Arbitration Clause – Third Circuit (Federal Law)

Parkin v. Avis Rent A Car Sys., LLC
No. 25-1385, 2026 WL 2472484 (3d Cir. Aug. 24, 2026)

The U.S. Court of Appeals for the Third Circuit vacated the U.S. District Court for the District of New Jersey’s order denying a motion to compel arbitration and remanded for further consideration. The appellate court held that Budget Rent A Car System, Inc. (Budget) and its parent corporation, Avis Budget Group, Inc. (ABG), did not impliedly waive their right to compel arbitration by litigating the case into discovery before filing a motion to compel arbitration. The appellate court concluded that Budget and ABG's litigation conduct was consistent with developing the factual basis needed for a motion to compel arbitration rather than an intentional relinquishment or abandonment of a known right.

Jane Parkin and David Hughes, both citizens of the United Kingdom, rented vehicles from Budget on separate trips to the United States between 2016 and 2019. For each rental, they selected a package that included supplemental liability insurance. Upon picking up the vehicles, they signed rental forms and received rental jackets containing additional terms and conditions, including a mandatory arbitration clause and a representation that supplemental liability insurance would be provided through an excess automobile policy issued to Budget. Parkin and Hughes later filed a putative class action alleging breach of contract, fraudulent misrepresentation and violations of the Florida Deceptive and Unfair Trade Practices Act, claiming that Budget did not actually obtain an excess automobile policy as represented.

Budget and ABG moved to dismiss under Rule 12(b)(6) without initially invoking arbitration, though they reserved the right to compel arbitration in a footnote in their reply brief. After answering the complaint and asserting arbitration as an affirmative defense, Budget and ABG conducted discovery, including depositions of Parkin and Hughes, and then moved to compel arbitration approximately two months after the depositions.

The appellate court, applying the implied-waiver framework set forth previous U.S. Supreme Court and Third Circuit opinions, held that Budget and ABG’s conduct did not constitute an implied waiver. The appellate court reasoned that under its prior decision in Bacon v. Avis Budget Group, Inc., 959 F.3d 590 (3d Cir. 2020), the allegations in the complaint did not provide an adequate basis to move to compel arbitration because the enforceability of the arbitration clause depended on facts not evident from the complaint – specifically, whether each renter knew of the arbitration clause when signing the rental agreement.

Therefore, Budget and ABG's decision to move to dismiss rather than immediately seek arbitration was not a clear enough indication of relinquishment. Further, Budget and ABG expressly reserved their right to arbitrate as an affirmative defense in their answer and twice confirmed that reservation in the joint discovery plan and initial disclosures.

The appellate court concluded that their decision to engage in discovery, including the depositions needed to establish a factual basis under Bacon, followed by a reasonably prompt motion to compel, did not establish the intentionality required for an implied waiver of a reserved arbitration right.

By: Patrick E. Winters