Insights

We have seen more than a few cases over the years about arbitration and how a defendant can waive its right to compel arbitration by waiting too long to raise that right and, in the meantime, participating in the litigation. But a recent case highlights the fact that a plaintiff can take certain actions during litigation that revive a defendant’s right to compel arbitration, even after significant time has passed, and even if the defendant has not previously requested arbitration.

In 2006, Sara Krinsk obtained a home equity line of credit with a maximum draw down amount of $500,000 from SunTrust Bank. The loan agreement included an arbitration clause. In 2008, SunTrust suspended Krinsk’s right to access $400,000 of her HELOC based on information that Krinsk provided to SunTrust in response to a request for updated financial information. Krinsk filed a class action suit against SunTrust under various theories for the suspension of her HELOC. Instead of filing an answer, SunTrust moved to dismiss. The litigation proceeded while the court considered the motion. The parties filed a Case Management Report that set forth a discovery plan and timeline. In the report, SunTrust expressly stated that it opposed arbitrating the claims. SunTrust also vigorously opposed Krinsk’s motion for class certification. The trial court ultimately granted, in part, SunTrust’s motion to dismiss and gave Krinsk leave to amend her complaint.

Krinsk amended her complaint and, in so doing, revised the definition for the proposed class, which would have expanded the class from hundreds to thousands – if not tens of thousands – of members. In response to the amended complaint, SunTrust raised for the first time its right to arbitrate and filed a motion to compel arbitration. The trial court denied SunTrust’s motion to compel arbitration, finding that SunTrust had waived its right to arbitrate because it had participated in the litigation up until that point and because Krinsk would suffer prejudice if SunTrust was allowed to assert its right to arbitrate in an untimely manner. SunTrust appealed.

The U.S. Court of Appeals for the Eleventh Circuit reversed, finding that Krinsk’s amended complaint revived SunTrust’s right to arbitrate. The appellate court based its decision on the fact that Krinsk’s amended definition of the class significantly expanded the potential scope of the litigation. Because this amended definition significantly altered the shape of the litigation, SunTrust was entitled to rescind its waiver of its right to arbitration.

Now, I don’t recommend that, when faced with a class action lawsuit, you wait to assert your right to arbitrate the matter. That’s too risky. But in the event you choose not to compel arbitration, and the plaintiff does something to significantly alter the shape of the litigation, keep in mind that you may have the right, even after litigation has been underway for some time, to compel arbitration.

Krinsk v. SunTrust Banks, Inc., 2011 U.S. App. LEXIS 18521 (11th Cir. (M.D. Fla.) September 7, 2011).

Meghan S. Musselman is a partner in the Maryland office of Hudson Cook, LLP. She can be reached at 410-865-5403 or by email at mmusselman@hudco.com.