Courts Increasingly Un-Amused by Corporations Who Litigate in Court for a While Before Invoking Arbitration Clauses

By Paul Bland @PblandBland

          The last few years have often been pretty discouraging for consumer advocates who are trying to preserve their clients’ rights to take disputes to court.  As the Supreme Court majority’s madcap love affair with forced arbitration just keeps getting more passionate (ick), courts at all levels seem to be enforcing arbitration clauses that would have been deemed to be abusive or excessive just a few years before.  Go here, for instance.

         But there is one exception in this area of law, where a wave of courts have refused to enforce arbitration clauses.  There's been a mini-boomlet in good law, with three important new cases in the last few weeks.  In situations where corporations decide to litigate a case in court for some period of time first (maybe to see how they’ll do), and then later decide that they’ve changed their mind and they’d rather take the case to arbitration (maybe they didn’t like the judge in court, and have decided to try to opt for a change of venue to the private sector), more and more courts have been saying “no way.”  The idea that corporations can lose their right to invoke arbitration clauses if they choose to litigate in court first isn’t new.  I’ve argued and won cases in the U.S. Court of Appeals for the Eighth Circuit,  Lewallen v. Green Tree Servicing, LLC , 487 F.3d 1085 (8th Cir. 2007) (read our successful brief, which was principally authored by my old buddy Mike Quirk), and the Florida Supreme Court, Raymond James Fin. Servs., Inc. v. Saldukas , 896 So.2d 707 (Fl. 2005) (read our brief in that case), where courts did not allow corporations to litigate for a while and then change course in midstream to arbitration.  Nonetheless, there does seem to be a recent run of good cases.

        Just a few weeks ago, for example, on my son’s birthday as it happens, an Illinois Court of Appeal refused to allow Sears to try to invoke an arbitration clause after litigating a consumer class action in court for nearly 10 years.  The case, where the plaintiffs allege that Sears illegally disclosed confidential personal information and credit card data to third parties, is a classic example of a case which can only be pursued as a class action by 99.9% (if not all) of the consumers, and the type of case that today would be stomped out in all likelihood by recent U.S. Supreme Court 5-4 decisions elevating arbitration clauses over consumer protection and civil rights laws.  But the court held that Sears had decided to fight the case in court for too long before calling for arbitration, and Sears missed out on its get-out-of-jail-free card.

        Similarly, a few weeks ago, a Florida district court of appeals refused to allow a bank that sued a borrower in court to then change course and try to move a case to arbitration when the orrower filed counterclaims back. Having affirmatively decided to start a case in court, the court had some trouble accepting the idea that the bank could reverse court when it changed its mind and decided a more clever legal strategy would be to stay in arbitration.

        Finally, just last week, in Cole v. New Jersey Medical Center, the New Jersey Supreme Court refused to let a medical provider litigate a case in court for 21 months and then, only three days before the scheduled start of a jury trial (!), demand to shift the case over to arbitration.  After analyzing the extreme facts, the Court had to reverse a trial court who had taken the policy in favor of arbitration to a fairly extreme length.

         This trend is hopefully a pretty good omen for Public Justice, which has a case pending right now in the Alaska Supreme Court, where our principal argument is that a debt collection law firm waived its right to demand arbitration of allegations that it jacked up its attorneys’ fees to illegal and inappropriate levels, by bringing cases in court first.  Read our opening brief. The case should be argued in November by my super smart colleague Matt Wessler.  There are no guarantees in litigation, obviously, but it does seem like a LOT of courts have lately refused to allow corporations to litigate energetically in court when it suited them to do so, and only later change their mind and try to arbitrate.  Courts seem to feel that they are not mere tools to be used by corporations when it’s in their favor, and then to be tossed aside later if the company decides they’d rather be somewhere else. 

        Makes sense to me.