.
The Third Circuit's Decision
The Third Circuit vacated that ruling, emphasizing that waiver turns on intent. Although a party may waive arbitration through its conduct, the conduct must demonstrate an intentional relinquishment or abandonment of the right. The Court concluded that standard was not met for two primary reasons.
First, arbitrability depended on facts that had not been developed. Because the defendants needed evidence concerning the plaintiffs’ knowledge of the rental-jacket terms before arbitration could be compelled, the discovery process served a legitimate purpose related to arbitrability rather than the merits of the claims.
Second, the defendants repeatedly preserved their arbitration rights. They asserted arbitration as an affirmative defense, identified an arbitration agreement in their initial disclosures, reserved the right to compel arbitration in the discovery plan, and moved to compel promptly after obtaining the information they believed established arbitrability.
Key Takeaways
The significance of Parkin extends beyond rental-car agreements. Many arbitration disputes involve threshold factual questions concerning notice, assent, incorporation of terms, and similar issues. Defendants are often forced to choose between moving to compel arbitration on an incomplete record or conducting limited discovery that may later be portrayed as inconsistent with arbitration.
Parkin confirms that litigation activity directed toward establishing arbitrability will not necessarily result in waiver. At the same time, the decision should not be viewed as a safe harbor for prolonged litigation. The Third Circuit emphasized that waiver is a fact-specific inquiry, and a party that engages extensively in merits litigation or delays moving to compel arbitration after obtaining the information necessary to do so may still face a substantial waiver argument.
For businesses that rely on arbitration agreements, the principal lessons are straightforward: reserve arbitration rights early and repeatedly, develop a clear record explaining why discovery is necessary to determine arbitrability, and move promptly to compel arbitration once the factual basis exists. As importantly, companies should continue reviewing contract formation procedures to ensure that arbitration provisions are enforceable on the face of the agreement rather than through later factual development.
If you would like to help drafting or enforcing an arbitration clause, or conducting pre-arbitration litigation, feel free to contact the authors, who are members of Miller Canfield’s International Disputes Group, or your Miller Canfield attorney.
