In one of the Checking Account Overdraft MDL proceedings, the U.S. Court of Appeals for the Eleventh Circuit recently held that a superseding deposit account agreement rendered a prior deposit account agreement's arbitration provision ineffective, despite the fact that the superseding agreement was silent as to arbitration provisions.
A copy of the opinion is available at: http://www.ca11.uscourts.gov/opinions/ops/201310257.pdf.
A consumer sued a bank for allegedly charging excessive overdraft fees in breach of the relevant account agreement. That agreement included an arbitration clause, and further provided that if the agreement was amended -- by the bank or its successor -- the most current version "supersedes all prior versions and will at all times govern."
While the action was pending, the bank ("bank") was acquired by another entity (the "successor bank"). The successor bank issued a new agreement to govern the consumer's account, which the consumer accepted. The new agreement was silent as to arbitration.
The bank filed a motion to compel arbitration. The lower court denied the motion, holding that the new agreement superseded the previous agreement, such that the arbitration provision in the previous agreement was of no consequence. The bank appealed.
On appeal, the bank argued among other things that (1) that the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq. ("FAA") creates a presumption in favor of arbitrability that the lower court failed to apply; and (2) that the new agreement's silence as to arbitration could not invalidate the previous agreement's arbitration provision.
The Eleventh Circuit considered each argument in turn, and began by reciting that the FAA provides that doubts as to the scope of arbitrable issues should be resolved in favor of arbitration.
However, the Court found that principle to be unhelpful in resolving the instant matter, in that here the parties did not dispute the scope of arbitrable issues, but rather whether an agreement to arbitrate exists at all. According, the Eleventh Circuit determined that the "district court properly refused to apply the FAA's presumption in favor of arbitrability."
The Eleventh Circuit next considered whether the new agreement's silence as to arbitration invalided the previous agreement's arbitration provision. It answered in the affirmative, relying on the fact that the previous agreement's amendment clause provided that the "most current version of the Agreement supersedes all prior versions and will at all times govern." Accordingly, the Eleventh Circuit held that by issuing a new agreement, the parties entirely superseded all prior agreements per the terms of the previous agreement.
The bank argued that even if the previous agreement might have been superseded, arbitration clauses can only be waived by clear and explicit language, and cannot be waived by silence.
The Eleventh Circuit again disagreed, finding that the instant matter did not involve a waiver of an arbitration clause, but rather involved "superseding the entire agreement containing an arbitration provision and replacing that provision with silence." The Eleventh Circuit also observed that the bank's contention would lead to the "implausible conclusion" that where parties agree to supersede a prior agreement, the superseding language applies to all terms of the prior agreement save for those regarding arbitration provisions.
The bank further argued that a significant body of case law provides that arbitration provisions cannot be waived by silence. However, the Eleventh Circuit distinguished all of the cases cited by the bank, finding that in each case, "the prior agreement remained effective to some extent...whereas here, the prior agreement is entirely superseded."
Accordingly, the Eleventh Circuit held that "an entirely superseding agreement renders a prior agreement's arbitration clause ineffective, even if the superseding agreement is silent on arbitration."
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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