Eleventh Circuit allows defendant who previously waived right to arbitrate to compel arbitration after plaintiff filed an amended complaint | Practical Law

Eleventh Circuit allows defendant who previously waived right to arbitrate to compel arbitration after plaintiff filed an amended complaint | Practical Law

Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Leah Witters (Associate), White & Case LLP

Eleventh Circuit allows defendant who previously waived right to arbitrate to compel arbitration after plaintiff filed an amended complaint

Published on 06 Oct 2011 • International, USA (National/Federal)
Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Leah Witters (Associate), White & Case LLP
The Eleventh Circuit Court of Appeals has reversed a district court decision and found that when a plaintiff amends a complaint to unexpectedly expand the scope of litigation, the defendant may compel arbitration, even if the defendant previously waived that right.
In Krinsk v SunTrust Banks, (11th Cir. Sept. 7, 2011), Krinsk and SunTrust executed a form home equity loan agreement that included an arbitration clause requiring all disputes to be resolved through arbitration when either party elects, and allowing notice to be given after a lawsuit has been filed.
After SunTrust unilaterally suspended Krinsk's access to her equity, Krinsk filed a class action lawsuit with seven claims, defining the class and estimating that it would include several hundred members. In response, SunTrust filed a motion to dismiss, challenging the causes of action, but not mentioning the arbitration clause. The litigation then proceeded for over six months before a ruling on the motion to dismiss, and SunTrust never asserted its right to compel arbitration or any intent to do so.
The district court eventually granted the motion to dismiss in part and allowed Krinsk to amend her complaint. Krinsk filed an amended complaint that changed the definition of the potential class so that it would include thousands of members rather than hundreds. SunTrust then asserted its right to arbitration for the first time. The district court denied SunTrust's motion to compel arbitration, finding that SunTrust had waived its right because:
  • It had participated in the litigation for nine months with no indication that it would assert its right to arbitrate.
  • Krinsk would be prejudiced by SunTrust's participation in the litigation by being forced to expend the litigation expenses that arbitration is supposed to avoid.
SunTrust appealed the district court's ruling, arguing that the amended complaint renewed its right to compel arbitration.
The Eleventh Circuit Court of Appeals found that in SunTrust's case, fairness required nullifying the waiver of the right to compel arbitration. The court explained that in limited circumstances, specifically, when an amended complaint unexpectedly changes the scope of the litigation, an earlier waiver can be rescinded. The new class definition could lead to a huge increase in the size of the class, so the potential scope of the litigation was changed. Further, such a change in the size of the class nine months into the litigation could not have been expected. The court concluded that given the change in the scope of litigation and the federal policy favouring arbitration, SunTrust's waiver of its right to arbitrate should be rescinded.
This decision illustrates the broad applicability of the federal policy favouring arbitration. Even in situations where litigation has been ongoing, courts will still compel arbitration if appropriate grounds exist for granting such request.