The Eleventh Circuit recently allowed class action defendants to invoke arbitration provisions despite having actively litigated the matter in court for nine months. This opinion is important because such decisions are relatively rare, particularly in class action settings. In Krinsk v. SunTrust Banks, Inc., No. 10-11912 (11th Cir. Sept. 7, 2011), the plaintiff filed her original complaint May 15, 2009. Of course, that is well before the Supreme Court's recent opinion in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which held that the Federal Arbitration Act preempts state law finding class action waivers in arbitration clauses to be unconscionable and unenforceable.
Krinsk, who is 92 years old, alleges that SunTrust (and related entities and executives) implemented a plan to deny elderly homeowners access to their home equity lines of credit (HELOC). Almost two years after Krinsk obtained her HELOC, SunTrust requested additional financial information from Krinsk and then suspended her access to the HELOC funds based on that information (i.e., changes in her financial circumstances). Krinsk contends the SunTrust's true motive was to restore its capital reserves and eliminate risk from HELOC loans, particularly targeting elderly customers. Her original complaint stated claims for financial elder abuse, breach of contract, deceit, negligent misrepresentation, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, and violating Regulation Z under the TILA. She also sought to represent a class of SunTrust Florida HELOC customers (1) older than 65, (2) who received a letter requesting additional financial information during a 3.5 month period in 2008, and (3) whose HELOC SunTrust reduced or suspended because the customer allegedly failed to provide the information. This putative class may have included hundreds of members.
SunTrust did not invoke its arbitration clause, which contained a class action waiver. Instead, it moved to dismiss, filed a joint case management report, agreed on a discovery plan, and opposed class certification over the next nine months. The district court eventually granted in part and denied in part the long-pending motion to dismiss, and also gave Krinsk leave to file an amended complaint. While that amended complaint stated fewer claims, it sought to certify a much broader class of any age and whose HELOCs SunTrust suspended for any reason in a three-year period. This putative class included at least 56,000 members. SunTrust promptly sought to compel arbitration, which the district court refused to do, finding that SunTrust waived its right to arbitrate.
The Eleventh Circuit reversed, concluding that the amended complaint's much broader class definition revived the right to compel arbitration. While it is a rare amended complaint that nullifies an earlier waiver, this is one of those situations. Such nullification is not automatic, of course. "Rather, courts will permit the defendant to rescind his earlier waiver, and revive his right to compel arbitration, only if it is shown that the amended complaint unexpectedly changes the scope or theory of the plaintiff's claims." Slip Op. at 16. Dramatically increasing the putative class' scope and size amounted to such changes. Id. at 18-19. "The vast augmentation of the putative class so altered the shape of the litigation that, despite its prior invocations of the judicial process, SunTrust should have been allowed to rescind its waiver of its right to arbitration." Id. at 19. On remand, the district court must evaluate Krinsk's arguments that the arbitration and class waiver provisions are unconscionable. Id. at 20 n.23.
The opinion is significant because federal courts often conclude that a party waives its right to arbitration by actively participating in litigation. That is why a defendant usually must decide early whether to invoke an arbitration clause. In SunTrust's case, the defendants had to decide that point before the Supreme Court's three recent-- and significant-- arbitration opinions: Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010); Rent-A-Center West, Inc. v. Jackson, 130 S. Ct. 2772 (2010); and AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Prior to those opinions, a defendant may understandably have concluded that the risk of a court or arbitrator ordering class arbitration was too much. While class/collective actions always present substantial risks to defendants, many defendants would rather have the procedural certainty of the Federal Rules of Civil Procedure (including the chance at interlocutory review of a certification decision under Rule 23(f)) and the opportunity for appellate review generally. The Supreme Court's recent opinions, however, provide strong arguments that the class waiver arbitration clause must be enforced (Concepcion) and, if it is stricken, SunTrust cannot be compelled to arbitrate on a classwide basis as the agreement will now be silent on the issue (Stolt-Nielsen).
On remand, we can anticipate Krinsk attacking the arbitration clause as preventing her from vindicating her statutory rights, particularly federal rights under Regulation Z (12 C.F.R. § 226.5b). Before and after Concepcion, some courts have stricken class waivers, concluding that those provisions make it impossible for a plaintiff to pursue rights guaranteed under federal law. E.g., In re Am. Express Merchants' Litig., 634 F.3d 187 (2d Cir. 2011) (cost of economic analysis in Sherman Act claim made it infeasible for individual action, so class waiver was unenforceable); Chen-Oster v. Goldman, Sachs & Co., 2011 WL 2671813 (S.D.N.Y. July 7, 2011) (class waiver unenforceable because it would prevent plaintiff from pursuing "pattern or practice" claim under Title VII). Nonetheless, SunTrust at least has the opportunity to invoke its arbitration clause in light of the amended complaint.