Consumer Finance Litigation

The U.S. Court of Appeals for the Eleventh Circuit recently upheld a lower court's denial of a bank's motion to compel arbitration of a dispute between the bank and a depositor concerning alleged excessive overdraft fees. To reach its decision in Dasher v. RBC Bank (USA), Case No. 13-10257 (11th Cir. Feb. 10, 2014), the Eleventh Circuit largely relied on basic state contract law. Prior to the lawsuit, the bank entered into an account agreement with the depositor which contained a broad arbitration clause. The account agreement contained a termination clause which provided that "transactions initiated prior to the effective date of termination of the Agreement will not be affected by the termination [and] will continue to be subject to the terms and conditions of the Agreement." The account agreement also contained an amendment clause which specified that the parties had the right to amend the account agreement and that "the most recent version of the Agreement supersedes all prior versions and will at all times govern." After the depositor sued the bank, the bank merged into a new bank, and the new bank and the depositor entered into a new account agreement which was completely silent as to arbitration. The parties then disputed whether the old or new account agreement applied. The lower court found that the new account agreement applied because it completely superseded the old account agreement and therefore denied the bank's motion to compel arbitration. On appeal, the Eleventh Circuit applied North Carolina contract law to hold that a new contract supersedes an old contract if the parties expressed their clear and definite intent that the new contract supersede the old contract. The Court looked to the old account agreement's amendment clause, which stated that "the most recent version of the Agreement supersedes all prior versions and will at all times govern," and determined that the parties intended for the new account agreement to completely supersede the old account agreement. Therefore the Court ruled that the new account agreement would determine questions of arbitration. Looking to the new account agreement, the Court noted that it was completely silent as to arbitration and found that the parties had not agreed to arbitrate. The Court's analysis continued in order to address the remainder of the bank's arguments. In rejecting the bank's argument that arbitration clauses cannot be waived by silence, the Court found that no waiver had occurred; rather the new account agreement superseded the old account agreement. The Court then distinguished circuit court decisions cited by the bank for the proposition that arbitration clauses can only be superseded if expressly and specifically eliminated by a new agreement. According to the Court, each of the cases cited by the bank involved instances where the prior agreement remained effective to some extent, whereas in the present case, the old account agreement was completely superseded by the new account agreement. Similarly, because the old account agreement was superseded and not terminated, the Court rejected the bank's argument that the transactions at issue were still governed by the old account agreement based on the termination clause in the old account agreement which stated that transactions prior to termination would continue to be governed by the old account agreement. Moreover, the Court rejected the bank's argument that the new account agreement only applied prospectively and did not apply to the transactions at issue, finding that, by its own terms, the amendment clause of the old account agreement states that any new agreement "will at all times govern", including retroactively. Finally, the Eleventh Circuit addressed the bank's argument that the lower court had impermissibly singled out the arbitration clause in the old account agreement for disfavor while continuing to apply other provisions of the old account agreement relied on by the depositor to sue the bank. In rejecting this argument, the Court found that the bank was trying to enforce the arbitration clause of the old account agreement at a time-the present-when the old account agreement was no longer effective. In contrast, North Carolina contract law states that claims for breach of contract accrue at the time of the breach, and thus, the depositor's claim for breach of the old account agreement due to excessive overdraft fees accrued when such fees were allegedly charged. Therefore, the Court ruled that the depositor could continue to rely on the old account agreement to support a suit based on alleged past excessive overdraft fees and that permitting this did not single out the arbitration clause for inappropriate disfavor.