Fourth Circuit Grants Citibank’s Motion to Compel Arbitration in Case Brought by Veterans

Pablo Espin, on behalf of a class of service members, brought suit against Citibank. In short, the service members accrued large balances on their Citibank credit cards while in the military. The statutory schemes required Citibank to charge low rates of interest to active-duty service members. Once the service members separated from the military, Citibank hiked the interest charged to the normal rate charted to civilians. Mr. Espin and the class allege that doing so constituted violations of the Servicemembers Civil Relief Act (SCRA) and the Military Lending Act (MLA).  The credit card agreement included a provision for mandatory arbitration (natch) and a class-action waiver (natch). 

But wait, the SCRA provides for class claims “notwithstanding any previous agreement to the contrary.” Surely this is a congressional override of the Federal Arbitration Act (FAA) to the extent that the FAA has been construed as requiring enforcement of class action waivers in arbitration agreements. Not so much, says Citibank, and in Espin v. Citibank, N.A., the Fourth Circuit agreed.

The SCRA makes no mention of the FAA. Gosh, I wonder why the SCRA, which dates from 1940 makes no mention of the FAA. Hmmm. Maybe it’s because the FAA in 1940 had nothing like the scope it has today. Or maybe it’s because the Supreme Court’s jurisprudence on class action waivers and the FAA came about seventy years later. This is the problem with the courts’ recent infatuation with clear statement rules. They assume not only 20/20 vision but 20/20 foresight into what the future will hold. Or they think that Congress can adjust to changes in the legal ecosystem in which statutes operate.

That said, the Fourth Circuit is not wrong when it points out that “the Supreme Court has never concluded that a federal statute overrode the enforcement of arbitration agreements under the FAA without explicitly saying so.” If a federal statute is silent about arbitration, the strong presumption is that the FAA governs. Indeed, there is precedent from SCOTUS in CompuCredit Corp. v. Greenwood.

That case may be distinguishable. The statutory language was different, the legislative intent may have been different, and it should matter that the SCRA dates from 1940 while the statute at issue in Greenwood dated from 1996. At least by 1996, as Justice Scalia noted, arbitration clauses in consumer contracts “were not rarity.” Justice Scalia overlooked and perhaps did not care that class action waivers in connection with arbitration agreements  were an innovation in 1996. Even today, despite their ubiquity, they are something that ordinary consumers cannot be expected to understand. 

Giving priority to a general public policy from 1925 of favoring arbitration over a specific policy of protecting service members from predatory lending practices speaks of the skewed priorities of the industry-captured Court. Rather laughably, the Fourth Circuit points to language from a 2021 statute as a model for how to get around the FAA through federal legislation. The Court points out that Congress did not adopt similar language when given the opportunity to do so in 2019 and 2021 in connection with the National Defense Authorization Act of 2020 and 2022.

This is thin gruel. The Court cautions that legislative history is not the law but treats  afew crumbs of legislative history as evidence of Congress’s intent not to override the FAA through the SCRA. The Court notes that Congress commissioned a study in 2019 on “the effects of the common commercial and governmental practices of including a mandatory arbitration clause in employment and consumer agreements.” The Court considers the study, which references the SCRA, evidence that Congress knows that the SCRA does not override the FAA. Notwithstanding the study, Congress did not act. Given congressional dysfunction, Congress not acting is the norm. Reading intent into congressional inaction seems a desperate measure.  A better option would be to return to 1940 or the time when the SCRA was amended to cover the relevant transactions and to try to understand congressional intent at that time.

That said, the Fourth Circuit found that the MLA did clearly express congressional intent to override the FAA. However, the MLA did not apply to credit cards accounts opened before October 2017, and Citibank contends that all of the accounts at issue opened before that date. Plaintiffs read the MLA differently, arguing that it extends to all instances of “extending consumer credit” and that occurs whenever a credit-card holder makes a purchase. The Fourth Circuit remanded so that the District Court could resolve that issue. Meanwhile all MLA claims will have to be arbitrated.

That result leaves me with one more question about this case. I thought there was a presumption against sending some claims to arbitration while other claims arising out of the same facts are resolved in court. Given that the underlying facts of the MLA claims are intertwined with the SCRA claims, and the former can’t be arbitrated, isn’t the best course to hold off on compelling arbitration until the District Court can determine whether any MLA claims survive? If not, then the SCRA claims can go to arbitration. Otherwise, I would think adjudicatory efficiency would require that the entire case remain in court.