Manasher v. NECC Telecom

Citation: Manasher v. NECC Telecom, 310 Fed. Appx. 804 (6th Cir. 2009).

Factual Background
Defendant NECC is an international and domestic long-distance telephone service provider. Plaintiffs, Gregory Manasher and Frida Sirota, allege that NECC's telemarketers solicited them and made oral representations regarding NECC’s services. Based on what was said during these conversations, Plaintiffs selected NECC as their long-distance provider. Upon receipt of billing statements from NECC, plaintiffs noticed charges inconsistent with those promised by NECC.

== Trial Court Proceedings =

On January 31, 2006, Plaintiffs filed a complaint in the Michigan Circuit Court against NECC, asserting state law claims on behalf of a class of consumers for unlawful billing practices. On February 17, 2006, the defendant removed the action to the United States District Court for the Eastern District of Michigan. On February 27, 2006, the defendant filed its answer, but did not assert arbitration as an affirmative defense as required in the NECC service contract.

On December 8, 2006, the district court granted plaintiffs' motion to amend their complaint. The plaintiffs' first amended complaint, filed December 12, 2006, was premised upon the same facts and transactions as the original complaint, but added two new claims: 1) violations of the Federal Communications Act of 1934 and the Federal Communications Commission's Truth-in-Billing Act; and 2) unjust enrichment.

On January 30, 2007, a full year after the plaintiffs’ original complaint, the defendant filed a motion to compel arbitration, asserting for the first time that the claims raised by the plaintiffs were subject to an arbitration provision incorporated by reference into their agreement. The plaintiffs filed a response, asserting, among other reasons, that the defendant had waived its right to arbitration.

The Trial Court found that the defendants failure to assert the arbitration requirement as an affirmative defense, effectively waived the defense and thus it could not be used later in litigation.

Appellate Court Proceedings
Defendants appealed, asking the Sixth Circuit Court to allow NECC to use the arbitration clause as an affirmative defense and set aside the waiver. The Court held that “the additional claims contained in the amended complaint did not substantially alter the scope or theory of this matter in such a way as to revive the defendant's right to compel arbitration.” Accordingly, pursuant to the Federal Rules of Civil Procedure, defendants needed to have asserted the arbitration clause at the outset of the suit. The clause was thus waived and could not be relied upon.