We previously reported the Eleventh Circuit Court of Appeal’s ruling in Buffington v. SunTrust Banks (In Re Checking Account Overdraft MDL), requiring SunTrust Bank account holders to arbitrate claims for excessive overdraft fees under an arbitration provision in a depositor agreement (Expect Focus, Vol. II, Spring 2012). The Buffington complaint, typical of such claims in the multidistrict Checking Account Overdraft Litigation, alleged that SunTrust breached its contract, converted funds, and was unjustly enriched in assessing overdraft fees and processing account transactions so as to maximize overdraft charges.

The district court denied SunTrust’s motion to compel arbitration based on a finding that the arbitration clause was substantively unconscionable because its provisions granting SunTrust the right to recover its arbitration expenses disproportionately allocated the risks of loss in the dispute to the Plaintiffs. On appeal, the Eleventh Circuit reversed, finding the clause neither procedurally nor substantively unconscionable (under Georgia law); thus the bank was entitled to arbitration as provided in its agreement under the Federal Arbitration Act (FAA), and the Supreme Court’s 2011 decision in AT&T v. Concepion.

In another Checking Account Overdraft MDL decision issued July 6th, the Eleventh Circuit again reversed the district court’s denial of arbitration based on a finding that a fee-shifting provision in the agreement was unconscionable. This time, however, the Court agreed that the provision was unconscionable, but invalidated and severed it in order to enforce the arbitration agreement.

In reaching its decision in Barras v. Branch Banking and Trust, the Court found the one-way fee and cost shifting provision to be unconscionable under South Carolina law and broad enough to apply to costs arising from arbitration. It also found that the Bank had waived the right to have the arbitrator determine unconsionability by litigating the issue for over a year without raising that argument until after the district court’s adverse decision.

Because the the cost-and-fee-shifting provision was not contained in or referred to in the arbitration provisions, which incorporated American Arbitration Association (AAA) rules, and because those rules operated independently, the Court found the arbitration agreement would not be impaired by invalidating the cost-and-fee-shifting provision.