Wednesday, September 21, 2011

Substantial Amendment To Complaint Affords New Opportunity To Demand Arbitration

In Krinsk v. SunTrust Banks, Inc., the Eleventh Circuit released a published opinion and reversed the District Court's order and held that a defendant is given a new opportunity to demand arbitration when the plaintiff files an amended complaint. The court stated that:
[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.
The court stated:
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.....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....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.
In this case, the Eleventh Circuit held that the plaintiff changed the complaint to such an extent to allow the defendant to demand arbitration. The court stated:
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. 


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