Krinsk v. Suntrust Banks Inc.

Decision Date07 September 2011
Docket NumberNo. 10–11912.,10–11912.
Citation80 Fed.R.Serv.3d 749,23 Fla. L. Weekly Fed. C 352,654 F.3d 1194
PartiesSara E. KRINSK, on behalf of herself and all others similarly situated, Plaintiff–Appellee,v.SUNTRUST BANKS, INC., et al., Defendants,SunTrust Bank, a Georgia Banking Corporation, Defendant–Appellant.
CourtU.S. Court of Appeals — Eleventh Circuit

OPINION TEXT STARTS HERE

Mark L. Knutson, Jeffrey R. Krinsk, Finkelstein & Krinsk, LLP, San Diego, CA, James A. Wardell, Wardell & Quezon, PA, Tampa, FL, for PlaintiffAppellee.David Stockton Hendrix, Gray Robinson, Tampa, FL, for DefendantAppellant.Appeal from the United States District Court for the Middle District of Florida.Before TJOFLAT, CARNES and HILL, Circuit Judges.TJOFLAT, Circuit Judge:

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.

I.
A.

In December 2006, Krinsk applied for and obtained from SunTrust a home-equity loan that allowed her to draw from a $500,000 home-equity line of credit (“HELOC”) collateralized by Krinsk's $1.6 million Sarasota, Florida home. In securing the loan, Krinsk executed SunTrust's standard-form loan agreement, known as an “Access 3 Equity Line Account Agreement and Disclosure Statement” (the “Loan Agreement”). Among the Loan Agreement's terms is an arbitration clause requiring Krinsk and SunTrust to resolve all disputes through binding arbitration whenever either party elects arbitration and provides the other party with written notice of the election to arbitrate. Such notice of election “may be given after a lawsuit has been filed and/or in papers filed in the lawsuit.” If a party elects to submit the dispute to arbitration, the Loan Agreement precludes resolution of the claims by class action.1

B.

In October 2008, SunTrust unilaterally suspended Krinsk's right to access $400,000 of her HELOC. SunTrust earlier had mailed Krinsk a letter requesting that she provide SunTrust with updated financial information; SunTrust contends that its decision to suspend Krinsk's HELOC was based on the information she subsequently provided in response to that request. Indeed, SunTrust informed Krinsk by letter that it was suspending her HELOC access due to “reasonable concern that [she would] be unable to fulfill [her] financial payment obligations with [SunTrust] under [her] credit line account because of a material change in [her] financial circumstances.” 2

Krinsk alleges that SunTrust's justification for suspending her account was pretextual. She claims that SunTrust suspended her HELOC, as well as those of other Florida homeowners who had obtained HELOCs from SunTrust around the same time, as part of a scheme SunTrust concocted to restore its capital reserves, which had become depleted in the Fall of 2008. According to Krinsk, HELOCs like hers—those sold to Florida residents between the late 1990s and early 2008 and secured by Florida real property—were among the highest-rated risk elements in SunTrust's debt portfolio, and SunTrust, recognizing that it had a significant concentration of credit risk arising from these loans, aimed to systematically liquidate the loans' available credit balances. To do that, SunTrust mailed letters, like Krinsk received, requesting that HELOC customers provide SunTrust with updated financial information. This, Krinsk posits, provided SunTrust with a means to assert contrived justifications for suspending customers' access to their HELOCs—i.e., under the guise of conducting reviews of customers' financial positions. The most vulnerable targets of SunTrust's scheme, adds Krinsk, who is 92–years–old, were elderly HELOC borrowers, from whom SunTrust anticipated little resistance.

C.

Based on the foregoing allegations, Krinsk, on May 15, 2009, filed a class-action complaint (the “Original Complaint”) against SunTrust—as well as SunTrust's corporate parent, SunTrust Banks, Inc. (SBI),3 and SunTrust and SBI's President and Chief Executive Officer James M. Wells III. The Original Complaint stated claims for: (1) financial elder abuse under Florida's Adult Protective Services Act, § 415.101; (2) breach of contract; (3) deceit; (4) negligent misrepresentation; (5) breach of fiduciary duty; 4 (6) violation of Regulation Z of the Truth in Lending Act (“TILA”), 12 C.F.R. § 226.5b(f); and (7) breach of the implied covenant of good faith and fair dealing. It also requested declaratory relief concerning Krinsk's right to access her HELOC.

The Original Complaint defined the proposed class as:

all Florida permanent or part-time residents that entered into an agreement with SunTrust entitled “Access 3 Equity Line Account Agreement and Disclosure” and who, after attaining the age of sixty-five (65), received a letter from SunTrust between July 1, 2008 and October 16, 2008, requesting updated financial information ... and who were subsequently informed their collateralized credit line had been suspended or reduced during the draw period for purportedly failing to provide the information requested by SunTrust.

Krinsk reasonably estimated, in a later motion for class certification, 5 that this class would “consist[ ] of hundreds of members located throughout Florida.” Pl.'s Mot. for Class Certification and Mem. of Law in Supp. 7–8, Aug. 13, 2009 (emphasis added).

On July 6, 2009, SunTrust responded to the Original Complaint by filing, in lieu of an answer, a motion to dismiss, challenging the sufficiency of each of Krinsk's causes of action; SBI and Wells filed a joint motion to dismiss the following day. SunTrust's motion made no mention of the Loan Agreement's arbitration clause.

The district court did not rule on the motions to dismiss for over six months, and, in the meantime, the litigation proceeded. On August 10, 2009, for instance, SunTrust and Krinsk jointly filed a Case Management Report in which (1) SunTrust expressly stated that it opposed arbitrating the claims asserted against it in the Original Complaint; (2) SunTrust laid out its discovery plan;6 and (3) the parties agreed on a proposed discovery deadline, a proposed dispositive motion deadline, on a final pretrial conference date “on or after April 11, 2011 and for trial on or after May 16, 2011.” Moreover, following Krinsk's August 13, 2009 motion to certify the class defined in the Original Complaint, SunTrust levied a vigorous defense against and opposition to class certification and class discovery.7 Throughout this time, SunTrust did not assert its right to compel arbitration under the Loan Agreement or otherwise indicate its intent to do so.

The district court finally ruled on the motions to dismiss on January 8, 2010, granting SunTrust's motion in part 8 and dismissing all of Krinsk's claims against SBI and Wells. The court also gave Krinsk twenty days' leave to amend the Original Complaint in light of its order. Subsequently, on January 28, Krinsk filed an amended complaint (the “Amended Complaint”), which asserted revised, but mostly similar, claims against SunTrust only—for (1) breach of contract; (2) violation of Regulation Z of TILA; and (3) breach of the implied covenant of good faith and fair dealing.9

Because the district court had yet to rule on Krinsk's motion for class certification, the Amended Complaint also offered a new definition for the proposed class, now defining the class as:

All Florida residents who entered into one or more agreements for a ... [HELOC] with SunTrust Bank pursuant to its “Access 3 Equity Line Account Agreement and Disclosure” that was collateralized by real estate located in Florida, and who had the available balance of their HELOC suspended or reduced anytime between January 1, 2007 to the date of class certification (the “Class Period”).

This new definition—now encompassing Florida residents of any age whose HELOCs SunTrust had suspended for any reason during a three-year class period—greatly enlarged the potential size of the putative class. Indeed, Krinsk later estimated, in an amended motion for class certification filed on March 11, 2010, the number of class members to be in the thousands—if not the tens of thousands. See Pl.'s Am. Mot. for Class Certification and Mem. of Law in Supp. at 7–8, Mar. 11, 2010 (estimating numerosity of amended class definition based on “SunTrust's own records” which “show that at least 56,758 Access 3 HELOCs issued to residents of Florida and secured by real property located in Florida were suspended or reduced by SunTrust during the Class Period”).

SunTrust promptly answered the Amended Complaint on February 10, 2010. In its answer, SunTrust raised its right to arbitration for the first time since the litigation began, asserting, as an affirmative defense, that the Loan Agreement's arbitration clause barred Krinsk from pursuing her action in court and demanding arbitration of her claims. SunTrust also filed, along with its answer, (1) a motion, under the FAA,10 to compel arbitration, 9 U.S.C. § 4,11 and to stay the action pending arbitration, id. § 3, 12 and (2) a motion to prohibit maintenance of a class action pursuant to the terms of the Loan Agreement. Krinsk opposed those motions, claiming that SunTrust had waived its contractual right to compel arbitration. 13

D.

The district court, in an order issued March 26, 2010, denied SunTrust's motion to compel arbitration,...

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