Amended Complaint that Fundamentally Changes the Shape of a Case Revives Defendant’s Right to Compel Arbitration — Here, Vastly Augmented Class Definition

From Krinsk v. Suntrust Banks, Inc., 2011 U.S. App. LEXIS 18521 (11th Cir. Sept. 7, 2011):

Defendant SunTrust Bank ("SunTrust") appeals the district court's order denying its motion to compel plaintiff Sara Krinsk to submit her claims to arbitration pursuant to an arbitration agreement governed by the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. The district court held that SunTrust had, by participating in the litigation for nine months prior to requesting that the case be submitted to arbitration, waived its contractual right to compel arbitration. In its appeal, SunTrust argues that Krinsk's submission of an amended complaint revived its right to compel arbitration, notwithstanding its previous waiver of that right. We find merit in SunTrust's argument and therefore vacate the order and remand to the district court for further proceedings. ***

***SunTrust contends that, even if its invocation of the judicial process operated to waive its right to arbitrate the claims in the Original Complaint, the Amended Complaint "rejuvenated" or revived its right to compel arbitration. Whether SunTrust's position is correct presents an issue of first impression for this court. The decisions of other federal courts that have considered the issue are informative and persuasive. They have held that, in limited circumstances, fairness dictates that a waiver of arbitration be nullified by the filing of an amended complaint. We conclude that this case presents one of those limited circumstances, and that SunTrust's right to compel arbitration is therefore revived.

Although, under the Federal Rules of Civil Procedure, "an amended complaint supersedes the initial complaint and becomes the operative pleading in the case," Lowery v. Ala. Power Co., 483 F.3d 1184, 1219 (11th Cir. 2007), the filing of an amended complaint does not automatically revive all defenses or objections that the defendant may have waived in response to the initial complaint. See 5C Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1388 (3d ed. 2004) ("The filing of an amended complaint will not revive the right to present by motion defenses that were available but were not asserted in timely fashion prior to the amendment of the pleading."). However, the defendant will be allowed to plead anew in response to an amended complaint, as if it were the initial complaint, when the "amended complaint . . . changes the theory or scope of the case." Brown v. E.F. Hutton & Co., 610 F. Supp. 76, 78 (S.D. Fla. 1985) (citing Joseph Bancroft & Sons Co. v. M. Lowenstein & Sons Co., 50 F.R.D. 415 (D. Del. 1970)). It simply would be unfair to allow the plaintiff to change the scope of the case without granting the defendant an opportunity to respond anew. Id.

Likewise, a defendant's waiver of the right to compel arbitration is not automatically nullified by the plaintiff's filing of an amended complaint. See, e.g., Gilmore v. Shearson/Am. Express Inc., 811 F.2d 108, 112 (2d Cir. 1987) ("[A] motion to compel arbitration of a claim involves the core issue of a party's willingness to submit a dispute to judicial resolution and, if waived, is not automatically revived by the submission of an amended complaint."), overruled on other grounds by McDonnell Douglas Fin. Corp. v. Penn. Power & Light Co., 849 F.2d 761 (2d Cir. 1988). 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. Id. at 113 (citing Brown, 610 F. Supp. at 78); Envirex, Inc. V. K.H. Schussler für Umwelttechnik GmbH, 832 F. Supp 1293, 1296 (E.D. Wis. 1993) (finding that an amended complaint that "made major . . . changes to [the plaintiff's] original complaint, altering and adding to the issues to be determined at trial," revived the defendants' right to demand arbitration); Brown, 610 F. Supp. At 78-79 (reviving the defendant's right to compel arbitration where the amended complaint "materially alter[ed] the situation" by "significantly broaden[ing] the focus of the litigation").

The invocation of the judicial process ordinarily establishes a waiver of the defendant's right to compel arbitration — i.e., such conduct shows, in the normal case, that the defendant intends to elect a judicial forum rather than an arbitral tribunal. See Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995) ("[I]nvoking judicial process is presumptive waiver." (emphasis omitted)); see also Iowa Grain Co. v. Brown, 171 F.3d 504, 509 (7th Cir. 1999) (discussing Cabinetree). However, 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." Cabinetree, 50 F.3d at 391. The district court should then "permit a [defendant's] previous waiver to be rescinded." Id. (citing Gilmore, 811 F.2d at 113; Envirex, 832 F. Supp at 1296). In such a case, pursuant to the strong federal policy supporting the enforcement of arbitration agreements, the defendant's motion to compel arbitration should be granted absent a new waiver by the defendant based on the defendant's lack of diligence in seeking arbitration following the filing of the amended complaint. See, e.g., Envirex, 832 F. Supp. at 1296 (highlighting that "[t]he defendants promptly responded to the . . . amended complaint" with their motion to compel arbitration).

In contrast, however, the defendant's prior waiver should not be nullified, and there should be no revival of the arbitration right, when the plaintiff has filed an amended complaint that does not unexpectedly expand the litigation's scope. For example, courts have refused to revive the right to compel arbitration where the amended complaint has made only minor factual changes. See, e.g., Gilmore, 811 F.2d at 113-14 (finding no revival of arbitration right where only minor factual changes were made that did not alter the scope or theory of plaintiff's claim); see also Weight Watchers of Quebec, Ltd. v. Weight Watchers Int'l, Inc., 398 F. Supp. 1057, 1060 (E.D.N.Y. 1975) (denying defendant's motion to compel arbitration, although plaintiff had filed an amended complaint, because the amended complaint only "restate[d], in . . . a clearer and more orderly fashion, the claims arising out of the matters already pleaded and dealt with in [a] summary judgment motion").

Here, the Amended Complaint is clearly not like the amended complaints in these latter cases. Although, as the district court concluded, the Amended Complaint does merely assert new claims based on the same operative facts as the claims in the Original Complaint, the Amended Complaint is by no means "immaterial." That conclusion flatly ignored the significance of the new class definition in the Amended Complaint, which greatly broadened the potential scope of this litigation by opening the door to thousands--if not tens of thousands--of new class plaintiffs not contemplated in the original class definition by discarding the old definition's limits on the class plaintiffs' age and on the bases for their HELOC suspensions, and by expanding the class period from over three months to over three years.

This vast augmentation of the putative class so altered the shape of litigation that, despite its prior invocations of the judicial process, SunTrust should have been allowed to rescind its waiver of its right to arbitration. SunTrust's acts in furtherance of the litigation all occurred prior to the filing of the Amended Complaint and thus concerned the class contemplated in the Original Complaint; SunTrust proceeded in court on the expectation that, if the class action were certified, it would defend itself against only the relatively small plaintiff class defined in the Original Complaint. 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.

Share this article:

Share on facebook
Share on twitter
Share on linkedin
Share on email

Recent Posts