Penny Wise?: Eleventh Circuit Reminds That a TCPA Defendant Can Lose the Right to Arbitrate a Case Where it Refuses to Front Arbitration Costs

Sometimes it is better to write a small check than a big one.

Did I say sometimes?

In Graulau v. Credit One Bank, N.A., No. 20-12037-J, 2020 U.S. App. LEXIS 27159 (11th Cir.  August 25, 2020) a defendant (allegedly) refused to front the cost of arbitration after successfully enforcing an arbitration clause and now the Plaintiff might have a second chance in federal court.

The Plaintiff—who doesn’t even have a lawyer folks—took an appeal from a magistrate judge’s recommendation to dismiss her second TCPA suit against Credit One alleging thousands of illegal collection calls. Setting aside that the procedural setting here is wonky—ordinarily, the recommendations of magistrate judges must form the basis of an objection to the district court before they may be appealed—the appeal appeared very weak since the Plaintiff had previously stipulated (through her previous counsel) that her claim was subject to arbitration. Indeed, filing a second TCPA suit in federal court after the first suit was determined—via stipulation—to be subject to arbitration might seem utterly frivolous.

The Eleventh Circuit Court of Appeals disagreed under the circumstances present. Specifically, the Plaintiff contended that she fully desired to arbitrate the claim but that she could not afford to do so. And rather than come forward with the sums needed to initiate arbitration, Credit One (allegedly) refused to front any of the costs. This, Plaintiff argued, made it impossible for her to comply with the terms of the arbitration agreement and allowed her bring her second suit.

In passing on the Plaintiff’s request to proceed in forma pauperis the appellate court found this argument to be non-frivolous. Here’s the analysis:

Her complaint alleged that arbitration was prohibitively expensive for her because she was indigent. She attached an affidavit from a Credit One employee stating that Ms. Graulau would be responsible for paying “all charges incurred in accordance with . . . the Arbitration Agreement.” She also submitted an affidavit showing that she had no assets and her sole source of income was disability benefits. When “a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs This Court has held that the invalidation of an arbitration agreement as prohibitively expensive must be assessed on a “case-by-case” basis.

Liberally construing Ms. Graulau’s pro se filings, she has a non-frivolous argument that her arbitration agreement is unenforceable because arbitration would be prohibitively expensive for her.

And so the case lives on.

Notably, of course, this ruling was not “on the merits” but the fact that the Court found her claim passed the smell test should be a real lesson to TCPA defendants out there: if you are serious about enforcing arbitration agreements be prepared to shell out the cost necessary to initiate the proceeding. Otherwise you might be facing a “case by case” showing of need in federal court.


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