Sixth Circuit: Seeking a Merits Dismissal Before Invoking Arbitration Constitutes FAA “Default,” Extinguishing the Right to Arbitrate

Sixth Circuit: Seeking a Merits Dismissal Before Invoking Arbitration Constitutes FAA “Default,” Extinguishing the Right to Arbitrate

Introduction

This published decision of the U.S. Court of Appeals for the Sixth Circuit clarifies and sharpens the law governing when a litigant loses the ability to enforce an arbitration agreement by litigating in court. In Valerie Kloosterman v. Metropolitan Hospital, No. 24-1398 (6th Cir. Aug. 27, 2025), the court held that a defendant who first seeks “an immediate and total victory” on the merits—via a Rule 12(b)(6) dismissal with prejudice—and only later moves to compel arbitration is in “default in proceeding with such arbitration” within the meaning of Section 3 of the Federal Arbitration Act (FAA). That default bars both a stay under Section 3 and an order compelling arbitration under Section 4.

The parties are a long-serving physician assistant, Valerie Kloosterman, and Metropolitan Hospital (University of Michigan Health-West) and several of its officials. After the district court partially denied defendants’ motions to dismiss Kloosterman’s First Amendment and Title VII claims, defendants—for the first time, after a year of litigation—moved to compel arbitration based on an employment agreement. The district court granted the motion. The Sixth Circuit reversed, holding that defendants’ litigation tactics extinguished their FAA right to arbitrate.

Beyond deciding this case, the court set a clear, administrable rule: a merits-based motion to dismiss with prejudice, pursued before raising arbitration, is conduct “completely inconsistent” with reliance on an arbitration agreement and places the movant in FAA “default.” The opinion also harmonizes post–Morgan v. Sundance doctrine in the Sixth Circuit, connects Section 3’s “default” to Section 4, and addresses the relationship between federal procedural rules under the FAA and state arbitration law.

Summary of the Judgment

  • The Sixth Circuit reversed the district court’s order compelling arbitration and dismissing the case.
  • Holding: Defendants lost their right to arbitrate under the FAA because they litigated on the merits for a year—twice moving to dismiss all claims with prejudice and opposing an amendment as “futile”—before invoking arbitration. That conduct put them in “default in proceeding with such arbitration” under 9 U.S.C. § 3.
  • The court clarified that the same “default” limitation applies whether a party seeks a stay under Section 3 or an order compelling arbitration under Section 4; litigants cannot avoid Section 3’s default by styling the request under Section 4.
  • Prejudice is not required (post–Morgan v. Sundance), and the defendants’ conduct here was “entirely inconsistent” with arbitration.
  • The court rejected the argument that Michigan’s arbitration statute displaced the FAA’s procedural “default” rule in federal court; state law may govern substantive contract waiver, but the FAA governs procedural enforcement in federal court.
  • The case is remanded for litigation to proceed in district court.

Analysis

Precedents Cited and Their Influence

  • 9 U.S.C. §§ 3–4 (Federal Arbitration Act)
    • Section 3 directs courts to stay cases pending arbitration, “providing the applicant for the stay is not in default in proceeding with such arbitration.” The panel grounds its rule in the statutory word “default” and its ordinary legal meaning.
    • Section 4 permits courts to compel arbitration. Drawing on longstanding doctrine, the court holds the same procedural limits—including “default”—apply to both §§ 3 and 4, preventing an end-run by labeling.
  • Morgan v. Sundance, Inc., 596 U.S. 411 (2022)
    • Eliminated the extra arbitration-specific requirement that a party opposing arbitration must show prejudice; arbitration contracts must be treated like other contracts. The Sixth Circuit accordingly jettisons the prejudice prong and focuses on inconsistency with an intent to arbitrate.
  • Schwebke v. United Wholesale Mortg. LLC, 96 F.4th 971 (6th Cir. 2024)
    • Recognized Morgan’s removal of the prejudice requirement; left open labels (waiver/forfeiture). The panel here again avoids labels but applies the inconsistency/default standard.
  • Solo v. UPS, 947 F.3d 968 (6th Cir. 2020)
    • Anchors the “entirely inconsistent” conduct test. Moving to dismiss on the merits before invoking arbitration is paradigmatically inconsistent—defendants cannot “play heads I win, tails you lose.” The panel relies heavily on this logic.
  • American Locomotive Co. v. Chemical Research Corp., 171 F.2d 115 (6th Cir. 1948) and American Locomotive Co. v. Gyro Process Co., 185 F.2d 316 (6th Cir. 1950)
    • Early Sixth Circuit authority finding parties in § 3 “default” by litigating for years; also applying the same default analysis to deny relief under § 4. The panel uses these cases to reinforce that Sections 3 and 4 rise and fall together on “default.”
  • Smith v. Spizzirri, 601 U.S. 472 (2024)
    • Held that if a party requests a stay under § 3, the district court must stay (not dismiss). The panel notes neither party requested a stay here and underscores correct procedural posture for future cases.
  • Other circuits aligning with the “no wait-and-see” rule:
    • Third Circuit: White v. Samsung Elecs. Am., Inc., 61 F.4th 334 (3d Cir. 2023) – losing on early motions then pivoting to arbitration forfeits the right.
    • Seventh Circuit: Smith v. GC Servs. Ltd. P’ship, 907 F.3d 495 (7th Cir. 2018) – similar “erase the loss” concerns; merits motions then arbitration barred.
    • Eighth Circuit: Parker v. Kearney Sch. Dist., 130 F.4th 649 (8th Cir. 2025) – unsuccessful merits motions followed by belated arbitration request triggers loss of the right.
  • Distinguishing contrary authorities:
    • Rush v. Oppenheimer (2d Cir. 1985): Mixed arbitrable/nonarbitrable claims can justify limited merits motions. Not applicable where all claims are said to be arbitrable, as here.
    • ABF Freight Sys., Inc. v. IBT (8th Cir. 2013): Jurisdictional (non-merits) dismissal without prejudice is not inconsistent with arbitration.
    • Williams v. Cigna Fin. Advisors (5th Cir. 1995): Claimed late discovery of the clause. Sixth Circuit notes its own cases do not excuse untimeliness based on a bare mistake, and a party cannot be ignorant of its own contract.
  • Erie/choice-of-law scaffolding:
    • Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009): State contract law governs who can enforce an arbitration clause; supports the opinion’s division between state substantive contract principles and federal procedural enforcement under the FAA.
    • Gasperini, 518 U.S. 415 (1996) and Shady Grove, 559 U.S. 393 (2010): Federal courts apply state substantive law and federal procedural law; the FAA’s procedural default rule applies in federal court even when a contract adopts state substantive law.

Legal Reasoning

The panel places the analysis squarely within the text of the FAA: a court may stay litigation “providing the applicant for the stay is not in default in proceeding with such arbitration” (9 U.S.C. § 3). “Default” is given its ordinary legal meaning—failing to live up to a duty or promise through neglect or otherwise. A party that affirmatively seeks a merits judgment in court—particularly a dismissal with prejudice—is not “proceeding with such arbitration.” It is renouncing it. That conduct is “completely inconsistent” with any intent to arbitrate.

The court reasons further that the same “default” limitation governs motions to compel under § 4, relying on historic practice and Supreme Court guidance that §§ 3 and 4 share procedural guardrails. Otherwise, litigants could circumvent § 3’s limitation simply by avoiding the word “stay.”

The Sixth Circuit applies its pre-Morgan “inconsistency” prong, stripped of the now-defunct prejudice requirement. Two features made the inconsistency unmistakable here:

  • Defendants twice moved to dismiss all claims “with prejudice,” which would foreclose arbitration entirely.
  • Defendants only sought arbitration after the district court ruled against them in part—i.e., after a “sneak peek” at the case’s prospects in court.

Other conduct—participating in discovery planning and choosing a discovery plan—reinforced the conclusion that the hospital elected a judicial forum. By contrast, the court emphasized that purely jurisdictional motions (e.g., lack of subject-matter jurisdiction) do not necessarily conflict with arbitration because they do not seek a merits resolution “that resolves the dispute.”

On choice-of-law, the court rejects the argument that Michigan’s arbitration statute displaces the FAA’s “default” rule in federal court. Even if state law defines substantive waiver of contract rights, the FAA governs the procedural entitlement to federal relief (stay or compel) and imposes the “default” limit. The hospital had, moreover, invoked § 4 of the FAA in the district court, confirming the applicability of federal procedures.

The court also corrects the procedural vehicle: a “motion for summary judgment to compel arbitration” is a misnomer. Although summary-judgment standards can govern factual disputes about formation or scope of an arbitration agreement, the correct mechanism is a § 3 motion to stay or a § 4 motion to compel, not a merits judgment.

Impact

This decision has immediate and practical consequences for arbitration practice in the Sixth Circuit and persuasive force beyond:

  • Bright-line guidance on timing: Parties who wish to arbitrate must say so early and unequivocally. Filing a merits motion to dismiss with prejudice before invoking arbitration presumptively constitutes FAA “default.”
  • No prejudice requirement: After Morgan, a plaintiff need not show prejudice. The focus is on the defendant’s inconsistency with arbitration.
  • One rule for §§ 3 and 4: Litigants cannot avoid § 3’s default limit by moving to compel under § 4. If you are in default, you cannot compel either.
  • Procedural posture matters:
    • Do: Move to stay under § 3, expressly requesting a stay (post–Spizzirri, courts must stay if requested).
    • Do: Limit early motions to threshold jurisdictional issues if necessary; avoid merits determinations.
    • Don’t: Seek a merits dismissal with prejudice and then pivot to arbitration after an adverse ruling.
  • State–federal division of labor: Even where contracts choose state law, the FAA’s procedural “default” rule controls federal court enforcement. State law may still supply independent grounds for a substantive contract waiver, but it cannot dilute § 3’s default standard.
  • Employee–employer disputes: Plaintiffs gain protection against “wait-and-see” arbitration tactics; employers must audit and assert arbitration rights at the outset or risk losing them.
  • Circuit alignment: The Sixth Circuit’s approach aligns with other circuits rejecting strategic “heads I win, tails you arbitrate” behavior, enhancing national uniformity.

Complex Concepts Simplified

  • Default (FAA § 3): A statutory limit. If a party behaves inconsistently with arbitration—e.g., tries to win a merits dismissal in court before invoking arbitration—it is in “default” and cannot obtain a stay or an order compelling arbitration.
  • Waiver vs. forfeiture:
    • Waiver typically means an intentional giving up of a known right (often governed by the substantive law creating the right, like state contract law for arbitration clauses).
    • Forfeiture is a failure to assert a right in a timely way (often governed by procedural rules). The majority avoids choosing labels; the concurrences explore the taxonomy.
    • Practical point: Labels aside, under the FAA’s “default,” intent is not required; inconsistent litigation conduct can be enough.
  • With prejudice vs. without prejudice:
    • A dismissal with prejudice is a merits judgment that ends the dispute and forecloses arbitration.
    • A dismissal without prejudice for lack of jurisdiction is not a merits decision and may be compatible with preserving arbitration rights.
  • Sections 3 and 4 work together:
    • § 3: Stay of litigation pending arbitration—available only if the movant is not in “default.”
    • § 4: Order compelling arbitration—subject to the same “default” limitation.
  • Morgan v. Sundance effect: Courts cannot add arbitration-specific hurdles (like prejudice). Arbitration agreements are treated like any other contract in assessing abandonment of rights.
  • State arbitration law vs. FAA:
    • State law can set substantive contract rules (e.g., what counts as a waiver under state contract law).
    • The FAA supplies the federal procedural conditions for federal relief (stay/compel), including the “default” bar.

Additional Observations and Practice Pointers

  • Preserve arbitration early: Assert the arbitration clause in the first responsive filing and move promptly under § 3 (and/or § 4). Request a stay explicitly to trigger Spizzirri’s mandatory-stay rule.
  • Avoid merits-first strategy: Do not file Rule 12(b)(6) motions to dismiss with prejudice while holding arbitration in reserve. That is the conduct this opinion condemns as “default.”
  • Jurisdictional motions are different: Motions that do not seek a merits resolution (e.g., lack of subject-matter jurisdiction, personal jurisdiction) are less likely to be inconsistent with arbitration.
  • Mixed claims? Proceed carefully: Where some claims are concededly non-arbitrable, limited merits motions may be compatible with preserving arbitration on others; clarity and early invocation remain critical.
  • Don’t rely on “we didn’t know”: The Sixth Circuit is skeptical that ignorance excuses delay—especially where the movant drafted the agreement.
  • Procedural form matters: File the right motion. A “summary judgment to compel arbitration” is a category error. Use § 3 (stay) and/or § 4 (compel). Apply summary-judgment standards only to resolve formation/scope fact disputes, not to obtain a merits judgment.

What the Decision Does Not Decide

  • The underlying merits of Kloosterman’s First Amendment and Title VII claims were not before the court; the appeal solely concerned arbitrability and timing.
  • Whether, as a matter of state contract law, defendants also waived arbitration was unnecessary to resolve; the court found federal FAA “default” sufficient to reverse.
  • Whether a genuine lack of knowledge of an arbitration clause might ever excuse delay (the court noted no such claim here and has been skeptical of “mistake” arguments).

Concurrences: Refining the Waiver–Forfeiture Landscape

  • Judge Murphy (concurring):
    • Proposes a clarifying framework: parties may both waive their substantive right to arbitrate under state contract law and forfeit that right under the FAA’s federal procedural “default” rule.
    • Suggests our past “waiver” cases are better read as applying a federal forfeiture rule grounded in § 3’s “default.”
  • Judge Bloomekatz (concurring):
    • Warns that waiver/forfeiture distinctions are context-dependent and not always cleanly separable; procedural rules sometimes define waiver, and some doctrines resist forfeiture.
    • Endorses resolving FAA cases by focusing on the statute’s text—“default”—rather than choosing between waiver or forfeiture labels.

Conclusion

The Sixth Circuit’s opinion establishes a crisp, predictable rule: a defendant who first pursues a merits win in court and only then invokes arbitration has defaulted under the FAA and cannot compel or stay litigation in favor of arbitration. The decision integrates Morgan v. Sundance by excising any prejudice requirement, aligns Sections 3 and 4 under a single “default” standard, and respects Erie principles by reserving substantive contract waiver to state law while enforcing federal procedural “default” in federal court.

Practically, the case will force parties to put their arbitration cards on the table at the outset. It inhibits strategic, “wait-and-see” tactics and promotes the FAA’s core policy of enforcing arbitration agreements as written—without elevating arbitration above other contracts. For counsel, the message is straightforward: if you truly want arbitration, act like it from day one.

Key Takeaways

  • Merits motions before arbitration = FAA “default.”
  • No prejudice showing required post–Morgan.
  • “Default” bars relief under both FAA §§ 3 and 4.
  • Request a stay explicitly; do not move for “summary judgment to compel.”
  • Jurisdictional motions may be compatible; merits dismissals with prejudice are not.
  • State law may govern substantive waiver; the FAA governs federal procedural default.

Case Details

Year: 2025
Court: Court of Appeals for the Sixth Circuit

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