Express Reservation + Needed Factual Development Defeats Implied Waiver of FAA Arbitration Rights

Case: Jane Parkin v. Avis Rent a Car System LLC (captioned defendants include Budget Rent A Car System, Inc. and Avis Budget Group, Inc.)
Court: United States Court of Appeals for the Third Circuit
Date: August 24, 2026
Author: Phipps, Circuit Judge

1. Introduction

This interlocutory appeal concerns when a defendant “impliedly waives” a contractual right to arbitrate under the Federal Arbitration Act (“FAA”), after the defendant has participated in federal litigation. Two U.K. customers (Jane Parkin and David Hughes) rented vehicles from Budget on trips to the United States and purchased an “upgrade package” that included supplemental liability protection. At the counter, each renter signed a rental form stating they had “reviewed & agreed” to terms “here and in the rental jacket,” and then received a folded “rental jacket” containing additional terms: (i) a representation that supplemental liability insurance would be provided through “an excess automobile policy issued to Budget,” and (ii) a mandatory arbitration clause (with a small-claims exception).

Believing the “excess policy” representation was false (alleging Budget intended to self-indemnify rather than procure an excess policy), the renters filed a putative class action asserting breach of contract and related consumer/fraud theories (the latter ultimately dismissed at the pleading stage). Budget and its parent (ABG) litigated into discovery, repeatedly reserving arbitration as a defense, then moved to compel arbitration after deposing the named plaintiffs—depositions in which both plaintiffs testified they believed the rental-jacket terms were part of the agreement.

The District Court denied arbitration on the theory that defendants had “impliedly waived” arbitration by litigating and only “pivot[ing] to arbitration” after failing to obtain early dismissal. The Third Circuit vacated and remanded, holding that—given controlling “rental jacket” precedent and the need for factual development on arbitrability—defendants’ conduct did not evince the intentional relinquishment required for waiver.

Key issues

• Implied waiver standard after Morgan v. Sundance, Inc.: What conduct shows “intentional relinquishment” of arbitration?
• Effect of an express reservation of arbitration rights during litigation.
• Futility / record-development: whether failing to move to compel before discovery can support waiver when enforceability depends on facts not on the pleadings.
• Interplay with Bacon v. Avis Budget Group, Inc. (rental-jacket arbitration enforceability turns on notice at signing).

2. Summary of the Opinion

The Third Circuit (reviewing the legal waiver conclusion de novo) vacated the denial of the motion to compel arbitration and remanded. The Court held that the defendants’ litigation conduct did not establish implied waiver because:

• Waiver requires intentional relinquishment of a known right; implied waiver requires conduct inconsistent with an intent to arbitrate.
• Defendants expressly reserved arbitration rights in their answer, discovery plan, and initial disclosures—undermining any inference of abandonment.
• Under Bacon v. Avis Budget Group, Inc., arbitrability depended on facts (customer notice/knowledge at signing) not established by the complaint’s allegations.
• Defendants therefore were not required to move to compel before developing a record; waiting to depose the named plaintiffs was consistent with a reasonable, non-futile approach to establishing arbitrability.
• After obtaining the key testimony, defendants moved to compel within a “reasonably prompt” time (about two months), which cut against waiver.

On remand, the District Court must address other arguments not reached below (including whether the clause binds the plaintiffs, equitable estoppel, and the small-claims exception), and the panel noted that Valli v. Avis Budget Group, Inc. “appears” to reject a similar small-claims argument.

3. Analysis

3.1 Precedents Cited

A. Implied waiver of arbitration and the post-Morgan framework

• Morgan v. Sundance, Inc., 596 U.S. 411 (2022)
  The Court used Morgan for the core definition of waiver: “the intentional relinquishment or abandonment of a known right.” Critically, the panel emphasized intentionality and rejected analysis that would “tilt the playing field” with arbitration-specific rules. Morgan also anchors the panel’s use of ordinary procedural rules (via FAA § 6) to assess when a party can reasonably bring a motion to compel.
• United States v. Olano, 507 U.S. 725 (1993)
  Cited through Morgan for the canonical waiver definition; it reinforces that waiver is not mere delay, but intentional abandonment.
• White v. Samsung Elecs. Am., Inc., 61 F.4th 334 (3d Cir. 2023)
  White supplied both (i) the de novo standard for reviewing a waiver conclusion and (ii) examples of litigation conduct supporting implied waiver (e.g., extended litigation without informing plaintiffs of arbitration). The panel distinguished White: here, defendants repeatedly put arbitration “on the record” and needed facts to satisfy controlling arbitrability doctrine.
• Gray Holdco, Inc. v. Cassady, 654 F.3d 444 (3d Cir. 2011)
  Used for the proposition that waiver is “case specific” and depends on context—supporting a nuanced approach rather than a bright-line “litigation equals waiver” rule.

B. “Rental jacket” arbitrability and the need for factual development

• Bacon v. Avis Budget Group, Inc., 959 F.3d 590 (3d Cir. 2020)
  Bacon is the doctrinal hinge. It held that when customers sign the rental agreement before receiving the rental jacket, an arbitration clause in the jacket is not binding “at least as long as the customer was not on notice” of the arbitration clause at signing (applying New Jersey and Florida contract law). Because the complaint here did not itself establish notice/knowledge at signing, defendants could not reliably move to compel on the pleadings alone.
• Guidotti v. Legal Helpers Debt Resol., LLC, 716 F.3d 764 (3d Cir. 2013)
  Guidotti supplies the procedural mechanism: if arbitrability is apparent from the complaint, the Rule 12(b)(6) standard applies; if it depends on facts outside the pleadings, a summary-judgment-like standard applies after limited discovery, and if disputes persist, the FAA contemplates a trial on “the making of the arbitration agreement.” The panel used Guidotti to justify record development before compelling arbitration.
• Young v. Experian Info. Sols., Inc., 119 F.4th 314 (3d Cir. 2024)
  Young was cited to clarify when the complaint itself suffices for compelling arbitration (Rule 12(b)(6) posture). The panel used it to frame the counterpoint: where the complaint does not make arbitrability clear, delaying a motion to compel may be justified.
• Somerset Consulting, LLC v. United Cap. Lenders, LLC, 832 F. Supp. 2d 474 (E.D. Pa. 2011)
  Cited through Guidotti for the “proceed summarily to a trial” option on arbitrability under FAA § 4 when summary judgment is not warranted.
• Nicosia v. Amazon.com, Inc., 834 F.3d 220 (2d Cir. 2016) and Bensadoun v. Jobe-Riat, 316 F.3d 171 (2d Cir. 2003)
  These Second Circuit cases were used to reinforce the FAA § 4 point: if factual disputes exist as to formation/making of the arbitration agreement, trial may be necessary. They bolster the Third Circuit’s view that some litigation activity can be consistent with (not contrary to) ultimately compelling arbitration.

C. Preservation of arbitration rights; futility; and “reasonably prompt record notice”

• Valli v. Avis Budget Group, Inc., 162 F.4th 396 (3d Cir. 2025)
  Valli was decided while this appeal was pending and strongly informed the outcome. Valli clarified that: (i) the waiver clock begins when the movant knows of its arbitration rights (not when enforceable), (ii) waiver still requires intentionality, and (iii) a party can preserve a known but presently unenforceable right by giving “clear, reasonably prompt record notice” of intent to arbitrate, then moving promptly once enforceable. The Parkin panel treated defendants’ answer/discovery plan/disclosures as just such record notice and found their later motion prompt.

D. Jurisdiction, procedure, and related authorities

• Coinbase, Inc. v. Bielski, 599 U.S. 736 (2023)
  Coinbase was cited for the rule that an interlocutory appeal from denial of arbitration triggers a stay of district court proceedings.
• Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412 (3d Cir. 2010)
  Cited for LLC citizenship (members’ citizenship) in assessing diversity/CAFA posture.
• Life of the S. Ins. Co. v. Carzell, 851 F.3d 1341 (11th Cir. 2017)
  Cited for the CAFA “minimal diversity” principle involving foreign class members and state-citizen defendants.
• Parkin v. Avis Rent A Car Sys., LLC, 2023 WL 4045049 (D.N.J. June 16, 2023) and Parkin v. Avis Rent A Car Sys., LLC, 774 F. Supp. 3d 707 (D.N.J. 2025)
  The first order addressed pleading sufficiency (contract claim survived; fraud/FDUTPA dismissed). The second is the appealed order finding implied waiver. The Third Circuit’s decision primarily critiques the waiver analysis in the 2025 opinion.

3.2 Legal Reasoning

The panel’s reasoning proceeds in three linked steps:

(1) Waiver is intentional; implied waiver demands strong inference from inconsistent conduct

Starting from Morgan v. Sundance, Inc. and White v. Samsung Elecs. Am., Inc., the Court reiterated that implied waiver is not a free-floating equitable sanction for delay. It is a species of waiver—requiring intentional relinquishment—proved by conduct that is “inconsistent with an intent” to arbitrate. The Court emphasized that litigation and arbitration are alternative dispute-resolution tracks: the more a party presses merits litigation, the more plausible it is that it chose litigation over arbitration. But the inference must be reliable, not speculative.

(2) The complaint did not supply a viable “pleadings-only” path to arbitration under Bacon

The key factual predicate under Bacon v. Avis Budget Group, Inc. is whether the renter was “on notice” of the rental-jacket arbitration clause at signing. Because the pleadings did not establish that predicate, defendants could not meaningfully choose “arbitrate now” versus “litigate now.” Instead, they faced a narrower set of options: how to litigate while evaluating an arbitration defense that required facts.

Against that backdrop, defendants’ early Rule 12(b)(6) motion (filed before they expressly reserved arbitration) was not deemed a clear abandonment of arbitration. The panel treated it as a tactical step within litigation in a case where an immediate motion to compel was not yet practically available.

(3) Express reservations plus reasonably prompt action after record development defeat an inference of abandonment

After the motion to dismiss, defendants repeatedly and formally preserved arbitration: they pleaded arbitration as an affirmative defense, reserved the right in the joint discovery plan, and listed the arbitration agreement in initial disclosures. Under Valli v. Avis Budget Group, Inc., such record notice “cuts strongly” against implied waiver because it collapses “uncertainty” about intent.

The Court then assessed the timing and purpose of discovery. Defendants sought depositions to establish the Bacon notice/knowledge facts. Once the depositions produced testimony supporting arbitrability, defendants moved to compel within about two months—“reasonably prompt” and consistent with the preservation approach described in Valli. The panel rejected the notion that defendants were required to request special, “arbitration-first” discovery; their choice to proceed with ordinary discovery did not unambiguously signal abandonment of arbitration, particularly where arbitration had been reserved on the record.

3.3 Impact

A. Practical impact on Third Circuit arbitration waiver disputes

• Strengthened protection for preserved arbitration rights. Defendants who promptly place arbitration “on the record” (answer, discovery plan, disclosures) gain substantial insulation against implied-waiver findings.
• Record-development matters. When enforceability depends on facts (formation, notice, assent), district courts should be cautious about inferring waiver from participation in discovery that is plausibly aimed at establishing arbitrability.
• Reduced incentive for “protective” motions to compel. The decision discourages a regime in which defendants must file early, potentially unsupported motions to compel merely to avoid waiver—a practice that could conflict with Rule 11’s “inquiry reasonable under the circumstances.”

B. Consequences for consumer “wrap” or “jacket” contracting

The decision does not decide whether the rental-jacket arbitration clause binds Parkin and Hughes; it instead polices the timing of invoking arbitration. Still, it reinforces that in “multi-document” transactions (counter form + later-provided jacket), the arbitration enforceability inquiry may be intensely factual (notice, sequence of delivery, customer understanding), making targeted discovery common and, standing alone, not indicative of waiver.

C. Litigation strategy and class actions

In putative class actions, plaintiffs often argue waiver when defendants litigate dispositive motions and engage in discovery before moving to compel. This opinion provides defendants a clearer path to avoid waiver: reserve early and repeatedly, pursue fact development necessary under governing contract law, and move promptly once the factual predicate for arbitrability is secured.

4. Complex Concepts Simplified

• Implied waiver (of arbitration): Waiver without an explicit statement. Courts infer it from conduct, but only when that conduct reliably shows the party intentionally gave up arbitration.
• Arbitrability: The threshold question whether the dispute (and the parties) are covered by a valid, enforceable arbitration agreement.
• “Futility” in timing: If a motion to compel would likely fail because necessary facts are missing, waiting to file until those facts are developed is not treated as abandonment.
• Record notice / reservation of rights: Statements in filings (answer, discovery plan, disclosures) that the party intends to rely on arbitration. Under Valli, this sharply reduces the ability to infer waiver.
• FAA § 4 “trial” on arbitrability: If there is a genuine fact dispute about whether an arbitration agreement was made (e.g., assent/notice), the FAA contemplates a trial limited to that issue.
• Small-claims exception: A contractual carve-out allowing small disputes to remain in small-claims court even if other claims must be arbitrated. The Third Circuit signaled that Valli may undermine plaintiffs’ invocation of a similar exception here, but left the issue for remand.
• Interlocutory appeal (FAA): Under 9 U.S.C. § 16(a)(1)(C), a party may immediately appeal an order denying a motion to compel arbitration; under Coinbase, Inc. v. Bielski, the district court proceedings are stayed during that appeal.

5. Conclusion

The Third Circuit’s decision re-centers implied waiver analysis on what waiver is: an intentional relinquishment of a known right. In the “rental jacket” context governed by Bacon v. Avis Budget Group, Inc., arbitrability can hinge on facts about notice and assent at signing, making early motions to compel impractical or even improper. When a defendant gives clear record notice reserving arbitration and then moves to compel promptly after securing the necessary evidence, participation in interim litigation (including discovery) does not, without more, amount to implied waiver.

The case is remanded for the District Court to address the unresolved merits of arbitrability (including Bacon’s notice inquiry, equitable estoppel, and any small-claims carve-out), but the central precedent is procedural: courts should not find implied waiver where the defendant preserved arbitration and reasonably waited to develop the facts needed to make arbitration enforceable.