Granted arbitration case dismissed
Settlement of a dispute over waiver of arbitration rights has led the Supreme Court to dismiss a case that it was scheduled to decide in its next Term starting in October — Stok & Associates v. Citibank (docket 10-514). When the parties agree to end a case that is before the Court, it is usually dismissed automatically under the Court’s Rule 46. The Stok case was dismissed by routine order on June 2. Granted on Feb. 22, it had not yet gone into merits briefing.
The issue in the case is whether one side in a legal dispute surrenders any right it may have had to send the matter to an arbitrator, if it has participated in a court case growing out of the same dispute. A related issue is whether that right is waived even if the other side would not be prejudiced by the failure to go to arbitration earlier. Stok & Associates, a small law firm with offices in Aventura, Fla., a part of Miami-Dade County, had taken the issue to the Supreme Court. Although the issue had been denied review by the Court twice before, Stok’s petition was granted. Now, with its dismissal, the issue will have to await a future petition.
Robert A. Stok, one of the partners in the firm, said in a telephone interview Tuesday that the firm had settled with Citibank, under terms that remain confidential, although part of the settlement was an agreement to end the Supreme Court case.
Its petition apparently was granted primarily because there is a distinct split among federal Circuit Courts on the arbitration question. In a majority of those courts, a party claiming a waiver of arbitration by the other side’s participation in a court case is required to show legal prejudice from failing to arbitrate earlier; if it does not make that showing, arbitration follows. A minority of Circuit Courts have ruled that, once a party takes part in litigation, it is barred from demanding arbitration, whether or not prejudice is shown.
The dispute between Stok & Associates and Citibank goes back to November 2008, when the law firm received a cashier’s check for $174,015 from a party owing money to one of the firm’s clients. The bank said the check was valid, so the firm put it in a trust account it had at a Citibank branch. The bank said the funds were available for use. On instructions from the client, the law firm wired the money to an account at the Bank of Tokyo in Japan.
Five days after the check had been deposited in the firm’s Citibank account, the bank called to say that the check might not have been valid. It soon revoked its accepance of the check, and charged the firm’s trust account that amount. The law firm then had to replace the funds in that account from other funds it had in an operating account.
In December 2008, the law firm sued the bank in state court. The bank responded, but did not mention arbitration. The lawsuit proceeded normally, and was set for trial. But in February 2010, the bank for the first time sought to send the dispute to arbitration. The law firm replied that, under Florida law, the bank had waived its right to compel arbitration by taking an active part in the lawsuit without reserving the right to seek arbitration.
The bank then withdrew its request for arbitration in the state court case, but then filed a petition in federal District Court seeking to compel that process. The District Court dismissed the petition, finding that the bank had forfeited its right to arbitration, since the law firm had suffered prejudice from the bank’s attempt to pursue that remedy. The bank appealed to the Eleventh Circuit, which reversed and ordered further proceedings. The law firm, the Circuit Court found, had not suffered sufficient prejudice to justiify the finding of waiver by the bank, because the firm had not spent a significant amount of money or effort litigating the dispute before the arbitration question arose.
That is the conclusion that Stok & Associates sought to challenge in its granted petition.
Recommended Citation: Lyle Denniston, Granted arbitration case dismissed, SCOTUSblog (Jun. 7, 2011, 2:40 PM), http://www.scotusblog.com/2011/06/granted-case-dismissed-3/