Law Life: Amended complaint may revive arbitration rights

By Pat Murphy The Daily Record Newswire One tried and true method for consumer lawyers to avoid those pesky arbitration clauses is to show that a defendant waived its rights by waiting too long and participating in litigation. But did you know that a defendant's arbitration rights, once lost, may be revived by the plaintiff's filing of an amended complaint? That unwelcome news was delivered yesterday to lawyers who want to proceed with a class action filed on behalf of an elderly Florida woman who claimed that her bank wrongly terminated her access to a home-equity line of credit (HELOC). In December 2006, Sara Krinsk obtained from SunTrust Bank a home-equity loan that allowed her to draw from a $500,000 home-equity line of credit collateralized by Krinsk's $1.6 million Sarasota, Florida home. In October 2008, SunTrust suspended Krinsk's right to access $400,000 of her HELOC. The bank claimed that it took this action because it had a reasonable concern that a change in the woman's financial condition had left her unable to meet her obligations. The 92-year-old Krinsk contends that this was all a pretext, and that the bank was really engaged in an illegal scheme to reduce its credit risk regarding HELOCs sold to Florida residents between the late 1990s and early 2008 when the housing bubble burst. In particular, Krinsk claims that SunTrust's program of reviewing the financial condition of its customers -- which included a demand that the customer provide updated financial information -- unfairly targeted elderly HELOC borrowers. So on May 15, 2009, Krinsk filed a class action against SunTrust in a Florida federal court. Her complaint stated claims for: (1) financial elder abuse under Florida law; (2) breach of contract; (3) deceit; (4) negligent misrepresentation; (5) breach of fiduciary duty; (6) breach of the implied covenant of good faith and fair dealing; and (7) violation of Regulation Z of the Truth in Lending Act. Notably, the proposed class in the original complaint included HELOC customers who were subjected to allegedly illegal practices after they attained the age of 65. SunTrust responded by filing a motion to dismiss in lieu of an answer. During the more than six months that the district court took to rule on the motion to dismiss, SunTrust continued to participate in the litigation, expressly disavowing any intent to arbitrate the claims pursuant to a clause in Krinsk's loan agreement that prohibited class actions. The district court ruled on the motion to dismiss on Jan. 8, 2010, granting SunTrust's motion in part and giving Krinsk leave to file an amended complaint. Krinsk filed her amended complaint on Jan. 28, this time limiting her claims to: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; and (3) violation of Regulation Z of TILA. But Krinsk's amended complaint included a significant new twist, expanding the definition of the proposed class to include Florida residents of any age whose HELOCs had been suspended by SunTrust for any reason during the three-year class period. SunTrust answered the amended complaint on February 10, for the first time demanding arbitration under the terms of its loan agreement with Krinsk. The district court refused to compel arbitration, agreeing with Krinsk that SunTrust had waived its arbitration rights by waiting nine months before making the demand and in the interim actively participating in the litigation. So Krinsk and her lawyers looked forward to proceeding with the class action. Yesterday, however, the 11th Circuit rained on their parade by concluding that this was one of those "rare circumstances" when the filing of an amended complaint nullified a defendant's waiver of arbitration. The court explained that "when a plaintiff files an amended pleading that unexpectedly changes the shape of the case, the case may be 'so alter[ed] ... that the [defendant] should be relieved from its waiver.'" Krinsk's lawsuit against SunTrust was one of those rare cases because of the amended complaint's "vast augmentation "of the putative class. The court explained that SunTrust "could not have foreseen that Krinsk would expand the putative class in such a broad way nine months into the litigation. Given this unforeseen alteration in the shape of the case, SunTrust, in plain fairness, should have been allowed to rescind its earlier waiver through its prompt motion to compel arbitration." (Krinsk v. SunTrust Bank) Published: Thu, Sep 22, 2011