Eleventh Circuit: If You Block Attempts to Arbitrate, You Are Going to Have to Litigate

Plaintiffs are seeking to represent a putative class. When they opened checking accounts, they signed Master Services Agreements (MSAs) with Space Coast Credit Union (SCCU). The MSAs provided for arbitration under the rules of the American Arbitration Association (AAA). In March, 2023, one plaintiff sought to arbitrate a dispute relating to SCCU’s fees. In April, the AAA notified the parties that it would not arbitrate the claims because SCCU had not submitted its consumer dispute resolution plan for review, nor had it paid the necessary fees.

In June, plaintiffs filed their putative class action in federal court. Two days later, SCCU registered with the AAA and paid the necessary fees. Satisfied, the AAA notified the parties that it was prepared to proceed with arbitrations. SCCU then moved in the federal District Court to compel arbitration. The District Court denied the motion, finding that SCCU’s conduct amounted to a waiver of its right to arbitrate. SCCU took an interlocutory appeal to the Eleventh Circuit, as permitted under the Federal Arbitration Act (FAA).

In Merritt Island Wordwerx, LLC v. Space Coast Credit Union, the 11th Circuit affirmed the denial of the motion to compel arbitration. Just after the District Court denied SCCU’s motion, the Eleventh Circuit had decided another case, Bedgood v. Wyndham Vacation Resorts, Inc., 88 F.4th 1355 (11th Cir. 2023), with very similar facts. SCCU nonetheless filed its appeal ten days later.

In echoes of Judge Easterbrook’s reasoning the Campbell v. Keagle, Inc., (the case that launched my obsession with arbitration), SCCU argued that the District Court should have ordered arbitration under the FAA’s § 5, which empowers a court to order a substitute forum for dispute resolution should the arbitral forum agreed to by the parties prove unavailable. Interesting, but the FAA does not provide for interlocutory appeals from § 5 rulings by District Courts. In any case, if I am correctly understanding the Court’s opinion, it seems that the MSAs themselves empower a court to order the parties into any substitute forum, including a court.

SCCU next challenges the District Court’s determination that it was in default of its obligations under § 3 of the FAA. But under Bedgood, a party is in default when the AAA says they are in default. The District Court did not err in deferring to the AAA’s determination. Other plaintiffs were not required to file arbitrations. Doing so would have been futile, as the SCCU was already in default with respect to the first plaintiff that sought to arbitrate. The Court was not persuaded by SCCU’s attempts to distinguish its case faculty from Bedgood. SCCU did not comply with the AAA’s requirements until plaintiffs sued. “[P]ost-filing conduct cannot cure the prior non-compliance.”