11th Circuit Rules that Credit Union Cannot Compel Arbitration When It Previously Prevented Arbitration of the Same Claims

The U.S. Court of Appeals for the Eleventh Circuit ruled that a credit union could not force its members to arbitrate claims where the credit union had previously thwarted arbitration of those same claims.

In this case, the agreement between the credit union and its members contained a provision requiring that disputes between the parties be arbitrated before the American Arbitration Association (AAA).  The agreement further stated that if AAA was unavailable to resolve the claims, and if the parties could not agree on a substitute forum, the party bringing the claims could select the forum for resolution of the matter.

If a business (such as the credit union) wants to require that a customer’s claim be arbitrated, the applicable AAA procedural rules require the business to first submit a copy of its arbitration provision to AAA for an administrative compliance review and to pay an associated fee.  The credit union here, however, refused to first submit the arbitration provision to AAA for review and did not pay the fee.  As a result, AAA declined to accept the members’ claims for arbitration.

The members then filed their claims in federal district court.  The credit union moved to compel arbitration, but the district court denied this since the credit union had previously failed to take the steps necessary for the AAA arbitration to proceed and had therefore waived its contractual right to arbitrate.  On interlocutory appeal, the Eleventh Circuit affirmed, finding that this result was mandated by recent binding circuit precedent.  In relevant part, the agreement allowed the party bringing the claim to select an alternative forum if AAA could not resolve the dispute.  AAA had declined to administer the matter due to the credit union failing to comply with certain AAA rules necessary to initiate the arbitration proceeding.  Since the credit union was at fault for the parties’ earlier inability to arbitrate, it could not now seek for the matter to be sent back to arbitration.