The Supreme Court recently declined to review the Sixth Circuit’s decision in Sevier County Schools Federal Credit Union v. Branch Banking & Trust Co., 990 F.3d 470 (6th Cir. 2021), which presents a potential challenge to enforcing arbitration clauses added to standard account agreements. The cert denial serves as a reminder that companies introducing arbitration agreements should take care to follow all contractual change-of-term requirements and create a record of affirmative customer assent whenever possible.

Background: Plaintiffs opened money market investment accounts with First National Bank of Gatlinburg (“FNB”) in 1989. In addition to guaranteeing that the interest rates would never fall below 6.5%, the account agreement contained a change-of-terms provision allowing FNB to change the terms of the agreement, which would become effective upon the completion of certain notice procedures. Id. at 473.

FNB eventually merged with BB&T in 2001. BB&T sent account holders a bank services agreement, which contained an agreement that disputes could be arbitrated at the election of either party and also stated (1) the agreement could be amended, (2) amendments would be promulgated by written notice to the account holders, and (3) continued use of an account after receipt of notice constituted acceptance of the amendment.

BB&T amended the bank services agreement in 2004 to add a class-action waiver provision to the arbitration agreement, among other things. It amended the agreement again in 2017 to make arbitration mandatory. Id. at 474. The 2017 amendment provided that continued use of the account after receiving notice constituted acceptance of the changes, and no plaintiff objected or closed their accounts.

BB&T then lowered the money market investment account interest rates from 6.5% to 1.05%, prompting plaintiffs to bring breach-of-contract claims, and BB&T moved to compel arbitration.

The Sixth Circuit’s Opinion: The Sixth Circuit held that under Tennessee law, the 2001 bank services agreement and its subsequent amendments were invalid for lack of consent insofar as they changed material terms of the original account agreements with FNB. Id. at 476. The court’s reasoning poses a potential obstacle to companies seeking to enforce arbitration clauses added to account agreements after the agreement was originally entered into.

Record Unclear on Compliance with Change-of-Terms Provision. The Sixth Circuit first noted that it was not clear whether the FNB agreement’s change-of-terms provision had been followed when BB&T introduced its first bank services agreement. This underscores the importance of complying with such contractual terms.

Addition of Arbitration Clause “Unreasonable.” More significantly, the Sixth Circuit held that even if the change-of-terms procedures had been followed, the bank services agreement’s introduction of an arbitration clause, where the original contract did not address dispute resolution, was invalid as “unreasonable” because account holders had no reason to suspect that the bank may someday add such a term. Id. at 478. Adopting the California Court of Appeal’s decision in Badie v. Bank of America, 67 Cal. App. 4th 779 (1998), the Sixth Circuit stated that for a contract modification to be “reasonable,” it must be “a modification whose general subject matter was anticipated when the contract was entered into.” 990 F.3d at 479.

The Sixth Circuit also found it significant that BB&T did not offer account holders the ability to opt out of the arbitration agreements: “This left the Plaintiffs with no choice other than to acquiesce to the new arbitration provision or to close their high-yield savings accounts. And closing their accounts is a totally unreasonable option because doing so would obviate the very essence of the Plaintiffs’ accounts—the promise of a perpetual 6.5% annual interest rate.” Id. at 480. For the same reasons, the Sixth Circuit held that imposing an arbitration agreement through changes to a standard account agreement breached the duty of good faith and fair dealing.

Cert Petition Denied: BB&T (now known as Truist Bank) petitioned for certiorari, arguing that the Sixth Circuit’s decision disfavored arbitration and was contrary to the Supreme Court’s arbitration precedent. Amici, including several banking industry groups, warned that the decision “casts a cloud of uncertainty over the enforceability of countless millions of arbitration provisions that [financial institutions] have already implemented through change of terms procedures.” The Supreme Court denied cert on May 31, 2022.

Implications for Companies Considering Adopting Arbitration Agreements as Amendments to Existing Agreements: In light of the Sixth Circuit’s opinion and the Supreme Court’s denial of cert, companies seeking to adopt arbitration clauses through changes to terms of service or standard account agreements should consider taking steps to distinguish their process from that at issue in BB&T. Options to consider could include offering the option to opt out of the arbitration agreement, requiring consumers to affirmatively take some action to accept changed terms (rather than just simply continuing to use the account), or including dispute resolution provisions that explicitly leave the door open for future amendments to add arbitration agreements.