Demonstrating once again its interest in issues arising under the Federal Arbitration Act, the U.S. Supreme Court has granted a petition for writ of certiorari to review a per curiam unreported opinion by the U.S. Court of Appeals for the Eleventh Circuit. The outcome could have bearing on the timing for filing a motion to compel arbitration in federal or state court.
In Citibank, N.A. v. Stok & Associates, PA, 2010 WL 2825491 (July 20, 2010), the Eleventh Circuit held that Citibank had not waived its right to compel arbitration under its deposit account agreement with Stok—despite filing an answer to Stok’s lawsuit in Florida state court, Stok’s filing of an offer of judgment and notice of readiness for trial, and the court’s issuance of a trial date—because Stok had not established that it had sustained any special prejudice as a result of this litigation activity.
Although defendants are generally able to file motions to compel arbitration at the beginning of a lawsuit, there are times when it might take a few months to determine whether the parties are subject to an arbitration agreement and, if so, to identify the relevant documents needed to support such a motion.
The Supreme Court granted review in order to resolve a purported conflict among the Circuit Courts as to whether a party resisting arbitration must demonstrate special prejudice to establish a waiver on the part of the other party, even when the other party participated in litigation by filing an answer to the complaint in court that does not assert arbitration as the appropriate forum to resolve the dispute. All Circuit Courts have required a showing of special prejudice by the party resisting arbitration, except the Seventh, Tenth, and D.C. Circuits.
If the Supreme Court reverses the Eleventh Circuit and determines that special prejudice is not required to establish a waiver of the right to arbitrate and that Citibank’s involvement in the state court litigation amounted to a waiver of its right to compel arbitration, then future parties in cases desiring to invoke arbitration will need to raise arbitration at the outset of a case and not file in court an answer or other response on the merits.
It is surprising that the Supreme Court decided, on February 22, 2011, to hear the case because Citibank had filed only an answer to the complaint and very little had transpired in court; no motions had been filed and no discovery had occurred. Thus, even though the Eleventh Circuit relied principally on there being no special prejudice to Stok in finding no waiver, the result should have been the same even if the court had not made the inquiry to determine whether there had been special prejudice.