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Bank’s arbitration award reversed for abuse of discretion

March 14, 2019

A small claims court’s confirmation of an arbitration award to a bank after its ‘dilatory conduct’ was reversed Thursday by the Indiana Court of Appeals, which found an abuse of discretion occurred in granting the bank relief several years after the case should have been dismissed with prejudice.

When Melba Polk-King was drawn into a small claims action initiated in 2014 by Discover Bank alleging she failed to pay a credit card balance of nearly $4,000, she moved to compel arbitration. Discover failed to pay an $800 case management fee for the arbitration, which was subsequently closed.

Another year of inaction on the suit passed from Discover’s end, until it filed to bring the suit back to the court's active docket. Soon after the case was dismissed without prejudice, Discover filed a motion to vacate the dismissal and stay the action until the completion of arbitration, which was later granted “for good cause shown.”

Despite Polk-King’s contentions against returning to arbitration due Discover’s failure to prosecute the case in a timely manner the first time, the final arbitration award presented during the second arbitration hearing ruled in favor of Discover for more $3,900 plus court costs. The small claims court then confirmed the arbitrator’s award and denied Polk-King’s request to vacate the award and dismiss with prejudice.

Polk-King thus appealed that the court no longer had jurisdiction over the case as soon as it dismissed the action for failure to prosecute, and that it could not later set aside the dismissal because the statute of limitations had expired.

Noting the case became “procedurally complex” when it “veered far off the path of the typical informal small claims action” by being filed under Ind. Trial Rule 41(E), the Indiana Court of Appeals primarily focused on whether the trial court abused its discretion in setting aside the dismissal altogether.

In answering that question, the appellate court found that Discover made no attempts to explain the lengthy delays it had caused prior to the motion to vacate the dismissal. The panel also noted that in support of its motion, Discover falsely asserted both parties had agreed to arbitrate, when the record indicated Polk-King consistently sought dismissal of the entire matter and argued that reinitiating arbitration was improper after the first arbitration had been closed due to Discover’s default.

Further, the appellate court found that because Discover had been in clear default of the arbitration agreement, it was not entitled to a stay of the court proceedings or to demand re-initiation of arbitration two years after the first arbitration was filed. Therefore, the appellate panel held the small claims court abused its discretion by granting Discover’s motion and by reinstating the action against Polk-King.

“Discover’s dilatory conduct resulted in an unnecessarily lengthy cloud over Polk-King’s credit history. In its motion to set aside the dismissal, Discover offered no explanation for its inaction and no good cause for reinstatement. ‘Ultimately, reinstatement is a matter of equity’, and the equities were not with Discover here,” Judge Robert Altice wrote for the unanimous panel. “Accordingly, the action should not have been reinstated by the court and the dismissal should have been the end to the case.”

The case was thus reversed and remanded Melba Polk-King v. Discover Bank, 18A-SC-1772 to the small claims court to vacate its confirmation of the arbitration ward and to dismiss the case with prejudice.

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