Close a door, open a window, the saying goes. But when it comes to legal options, closing a door in some cases means that door stays closed for good. An Illinois Appeals Court has affirmed a creditor’s motion to compel arbitration after it filed a lawsuit to recover a deficiency balance, saying the lawsuit was inconsistent with its own arbitration agreement.
The background: The consumer defaulted on an auto loan and the vehicle was repossessed and sold at auction, leaving a deficiency balance. That underlying agreement when the vehicle was purchases provided, among other things, that “either you or we may choose to have any dispute between us decided by arbitration” and that “you will give up your right to participate as a class representative or class member on any class claim you may have against us.”
- The creditor sued in Illinois state court to recover the unpaid deficiency of roughly $10,650.
- After the consumer answered the suit and asserted five counterclaims, including putative class claims under state consumer protection and UCC statutes, the creditor waited nearly a year before, two weeks prior to a scheduled hearing, moving to compel arbitration of those counterclaims.
- The state court judge held that by initiating suit and litigating the same contract-based claims in court, the creditor “acted inconsistently with its contractual arbitration rights” and thereby waived those rights, leading to this appeal.
The ruling: The appeals court emphasized that “[s]ubmitting a substantive and arbitrable issue to a court is inconsistent with preserving a right to arbitrate” and that the plaintiff’s lengthy delay — nearly eleven months in disclosing the arbitration agreement and three months after counterclaims were filed — prejudiced the defendant by forcing her to incur litigation costs that could have been avoided.
- The court also rejected the creditor’s effort to extend the arbitration agreement’s class‑action waiver to bar class claims in court. Because the waiver was “inexorably intertwined” only within the arbitration provision, it did not apply outside that context, leaving the class counterclaims intact.
