Motion to compel arbitration; Whether arbitrators or the district court should determine whether defendant waived its right to arbitrate; “Waiver-through-inconsistent-conduct”; Whether the district court violated the principle of “party presentation” by raising the waiver issue sua sponte

[This appeal was from the ED-MI.] In this multi-district products liability suit, the court held that the district court violated the principle of party presentation and well-established waiver rules by sua sponte ruling that defendant-FCA waived its right to compel arbitration through its “inconsistent litigation conduct” when FCA did not become aware of the arbitration clauses until discovery. Plaintiffs sued FCA alleging that they purchased defective Chrysler Pacifica minivans. During discovery, FCA learned that some of the class members had signed agreements containing arbitration clauses when they purchased their vehicles. It then moved the district court to compel those plaintiffs to arbitration. But the district court denied the motion, ruling sua sponte that the FCA had waived its right to arbitrate by acting “‘entirely inconsistent[ly]’ with its arbitration rights” when it moved to dismiss all 69 plaintiffs’ claims. The court noted that there is a presumption that waiver through inconsistent litigation conduct is an issue that must be resolved by the courts. While parties can overcome the presumption, it concluded that here, the “issue is properly resolved by the court, not by an arbitrator.” But the district court could not have found that FCA waived its arbitration rights when “FCA could not have intentionally relinquished its arbitration rights by taking actions inconsistent with those rights if it never knew that they existed.” The court found that “neither the district court’s anecdotal experience with car dealerships nor its belief that arbitration agreements are ubiquitous throughout the industry is sufficient evidence to support a factual finding about FCA’s knowledge, and that makes the district court’s decision clearly erroneous.” Next, the court noted that the usual remedy in this situation would be remand for further fact finding. However, “because the district court violated the principle of party presentation by raising the waiver issue on its own[,]” the court declined to give it “another opportunity to decide the issue.” The court explained that district courts cannot “raise affirmative defenses sua sponte when deciding an arbitration motion unless their not doing so ‘would produce a plain miscarriage of justice.’” Another consideration was that FCA was never given “a chance to offer any evidence” contrary to the district court’s finding that “FCA should have known about its arbitration rights when it moved to dismiss.” Reversed and remanded for further proceedings.