Supreme Court Won’t Hear Rates-Review Arbitration Request, Sending Customer Dispute to Court

By Russ Bleemer

The U.S. Supreme Court this morning declined to hear a case on whether the nearly century-old Federal Arbitration Act preempts state law—this time, a clash with Tennessee common law on contracts.

The FAA has shown a lot of muscle in the U.S. Supreme Court over its history, and it’s rarely displaced. Petitioners seeking to avoid arbitration under a state law are almost always sent to arbitration.

That was not outcome in today’s cert denial in Branch Banking and Trust Co. v. Sevier County Schools Federal Credit Union, et al., No. 21-365. The matter also was about arbitrability–not on the merits of a dispute as to whether the respondents get the money market interest rate on their investment guaranteed by a predecessor of the petitioner bank, which wanted the case over its rate-drop arbitrated.

The petitioner bank had required account holders to arbitrate disputes by amending its agreement with the fund holders after it had purchased the predecessor bank.

The respondent account holders’ argument–successful in the federal appeals court at Sevier Cnty. Sch. Fed. Credit Union v. Branch Banking & Tr. Co., 990 F.3d 470 (6th Cir. 2021) (available at https://bit.ly/3K7BxnV)–was straightforward: The so-called FAA Sec. 2 Savings clause (an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract “) backs a state-law challenge to the contract.

And the Sixth Circuit held that there was a lack of mutual assent to the arbitration clause, which is required under Tennessee law. The bank services agreements “in question are clearly contracts of adhesion,” stated the Sixth Circuit opinion.

That opinion stands as a result of the today’s cert denial.

The appeals court criticized the petitioner bank’s unilateral imposition of the arbitration clause and, while noting that the rate promised two decades ago was several times higher than current available rates, it agreed with the plaintiffs’ analysis that the bank couldn’t require ADR where there had been none in the original bank services agreement.

The bank countered in its Supreme Court cert petition, “The Sixth Circuit’s decision is directly at odds with this Court’s recent arbitration decisions and with the law in other courts.”

The issue formally presented to the Court by the petitioner bank was

Whether the Federal Arbitration Act displaces a state common-law rule forbidding companies from adding an arbitration requirement to their standard form contract with customers unless the contract already includes a dispute-resolution clause.

The bank noted in its petition,

The Sixth Circuit’s adoption of a rule that singles out arbitration agreements and subjects them to heightened contract-formation requirements conflicts with [Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1424 (2017) (available at https://bit.ly/3GojOWE), which struck a Kentucky rule that “singles out arbitration agreements for disfavored treatment”] and other recent precedents from this Court holding that arbitration agreements cannot be “disfavored” or subjected to more demanding requirements than other contracts. The panel opinion did not cite, let alone distinguish, any of this Court’s modern FAA precedents.

Today’s order denying cert, available here, granted a motion by the American Bankers Association to file an amicus brief, which strongly urged the Court to take the case and reverse the Sixth Circuit. That brief is available at the Court’s docket page linked above (directly here).

The original plaintiffs’ Sixth Circuit success in avoiding arbitration is a rarity once cases reach the U.S. Supreme Court.

The nation’s top Court has taken six arbitration cases over five arguments in the current term. Two have been decided, and three cases, all argued in March’s second half, await decision. Details on the decisions, arguments, and case previews can be found on this blog by searching on the U.S. Supreme Court here.

* * *

Bleemer edits Alternatives to the High Cost of Litigation for CPR.

[END]