In re: Pawn America Consumer Data Breach Litigation ------------------------------… v. Pawn America, Minnesota, LLC; Payday America, Inc.; PAL Card Minnesota, LLC

United States Court of Appeals
For the Eighth Circuit
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No. 23-2292
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In re: Pawn America Consumer Data Breach Litigation
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Melissa Thomas, on behalf of herself individually and on behalf of all others
similarly situated; Randell Huff; Megan Murillo; Monique Derr; Paola Manzo
Plaintiffs - Appellees
v.
Pawn America, Minnesota, LLC; Payday America, Inc.; PAL Card Minnesota,
LLC
Defendants - Appellants
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Appeal from United States District Court
for the District of Minnesota
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Submitted: December 14, 2023
Filed: July 11, 2024
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Before ERICKSON, MELLOY, and STRAS, Circuit Judges.
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STRAS, Circuit Judge.

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This case is about what it takes to waive a contractual right to arbitration.
Here, three companies spent months litigating in federal court before moving to
compel arbitration. The district court1 concluded that, by then, they had waived the
right by “substantially invoking the litigation machinery.” Donelson v. Ameriprise
Fin. Servs., Inc., 999 F.3d 1080, 1087 (8th Cir. 2021) (emphasis added). We reach
the same conclusion.
I.
Sometime in September 2021, cybercriminals targeted a chain of pawnshops,
a payday lender, and a prepaid-card company. During the attack, they uncovered
customers’ personal information, including full names, addresses, birth dates, and
social-security numbers. Several weeks later, the companies alerted customers about
the data breach, which prompted the filing of three nationwide class-action lawsuits
in the District of Minnesota.
After agreeing to consolidate the cases, the companies moved to dismiss.
They claimed that the customers lacked standing, see Fed. R. Civ. P. 12(b)(1), and
that the complaint did not state a claim, see id. 12(b)(6). Nothing about arbitration.
See 9 U.S.C. § 3.
Nor did they raise it over the next couple of months. Instead, the companies
fully briefed the issues raised in their motion to dismiss, prepared a joint discovery
plan, and requested a pretrial conference.
There is disagreement about what happened next. The companies insist that
they orally requested a stay of discovery during the pretrial conference and promised
to file a motion to compel arbitration. The customers, on the other hand, deny that
the companies gave notice of their intent to arbitrate. Unfortunately, there is no
1 The Honorable Patrick J. Schiltz, Chief Judge, United States District Court
for the District of Minnesota.

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recording or transcript of the proceedings, which the magistrate judge conducted by
teleconference.
The only other clues about what happened came from the magistrate judge’s
docket entry and the order staying discovery. The former summarized what
happened, and the latter expanded on it by discussing “the significant issues raised
as to [the customers’] standing.” Delaying discovery was the answer, at least until
the district court had a chance to decide whether to grant the motion to dismiss. Still
no mention of arbitration.
Several weeks later, the district court held a hearing on the motion to dismiss.
Despite allegedly promising at the pretrial conference that a motion to compel
“would be forthcoming,” the companies had yet to file one. Arbitration did not come
up during the hour-long hearing, not even once.
Two more months passed before the companies finally gave formal notice of
their intent to arbitrate. The customers protested, so they rushed to file a motion
before the parties entered mediation. They acknowledged that “timeliness may be
an issue,” because the customers thought the companies “ha[d] waived the[ir] right.”
Following a hearing on the motion, the district court agreed. In the court’s
view, the companies “ha[d] no credible explanation for why, if [they] had
determined [at the pretrial conference] that [they were] going to compel arbitration,
[they] sat on [their] hands . . . only to decide [three months later] that it was urgent
that [they] act to protect [the] right to arbitrate. That ma[de] no sense.” We must
decide whether their conduct during the delay amounted to waiver. See 9 U.S.C.
§ 16(a)(1)(A) (allowing an appeal to “be taken from . . . an order . . . refusing a
stay”).

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II.
We have previously addressed what it takes to waive arbitration. See, e.g.,
McCoy v. Walmart, Inc., 13 F.4th 702, 703–04 (8th Cir. 2021); Sitzer v. Nat’l Ass’n
of Realtors, 12 F.4th 853, 856–57 (8th Cir. 2021); Hooper v. Advance Am., Cash
Advance Ctrs. of Mo., Inc., 589 F.3d 917, 920–24 (8th Cir. 2009); Kelly v. Golden,
352 F.3d 344, 349–50 (8th Cir. 2003). This time is different, however, because of
the Supreme Court’s recent decision in Morgan v. Sundance, Inc., 596 U.S. 411
(2022). Our initial task is to determine its impact, if any, on our existing three-part
test, which asks whether the party seeking arbitration (1) knew of the right; (2) acted
inconsistently with it; and (3) “prejudice[d] the other party [with its] inconsistent
acts.” McCoy, 13 F.4th at 704 (second alteration in original) (citation omitted).
Morgan makes clear that we can no longer consider prejudice. The focus of
waiver, after all, is on “the actions of the person who held the right,” not “the effects
of those actions on the opposing party.” Morgan, 596 U.S. at 417; see Breadeaux’s
Pisa, LLC v. Beckman Bros. Ltd., 83 F.4th 1113, 1117 (8th Cir. 2023). Given that
focus, the question boils down to whether a party has “intentional[ly] relinquish[ed]
or abandon[ed] . . . a known right.” Morgan, 596 U.S. at 417 (quoting United States
v. Olano, 507 U.S. 725, 733 (1993)).
“Stripped of its prejudice requirement,” the remainder of our existing test
answers that question. Id. at 419 (noting that our “current waiver inquiry” otherwise
properly “focus[es] on” the right-holder’s conduct). So there is no reason to strip
our test down to the studs and start over.
Nor does framing our test this way violate the Supreme Court’s prohibition
on “arbitration-specific procedural rules.” Morgan, 596 U.S. at 419. Although
Morgan requires us to “treat[] arbitration contracts like all others,” it does not
prevent us from translating garden-variety waiver principles into specific litigation
contexts. Id. at 418; see, e.g., Bd. of Regents of the Univ. of Wis. Sys. v. Phx. Int’l
Software, Inc., 653 F.3d 448, 458 (7th Cir. 2011) (listing the kinds of litigation

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conduct that “waive . . . sovereign immunity”); Phx. Consulting, Inc. v. Republic of
Angola, 216 F.3d 36, 39 (D.C. Cir. 2000) (noting that “consciously deciding to
participate in . . . litigation may constitute an implied waiver of [foreign sovereign]
immunity”); Knowlton v. Allied Van Lines, Inc., 900 F.2d 1196, 1199 (8th Cir. 1990)
(explaining that objections to personal jurisdiction “may be waived[] . . . by not
asserting them in a timely manner”). Focusing on litigation conduct zeroes in on the
most relevant conduct without “tilt[ing] the playing field in favor of (or against)
arbitration.” Morgan, 596 U.S. at 419.
To the extent the companies argue that state rather than federal waiver
principles apply, they failed to make that argument before the district court. See St.
Paul Fire & Marine Ins. Co. v. Compaq Comput. Corp., 539 F.3d 809, 824 (8th Cir.
2008). In fact, if anything, they suggested otherwise during the motion-to-compel
hearing, when counsel argued that the customers had not “met the[ir] burden of
waiver under the federal jurisprudence.” (Emphasis added). It is too late to change
their position now. See N. Bottling Co. v. Pepsico, Inc., 5 F.4th 917, 922–23 (8th
Cir. 2021); see also Cont’l Res., Inc. v. Fisher, 102 F.4th 918, 930 (8th Cir. 2024)
(describing the invited-error doctrine).
In sum, our pre-Morgan three-part test now has two parts, but otherwise
remains the same. To evaluate whether a party has “intentional[ly] relinquish[ed] or
abandon[ed]” the right to arbitration, Morgan, 596 U.S. at 417 (citation omitted),
courts must determine whether it (1) knew of its “existing right” and (2) acted
“inconsistently with” it, McCoy, 13 F.4th at 704 (citation omitted). See Schwebke v.
United Wholesale Mortg. LLC, 96 F.4th 971, 974 (6th Cir. 2024) (applying the rest
of the court’s “pre-Morgan caselaw”); Hill v. Xerox Bus. Servs., LLC, 59 F.4th 457,
460 (9th Cir. 2023) (explaining how Morgan “removed prejudice . . . as an element
of waiver in the context of arbitration” but “the body of caselaw . . . applying the[]
[other] two elements remain[ed] good law”). And one way to act inconsistently with
it is to “substantially invok[e] the litigation machinery rather than promptly seek[]
arbitration.” McCoy, 13 F.4th at 703 (citation omitted).

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III.
That is exactly what the companies did. See id. at 704 (“Our review is de
novo, but we examine any underlying factual findings for clear error.”). They all
but admit to having knowledge of their contractual right to arbitrate long before they
formally raised it. Their position, after all, is that it came up during the pretrial
conference. Yet it is undisputed they took no further action until months later, after
the hearing on the motion to dismiss.
The district court, for its part, thought the companies knew even earlier: as
soon as customers signed the contracts they drafted. From that point on, under the
doctrine of constructive knowledge, they are presumed to know what was in them.2
Claiming ignorance of a contract’s contents is rarely a recipe for success. See Parler
v. KFC Corp., 529 F. Supp. 2d 1009, 1014 (D. Minn. 2008); see also Messina v. N.
Cent. Distrib., Inc., 821 F.3d 1047, 1050 (8th Cir. 2016) (holding that a party “knew
of its existing right to arbitration because it possessed the arbitration agreement”).
It is even more of an uphill battle when the party claiming ignorance is the one who
drafted it. See Erdman Co. v. Phx. Land & Acquisition, LLC, 650 F.3d 1115, 1118
(8th Cir. 2011) (reasoning that the right-holding party’s knowledge was “obvious
from the fact that [it], a sophisticated party . . . , drafted the [c]ontract containing
detailed . . . arbitration provisions, and is presumed to know its contents”); Se. Stud
& Components, Inc. v. Am. Eagle Design Build Studios, LLC, 588 F.3d 963, 968 (8th
Cir. 2009) (similar).
In any event, when the companies learned of their arbitration right is less
important than what they did afterward. In the three months following the pretrial
conference, they participated in an hour-long motion-to-dismiss hearing, stipulated
2 Setting aside the practical difficulties that would accompany an
actual-knowledge requirement, it is rarely (if ever) a condition of waiver. One
example is when a party fails to raise an argument in an opening brief. In those
circumstances, there has been a waiver regardless of what the party knew at the time.
See United States v. Greene, 513 F.3d 904, 906–07 (8th Cir. 2008).

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to a discovery plan, and scheduled a mediation, which “are hardly the actions of
[litigants] trying to move promptly for arbitration.” Sitzer, 12 F.4th at 857 (citation
omitted). By any measure, their actions “substantially invoke[d] the litigation
machinery.” Donelson, 999 F.3d at 1087 (citation omitted).
Consider the proceedings surrounding the motion to dismiss. Although the
companies “focused on more than just the merits” by raising standing, they also
sought “immediate and total victory” by arguing that the complaint failed to state a
claim. McCoy, 13 F.4th at 704 (citation omitted). Only after they had a chance to
preview the district court’s thinking did they begin to push for arbitration, with
mediation only a week away. Just in time to use the threat of arbitration as a
powerful bargaining chip. See Sitzer, 12 F.4th at 856 (“If there was a possibility that
the case would end in federal court, [the companies were] uninterested in switching
to arbitration.”); see also Hooper, 589 F.3d at 922 (calling this sort of gamesmanship
“the worst possible reason for failing to move for arbitration sooner” (citation
omitted)).
We recognize that the chaos caused by the ransomware attack may have made
the circumstances more difficult. But even if it took the companies “considerable
time and effort” to locate the contracts, they have yet to explain why they “sat on
[their] hands” for several months afterward. See McCoy, 13 F.4th at 705 (citation
omitted) (requiring parties “to do all [they] could reasonably have been expected to
do to make the earliest feasible determination of whether to proceed judicially or by
arbitration”). “Having followed this course, [they] must now live with the
consequences.” Sitzer, 12 F.4th at 857.
IV.
We accordingly affirm the district court’s order.
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