Michael Dasher, a checking account customer, sued RBC Bank (Bank) in the District Court for the Southern District of Florida alleging that the Bank, rather than depleting debit card purchases chronologically, reordered them at the end of each day drawing funds for larger purchases before smaller ones. The alleged result: larger purchases were accounted for first; leaving smaller and more numerous purchases (each) subject to a $35 overdraft fee each.
Dasher’s 2008 Account Agreement (typically signed when opening an account and governing the bank–customer relationship) included a provision subjecting overdraft disputes to arbitration. The Bank asked the District Court to halt the litigation and compel arbitration. The Court, relying on earlier precedent, denied the Bank’s motion; and voided the provision as it effectively impaired Dasher’s ability to vindicate his rights in Court. The Bank appealed to the 11th Circuit Court of Appeals.
Before the appeal was heard, the U.S. Supreme Court decided AT&T Mobility v. Vincent Concepcion et ux., 131 S. Ct. 1740 (2011). The decision is significant in (1) confirming the liberal federal policy of the Federal Arbitration Act (9 U.S.C. 2) favoring arbitration; and (2) declaring that certain class-wide arbitration agreements are enforceable, notwithstanding states law to the contrary. Recognizing that the two factors (if considered earlier by the District Court) could have changed the outcome, both parties successfully had the Appeals Court remand the case to the trial court for reconsideration. Parenthetically, Dasher’s action is part of a larger case now pending in the District Court: the Checking Account Overdraft Multidistrict Litigation.
In 2012, PNC Financial Group, Inc. (PNC) acquired RBC Bank and Dasher’s account. Before completing the acquisition, PNC issued a new Account Agreement that neither contained an arbitration clause nor mentioned arbitration. The Bank renewed its motion to compel arbitration. It argued that the earlier RBC Account Agreement controlled. Dasher challenged; arguing that the PNC Account Agreement (which was silent on arbitration) superseded the earlier Account Agreement. The District Court agreed with the later position; and the Bank Appealed.
In its February 10, 2014 decision, the 11th Circuit Court of Appeals upheld the District Court’s decision that arbitration provisions do not automatically survive in a superseding contract unless specifically adopted in the new contract. Dasher v. RBC Bank, Case No.: 13-10257 (11th Cir. 2014). Neither silence nor the courts’ policy favoring arbitration will help save the provisions.
As the Bank saw it, the District Court made five reversible errors:
- The Federal Arbitration Act created a presumption of arbitration that the District Court failed to apply;
- Contrary to the district court’s holding, the PNC Agreement’s silence on arbitration cannot invalidate the RBC Agreement’s arbitration provision;
- The district court improperly ignored the termination clause in the RBC agreement;
- The district court improperly applied the PNC Agreement retroactively to disputes that arose while the RBC Agreement was still in effect; and
- The district court relied upon provisions in the RBC Agreement to support its analysis, undermining its holding that the RBC Agreement was entirely superseded and proving that the arbitration clause was “singled out” for disfavored treatment in violation of the FAA.
The Appeals Court, in a 33 page opinion, was not persuaded.
- Although the FAA does create a presumption in favor of arbitration, the presumption applies in the case of ambiguity. Where it is not clear if the parties did indeed agree to commit themselves to arbitration as their exclusive dispute resolution process. Here, both contracts are valid agreements. The earlier RBC Account Agreement contains an arbitration clause the later PNC Account Agreement.
- The District Court’s holding was proper. Under state law, the PNC Account Agreement superseded the RBC Account Agreement in its entirety. The provisions of the latter agreement did not survive; and, specifically, the arbitration clause was ineffective.
The Dasher decision is in agreement with other Second and Sixth Circuit decisions.
For more information about arbitration, contact:
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