Introduction
Does Section 3 arbitration default result from moving to dismiss the entire case on the merits? The Sixth Circuit says yes.
Since Morgan v. Sundance, 596 U. S. 411 (2022), most of the cases concerning loss of arbitration rights by litigation conduct have focused not on prejudice—Morgan nixed the requirement that arbitration opponents show prejudice to establish forfeiture or waiver, 596 U.S. at 1-2—but on what type and degree of inconsistent-with-arbitration conduct results in a loss of arbitration rights.
But on August 27, 2025, the U.S. Court of Appeals for the Sixth Circuit, took a slightly different tack on Section 3 arbitration default. In Kloosterman v. Metropolitan Hospital, No. 24-1398, slip op. (6th Cir. Aug. 27, 2025), the Court reversed a district court order that had compelled arbitration of a physician assistant (“PA”)’s religious discrimination claims. The Sixth Circuit made two significant rulings bearing on loss of arbitration rights by litigation conduct.
First, the Court held— in an opinion written by Circuit Judge Eric E. Murphy, and joined by Circuit Judges Rachel S. Bloomekatz and Stephanie Dawkins Davis—that the defendants were guilty of Federal Arbitration Act Section 3 arbitration default. By seeking “an immediate and total victory” in court, the hospital disavowed its contractual promise to arbitrate and therefore “default[ed] in proceeding with . . . arbitration” within the meaning of FAA Section 3. Slip op. at 10-11; 9 U.S.C. § 3. Quoting Circuit Judge Richard A. Posner’s opinion in Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995), the Court said “parties cannot ‘play heads I win, tails you lose’ by reserving arbitration only if litigation falters.” Slip op. at 10 (quoting 50 F.3d at 391). If they do, they commit Section 3 arbitration default.
Second, it brought into question, through dueling concurring opinions, whether the issue before the court in loss-of-arbitration-rights-by-litigation-conduct cases are governed by the rules and principals of waiver, forfeiture, or both. Judges Murphy and Bloomekatz wrote separate concurrences addressing this aspect of Section 3 arbitration default—one which the Opinion of the Court did not need to—and did not—resolve. Circuit Judge Murphy’s concurrence argued that forfeiture, which is generally governed by federal procedural law, and waiver, which is generally governed by state contract law, provide distinct grounds for losing arbitration rights. The Court’s “waiver” precedents, Judge Murphy explained, apply a federal forfeiture doctrine rooted in FAA § 3’s “default” language. See slip op. at 20 (Murphy, J., concurring).
Circuit Judge Bloomekatz’ concurring opinion agreed with the outcome but cautioned against making rigid distinctions between waiver and forfeiture. She wrote that waiver and forfeiture often overlap, and FAA § 3 speaks simply of “default.” See slip op. at 21-24.
Section 3 Arbitration Default: Kloosterman Background and Procedural History
Valerie Kloosterman, a physician assistant (“PA”) at Metropolitan Hospital (later University of Michigan Health-West) (the “Hospital’), had worked for nearly twenty years with exemplary performance reviews. In 2021, the hospital required staff to undergo training on serving LGBTQ+ patients. Kloosterman’s Christian beliefs prevented her from affirming statements about gender identity, using pronouns inconsistent with biological sex, or referring patients for gender-transition procedures. She sought a religious accommodation to use patients’ names in lieu of pronouns. During accommodation discussions, a diversity, equity, and inclusion (“DEI”) coordinator allegedly disparaged her faith, calling her “evil” and a “liar.” Shortly after, she was fired for refusing to comply with the training requirements.
Kloosterman commenced an action in the Western District of Michigan against the Hospital and its administrators (collectively, the “Hospital Defendants”) under § 1983 (First and Fourteenth Amendments), Title VII of the Civil Rights Act of 1964, and Michigan law. After the district court partially denied defendants’ motions to dismiss, and more than a year into the litigation, the hospital invoked Kloosterman’s employment agreement’s arbitration provision and moved to compel arbitration. The district court granted the motion and dismissed the suit.
Analysis
The principal issue was whether the Hospital lost its right to arbitrate under the FAA by litigating for a year before requesting arbitration. Slip op. at 6. The Court held that it did.
Section 3 Arbitration Default Exception
The operative statute, explained the Court, is Section 3 of the FAA, which requires Courts, when requested, to stay litigation in favor of arbitration. 9 U.S.C. § 3; slip op. at 7. Section 3 says “a court ‘shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing applicant for the stay is not in default in proceeding with such arbitration.’” Slip op. at 7 (quoting FAA § 3; emphasis added by the Court). Section 3 arbitration default, said the Court, is a procedural issue that is governed by Section 3 of the FAA. Slip op. at 6-8.
“[D]efault[,]” said the Court, “has a clear legal meaning.” Slip op. at 7 (citing Lackey v. Stinnie, 145 S. Ct. 659, 666–67 (2025)). “‘Default’ of a duty or promise” occurs “if the party omits or fails ‘to fulfil [the] duty’ or ‘promise’ through ‘neglect’ or otherwise.” Slip op. at 7 (quoting Black’s Law Dictionary 342 (2d ed. 1910), citing Webster’s New International Dictionary of the English Language 686 (2d ed. 1934)).
This textually-derived meaning of “default” “fits this context,” the Court explained. The Court said “[o]ne would naturally say that the defendant has not lived up to the ‘promise’ to arbitrate[]” if that person litigates an arbitrable dispute in court for a sufficiently long period prior to invoking arbitration. A person who does that “commit[s] a ‘default in proceeding. . . with arbitration’ within the “normal meaning” of Section 3. Slip op. at 7 (citing Am. Locomotive Co. v. Chem. Rsch. Corp., 171 F.2d 115, 121 (6th Cir. 1948)).
Court Concludes Section 3 Arbitration Default Exception Applies Even if the Parties did Not Request a Section 3 Stay of Litigation
While we need not discuss it in detail here, the Court carefully analyzed the interplay between, and applicability of, Sections 3 and 4 in a case like this one. See slip op. at 6-7, 8-9. That discussion was necessary because neither party sought a stay of litigation under Section 3, bringing into question whether Section 3’s default provision applied to this case. Relief was sought under Section 4, but Section 4 does not contain the “default” language that Section 3 does. Compare 9 U.S.C. § 3 with 9 U.S.C. § 4.
The Court concluded, however, that it “need not resolve this question because the same ‘default’ analysis applies either way.” Slip op. at 9. The Court said the U.S. Supreme Court had “held that the same procedural rules apply under both sections [3 and 4].” Slip op. at 9 (citing Boykin v. Family Dollar Stores of Mich., LLC, 3 F.4th 832, 837 (6th Cir. 2021) (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967)).
The Court opined that the present case may demonstrate why. “We would[,]” said the Court “render § 3’s default limitation meaningless if a party in default could avoid that limit by moving to compel arbitration rather than to stay the case.” Slip op. at 9 (citing Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 12-13 (1st Cir. 2005); Sink v. Aden Enters., Inc., 352 F.3d 1197, 1200–01 (9th Cir. 2003); American Locomotive Co. v. Gyro Process Co., 185 F.2d 316, 317, 320–21 (6th Cir. 1950); and American. Locomotive, 171 F.2d at 121).
Did the Hospital Default in Proceeding with Arbitration by Litigating in Court the Merits of Kloosterman’s Claims?
The Court held that the defendants’ litigation on the merits of Kloosterman’s claims prior to demanding arbitration constituted a “default in proceeding with. . . arbitration” within the meaning of Section 3. Slip op. at 10-11. Prior to Morgan, the Sixth Circuit employed a two-part test to determine whether a party lost the right to invoke arbitration based on court litigation conduct. First, the arbitration opponent had to show that the arbitration proponent engaged in litigation conduct that was “‘completely inconsistent with any reliance on an arbitration agreement[.]’” Slip op. at 7 (quoting Solo v. United Parcel Serv. Co., 947 F.3d 968, 975 (6th Cir. 2020) (quoting Hurley v. Deutsche Bank Tr. Co. Ams., 610 F.3d 334, 338 (6th Cir. 2010))). Second, the “conduct must have caused ‘actual prejudice’” to the plaintiff.” Slip op. at 7 (citing Solo, 947 F.3d at 975) (citations omitted).
Morgan eliminated the prejudice requirement, from this two-part test, and consequently, the Court reaffirmed its holding in Schwebke v. United Wholesale Mortg. LLC, 96 F.4th 971, 974 (6th Cir. 2024) to that effect. Slip op. at 8. Schwebke assumed, without deciding, that litigation conduct “inconsistent with arbitration” would result in a loss of arbitration rights. Id.
Kloosterman, however, took the extra step of determining that litigation conduct inconsistent with arbitration constitutes a Section 3 arbitration default. Slip op. at 7, 10-11. What Kloosterman didn’t decide (and didn’t need to decide) was whether such inconsistent-with-arbitration conduct should be labelled “waiver” or “forfeiture.” See slip op. at 8 & 9.
Addressing whether the litigation conduct at issue constituted a Section 3 arbitration default, the Court explained that “our cases treat a defendant’s actions as ‘entirely inconsistent’ with arbitration if the defendant first seeks ‘an immediate and total victory’ in court through a motion to dismiss under Rule 12(b)(6) and then moves to arbitrate only after the court rejects this initial attempt to end the dispute.” Slip op. at 10 (quoting Solo, 947 F.3d at 975 (citation omitted)).
The Court held that a party seeking this kind of a judicial victory “is in ‘default’ of an arbitration agreement because the party has failed to ‘observe’—indeed, has affirmatively disavowed—the ‘promise’ to arbitrate the merits.” Slip op. at 10 (quoting Black’s Law Dictionary at 342). For, explained the Court, if such a defendant prevails on the motion, it has forgone arbitration completely, and “defendants may not ‘play heads I win, tails you lose’ by keeping arbitration in reserve just in case a court does not reject the entire case at the start.” Slip op. at 10 (quoting Cabinetree, 50 F.3d at 391 and citing Solo, 947 F.3d at 975). The Court explained how this “inconsistent with arbitration” analysis aligned with that espoused by several other circuits. See slip op. at 10 (citing cases).
The Hospital Defendants were under this standard in default of their obligation to arbitrate, explained the Court. Before invoking arbitration they twice moved to dismiss all claims “with prejudice,” seeking a complete final and binding judicial resolution that would effectively preclude Ms. Kloosterman from refiling her claims in another forum, including an arbitral one. Slip op. at 10-11. They renewed the motion after Ms. Kloosterman filed her first amended complaint. Slip op. at 11. They opposed Ms. Kloosterman’s request to file a second amended complaint, arguing that it would be “futile” because the allegations would supposedly not withstand a motion to dismiss. Slip op. at 11.
It was only when the district court rejected the motion to dismiss in part—and concluded that Ms. Kloosterman’s had adequately stated claims under the First Amendment, Title VII, and Michigan law—that the Hospital Defendants switched gears and invoked arbitration. Slip op. at 11. As the Court put it, it was only then, “after the [Hospital Defendants] got a sneak peak of how the case would proceed if it remained in court,” that the Hospital Defendants “shift[ed] to wanting to take its chances with the arbitrators.” Slip op. at 11 (citation omitted).
That “heads I win, tails you lose” gambit disavowed the Hospital Defendants’ contractual promise to arbitrate. Slip op. at 11. By seeking a judicial decision on the merits of an arbitrable issue, the Hospital Defendants were “in ‘default’” of the arbitration agreement “and so lost [their] right to seek arbitration under the Federal Arbitration Act.” Slip op. at 11 (citing 9 U.S.C. § 3).
The Court rejected the Hospital Defendants’ argument that Michigan’s arbitration statute displaced FAA procedural law. The Hospital Defendants argued that there was no loss of arbitration rights because Michigan’s arbitration statute, unlike Section 3, did not provide for denial of a stay where the arbitration proponent had defaulted in proceeding with arbitration. While, explained the Court, a choice-of-law provision, like the one here, may make a state’s substantive law applicable, state procedural law does not displace federal procedural law in an action pending in federal court. See slip op. at 12.
The Court also offered some helpful guidance on its decision not to establish an inflexible, bright line rule about what litigation conduct is “completely inconsistent with arbitration.” The Court explained that “the question whether a party has acted inconsistently with the right to arbitrate [continues to] turn[] ‘on the totality of the circumstances’ rather than on a ‘bright-line rule’ that might cut across different cases.” Slip op. at 11 (quoting Schwebke, 96 F.4th at 976 (citing Johnson Assocs. Corp. v. HL Operating Corp., 680 F.3d 713, 719 (6th Cir. 2012)). But the Court said prior Sixth Circuit cases “made this case-by-case point to clarify that defendants can relinquish the right to arbitrate even if (unlike in this case) they never file a ‘dispositive motion’ that ‘affirmatively’ seeks a decision on the merits from the court.” Slip op. at 11 (citations omitted).
That strongly suggests that in cases like Kloosterman, where the inconsistent conduct was an attempt to achieve a total victory on the merits on arbitrable issues, Section 3 default findings should ordinarily follow, irrespective of most or all the other circumstances surrounding the Section 3 arbitration default.
The Court underscored this point by distinguishing certain cases in which the filing of a motion to dismiss did not result in a default finding. See slip op. at 13-14 (citing and discussing cases). “[N]one of these cases[,]” said the Court, “has facts like this one—in which defendants moved to dismiss all claims on their merits while knowing that the claims were subject to arbitration.” Slip op. at 13 (emphasis in original).
The Court also pointed out that, in any event, the Hospital Defendants identified “no other case-specific conduct that would suggest [they] preserved [their] right to arbitrate.” Slip op. at 11. That conduct, including discussing discovery issues with Ms. Kloosterman’s counsel, and selecting a discovery plan, “further bolster[ed]” the Court’s conclusion about Section 3 arbitration default. Slip op. at 11 (citations omitted
Because the hospital defaulted on its obligation to arbitrate, the district court erred in compelling arbitration. The Court accordingly reversed and remanded the district court’s order and judgment compelling arbitration.
Kloosterman underscores that employers (and other defendants) cannot litigate aggressively in court, seek dismissal with prejudice, and then pivot to arbitration. The FAA Section 3 “default” exception prevents that kind of maneuvering. For practitioners, Kloosterman is a reminder: if arbitration is to be pursued, it must be raised early and consistently.
Judge Murphy’s and Judge Bloomekatz’s Concurring Opinions Concerning the “Forfeiture” Versus “Waiver” Issue
At a later date we shall address in a separate post the thoughtful, dueling concurring opinions of Judges Murphy and Bloomekatz. The issue of whether the loss of arbitration rights through litigation conduct constitutes “waiver” versus “forfeiture,” and why that matters, is intriguing and will most likely get a good deal of judicial attention in subsequent cases.
The Brief of Arbitration Practitioners and Scholars as Amici Curiae in Support of Plaintiff-Appellant
Several thoughtful amici curiae—i.e., “friend of the court”— briefs were filed, and accepted by the Sixth Circuit, in this important case. The author’s friends and colleagues, Richard D. Faulkner, Esq. and Charles “Chuck” Bennett, and the author, Philip J. Loree Jr., prepared and filed a “Brief of Arbitration Practitioners and Scholars as Amici Curiae in Support of Plaintiff-Appellant” (Dkt. #55). The author was the Sixth Circuit counsel of record for this amicus brief.
As amici we focused on three central points, all of which bear on the enforceability of the arbitration agreement and the district court’s errors in compelling arbitration, although only the first point—the litigation conduct inconsistent with arbitration point—addressed an issue on which the Court ruled.
First, the amici argued that the district court’s analysis of waiver (or, as the term Ms. Kloosterman and we preferred, forfeiture) was fundamentally flawed. We explained that the defendants had twice moved to dismiss Kloosterman’s claims under Rule 12(b)(6), seeking outright judicial determinations on the merits. Under Sixth Circuit precedent—particularly Solo—such motions are “completely inconsistent” with reliance on arbitration. (See Dkt.# 55 at 12-13, 15-20.) We emphasized that even before the Supreme Court’s decision in Morgan eliminated the prejudice requirement, this conduct would have supported a finding of default. To allow defendants to litigate on the merits and then invoke arbitration, we warned, would endorse the “heads I win, tails you lose” gamesmanship referred to in Cabinetree, 50 F.3d at 391. (Dkt.#55 at 18-20)
Second, we argued that the district court erred in allowing the individual Hospital Defendants—hospital officers and employees who were not parties to Kloosterman’s employment contract—to enforce the arbitration clause. Given the Court’s ruling on the default issue, the Court did not need to address this issue, which concerned the rights of nonsignatories to the arbitration agreement.
The employment agreement expressly provided that it was enforceable “only by the parties” and barred third-party enforcement. Both Michigan law and the FAA require courts to honor such contractual limitations. We rejected the district court’s reliance on Altobelli v. Hartmann, 499 Mich. 284(2016), and agency principles, explaining that neither supported converting nonsignatory employees into beneficiaries of an arbitration agreement they never signed.
Third, we raised concerns about compelling Ms. Kloosterman to arbitrate her constitutional and statutory claims before the American Arbitration Association (AAA). We argued that the AAA’s public embrace of diversity, equity, and inclusion initiatives is highly suggestive of “institutional bias” in cases like Kloosterman’s, where DEI policies are at the heart of the dispute. In our view, requiring arbitration before an institution that publicly champions DEI undermines the promise of a neutral forum and threatens the effective vindication of federal rights. (For a discussion of similar issues, see our post discussing the Flores case recently decided by the Second Circuit.)
Taken together, our arguments reinforced the appellant’s position that the defendants had forfeited their arbitration rights, that the nonsignatory individuals could not compel arbitration, and that, even if the clause were otherwise enforceable, arbitration before the AAA would not provide a fair or neutral forum for adjudicating Kloosterman’s constitutional and civil rights claims.
Email Philip J. Loree Jr. if you are interested in receiving a free copy of the Arbitration Practitioners and Scholars amicus brief.
A Well-Deserved Shout-Out to Ms. Kloosterman’s Counsel and Ms. Kloosterman Herself
Ms. Kloosterman was represented on brief and oral argument by Kevin Joseph Wynosky, Esq., a highly talented and impressively credentialed associate at Clement & Murphy, Alexandria, Virginia, the law firm of former Solicitor General, and preeminent U.S. Supreme Court litigator, Paul D. Clement, Esq. Joseph did a fabulous job on Ms. Kloosterman’s main and reply briefs and skillfully handled the oral argument before the Sixth Circuit.
Ms. Kloosterman was also represented by the very able Kayla Toney, Esq.. a Counsel at the First Liberty Institute in Plano, Texas, who also serves as amicus coordinator for First Liberty’s appellate cases, including its U.S. Supreme Court cases. Kayla’s practice at First Liberty is focused on religious liberty matters and First Amendment rights for clients of all faiths, especially on education-related cases. She deserves special recognition for her tireless efforts on this case.
Three other First Liberty attorneys, two of whom are First Liberty executives, also appeared in Ms. Kloosterman’s appeal: Jeffrey Carl Mateer, Esq., Executive Vice President and Chief Operating/Legal Officer; David J. Hacker, Esq., Vice President of Legal Services & Senior Counsel; and Roger Lucien Byron, Esq., Senior Counsel. They, too, deserve special mention for their representation of Ms. Kloosterman, and their work at First Liberty.
And let’s not forget Ms. Kloosterman herself, who, with the help of her attorneys, has bravely challenged the constitutional and statutory legality of her discharge from employment but also the Hospital Defendants’ attempts to enforce alleged arbitration rights in the face of their own default. Rick, Chuck, and the author wish her all the best of luck with her quest for justice.
Contacting the Author
If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094. PJL1@LoreeLawFirm.com.
Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.
This blog features links to several arbitration-related videos and webinars in which Mr. Loree appears.
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Tags: arbitration case law 2025, Arbitration Law, Default in proceeding with arbitration, Employment arbitration agreements, Federal Arbitration Act (FAA), Hospital employment law disputes, Morgan v. Sundance, Religious discrimination arbitration, Section 3 FAA default, Sixth Circuit arbitration decisions, Valerie Kloosterman case, Waiver vs forfeiture arbitration
