The U.S. Court of Appeals for the Eleventh Circuit recently held that a bank could not enforce an arbitration clause inserted into an amended customer account agreement during the pending litigation incident to the sale and acquisition of the bank, because the plaintiff was actively opposing arbitration and the bank failed to notify the plaintiff’s counsel and the court of the purportedly “court-evicting” amendment.
In so ruling, the Eleventh Circuit concluded that the bank “failed to demonstrate the requisite meeting of the minds to support a finding that the parties agreed through the February 2013 amendment to arbitrate their then-pending claims.”
A copy of the opinion is available at: Link to Opinion.
The plaintiff had a checking account and a debit card with a bank. The plaintiff alleged that the bank impermissibly rearranged the order of debit-card transactions so as to process larger transactions before smaller transactions. Through this practice, according to the plaintiff, the bank more quickly drove account balances to zero, and maximized the number of separate overdrafts and overdraft fees on his account.
The plaintiff and other account holders sued the bank in a multi-district litigation.
During discovery, the defendant acquired the bank and issued a new version of its customer account agreements in 2012. The defendant bank relied upon a provision in the 2008 agreement authorizing the bank’s successors to step into the bank’s shoes and also authorized the bank to make changes to the terms of the agreement. However, the defendant’s 2012 agreement did not include an arbitration provision.
The defendant moved to compel arbitration, arguing that the 2008 agreement and its arbitration provision should apply. The plaintiff resisted, arguing that the defendant’s more recent 2012 agreement wholly superseded the 2008 agreement. The trial court denied the motion to compel.
Shortly after the trial court entered its order, the defendant bank sent account holders an amended agreement inserting an arbitration provision into the otherwise operative 2012 agreement.
The amendment purported to become effective Feb. 2, 2013. It contained language suggesting that the amendment might have retroactive effect upon existing claims. The February 2013 amendment indicated that the defendant deemed account holders to accept the amendment if the account holders failed to opt out and continued to use their accounts. The plaintiff neither opted out nor ceased using his account.
In December 2014, the defendant bank filed a new motion to compel arbitration based upon the February 2013 amendment to the 2012 agreement.
Prior to this motion, the defendant bank’s counsel had not sought to enforce the arbitration provision from the February 2013 amendment, and did not send the February 2013 amendment to plaintiff’s counsel during the window of time the account agreement designated for its account holders to accept or opt out of the proposed amendment. Moreover, the defendant bank’s counsel did not attempt to supplement the record or notify the court or opposing counsel regarding the proposed amendment.
The plaintiff opposed the new motion to compel arbitration. He argued that the defendant bank had waived the right to rely upon the arbitration provision in the February 2013 amendment by failing to raise it at an earlier time.
In August 2015, the trial court denied the motion to compel arbitration. This appeal followed.
On appeal, the Eleventh Circuit determined that the bank’s motion “failed to demonstrate the requisite meeting of the minds to support a finding that the parties agreed through the February 2013 amendment to arbitrate their then-pending claims.” The Eleventh Circuit reached this conclusion for two related reasons.
First, the Eleventh Circuit explained that the bank supposedly distributed the proposed, purportedly retroactive amendment directly to the plaintiff, even though the Court noted that the bank purportedly knew the plaintiff was an adverse litigant actively represented by counsel as to the very issue raised in the amendment.
Second, the Court explained, at the time the plaintiff failed to opt out of the proposed amendment, he was forcefully and consistently resisting arbitration of the pending litigation. The Eleventh Circuit stated that it could not ignore the bank’s counsel’s failure to direct its purportedly court-evicting proposed amendment through known litigation counsel.
As support for its ruling, the Eleventh Circuit applied the “common sense” rule establish in Russell v. Citigroup, Inc., 748 F.3d 677 (6th Cir. 2014), where the Sixth Circuit held that the defendant bank’s failure to communicate the new employment agreement “requiring arbitration of individual claims but not class actions” to the plaintiff’s attorney meant that the parties could not have intended the agreement to be retroactive in a manner that would evict the pending action from the court. Russell, 748 F.3d at 681.
Additionally, the Eleventh Circuit analyzed North Carolina law, as the state’s contract law determined the existence and contours of the parties’ agreements.
Under North Carolina law, in the absence of a wholly integrated and signed document spelling out the parties’ agreement, the parties’ intent is determined by examining what the parties communicated to one another through words and actions. See, e.g., Dasher v. RBC Bank (USA), 745 F.3d 1111, 1116 (11th Cir. 2014); Chappell v. Roth, 548 S.E.2d 499, 500 (N.C. 2001); Creech v. Melnik, 495 S.E.2d 907, 911-12 (N.C. 1998).
According to the Eleventh Circuit, the bank unilaterally proposed the February 2013 amendment to add an arbitration provision and invited its account holders to opt out if they did not wish to be bound by the amendment. Although the plaintiff was silent in his response, his counsel’s actions, in the Eleventh Circuit’s view, “clearly and simultaneously evinced an ongoing resistance to arbitration.”
In other words, the Eleventh Circuit determined that the defendant bank could not show that the plaintiff accepted the addition of the arbitration provision, or that he agreed specifically that the arbitration provision could be applied retroactively to evict his pending litigation, because the defendant “knew in no uncertain terms that [the plaintiff] was contesting arbitration and that he was represented by counsel specifically employed for the purpose of handling the matter of the overdraft litigation.”
By its purported failure to communicate through counsel for the plaintiff, the Eleventh Circuit concluded that the defendant bank failed to establish that the plaintiff agreed to the addition of the arbitration provision in the February 2013 amendment.
Accordingly, the Eleventh Circuit affirmed the trial court’s denial of the motion to compel arbitration.