Arbitration is meant to be an alternate to litigation. Yet arbitration is itself the subject of much litigation over who must arbitrate, what must be arbitrated, whether and how the arbitration should proceed, and the deference courts must show to arbitration awards. This blog is intended to be a resource for litigators, in-house counsel, arbitrators and anyone else who wants to stay on top of the many thorny issues that arise under the Federal Arbitration Act. Our Bloggers →

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No Federal Presumption of Arbitrability Until Court Finds Valid Arbitration Agreement

A new opinion from the Eleventh Circuit highlights an issue that can be confusing to those encountering FAA case law for the first time: when does the federal presumption of arbitrability apply?  The answer is the presumption only applies to whether the scope of an arbitration agreement is broad enough to encompass the parties’ dispute, not whether a valid arbitration agreement exists between the parties.

In Dasher v. RBC Bank (USA), __ F.3d __, 2014 WL 504704 (11th Cir. Feb. 10, 2014), the class action plaintiffs allege a bank charged excessive overdraft fees in breach of their account agreement.  While the parties were conducting discovery related to the bank’s motion to compel arbitration, the bank was acquired by another bank, who issued new account agreements to all the customers (including the named plaintiff).  The new account agreement had no agreement to arbitrate disputes; the old account agreement did.  A dispute then arose as to which account agreement controlled.

The defendant bank argued that the FAA’s presumption in favor of arbitrability should apply to find the parties still had an arbitration agreement.  The Eleventh Circuit set it straight, noting that in Granite Rock SCOTUS said courts may apply “the presumption of arbitrability only where a validly formed and enforceable arbitration agreement is ambiguous about whether it covers the dispute at hand.”  It also cited the Second Circuit which has explicitly recognized that “the presumption does not apply to disputes concerning whether an agreement to arbitrate has been made.”  In this case, because the dispute centered on whether the parties had an arbitration agreement at all, the FAA did not provide a presumption in favor of arbitrability.  (For a classic case in which the presumption operates to find a dispute falls within the scope of an arbitration agreement, despite a “lack of clarity” in the agreement, see Pureworks, Inc. v. Unique Software Solutions, Inc., 2014 WL 211831 (6th Cir. 2014).)

The Eleventh Circuit ended up finding there was no valid arbitration agreement between the Dasher plaintiffs and the bank.  The account agreements had language showing that the new agreement completely superseded the old agreement, therefore the court concluded that the absence of any arbitration clause in the new agreement was controlling.  Furthermore, even though the alleged excessive charges took place while the old agreement was effective, the court found the new agreement controlled the dispute resolution.  That was because the amendment clause stated that the “most current version” of the account agreement “will at all times govern,” which the court interpreted to mean that the parties intended the new agreement to apply retroactively.  In my view, this is a curious result, which places a great deal of reliance on very few words in the contract, and may show that the Eleventh Circuit was working hard to avoid the plaintiffs’ backup argument: that the arbitration agreement was invalid because it deterred him from vindicating his rights, an argument that is likely not supportable after Concepcion and AmEx.

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