David Johnson v. Keybank National Association

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-14244
________________________
D.C. Docket Nos. 1:09-md-02036-JLK; 1:10-cv-21176-JLK
In Re: CHECKING ACCOUNT OVERDRAFT LITIGATION,
_____________________________________________
DAVID JOHNSON,
Plaintiff - Appellant,
versus
KEYBANK NATIONAL ASSOCIATION,
Defendant - Appellee,
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(June 18, 2014)
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Before MARCUS and ANDERSON, Circuit Judges, and TREADWELL, * District
Judge.
MARCUS, Circuit Judge:
Arbitration-friendly federal law recognizes “delegation clauses” that direct
an arbitrator to decide the validity of an arbitration agreement. Still, litigants can
waive their right to enforce these arbitration provisions. Because KeyBank waited
too long to invoke a delegation clause, waiver now bars that path and the district
court must decide any threshold questions of arbitrability.
After David Johnson, a bank customer, sued for overcharging in overdraft
fees, KeyBank asked the district court to take up the threshold question of
arbitrability and to compel arbitration of Johnson’s claim in accordance with his
deposit agreement. KeyBank said nothing about a delegation clause. The district
court decided the gateway issue, but not in KeyBank’s favor: it refused to enforce
the arbitration agreement as unconscionable. Once a panel of this Court vacated
and remanded that order for reconsideration in light of recent precedent, KeyBank
pointed, for the first time, to a delegation clause and argued that the district court
never should have conducted the threshold inquiry. The district court agreed and
compelled arbitration of the gateway issue. The appellant, Johnson, now argues
that KeyBank waived enforcement of the delegation clause. Alternatively,
*
Honorable Marc T. Treadwell, United States District Judge for the Middle District of Georgia,
sitting by designation.
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Johnson maintains that the delegation clause does not bind him.
Circuit precedent compels the conclusion that KeyBank waived enforcement
of the delegation clause. See Barras v. Branch Banking & Trust Co., 685 F.3d
1269 (11th Cir. 2012); Hough v. Regions Fin. Corp., 672 F.3d 1224 (11th Cir.
2012) (per curiam). Barras, Hough, and this appeal each emerged from the same
multidistrict litigation (MDL) before the United States District Court for the
Southern District of Florida: In re Checking Account Overdraft Litigation, MDL
No. 2036. In each case, the bank made no mention of a delegation clause in its
initial motion to compel arbitration. Only after the issuance of unfavorable
unconscionability orders did each bank ask the same district court to leave the
threshold question of arbitrability to the arbitrator. KeyBank’s attempt to
distinguish the waivers recognized in Barras and Hough is unavailing. We vacate
the district court order compelling arbitration of the gateway issue and remand for
further proceedings consistent with this opinion.
I.
David Johnson opened a deposit account with the Puget Sound Bank in
Tukwila, Washington, in 1991. KeyBank bought Puget Sound Bank in 1993.
While these banks’ 1991 and 1993 deposit agreements lacked arbitration
provisions, they both included a change-of-terms clause that allowed the banks to
“change these Rules at any time.” KeyBank claims that in 1995 it added an
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arbitration provision to Johnson’s agreement by appending a “statement message”
to his December account statement that told customers about new “provisions
regarding how disputes between you and the Bank will be resolved, including a
right to require arbitration of certain disputes.”
In 2001, when Johnson added his wife to his bank account, he was required
to complete a signature card in which he acknowledged receipt of the deposit
agreement and its arbitration provision. On December 14, 2001, KeyBank
unilaterally added a delegation clause to its deposit agreement that allowed the
parties to refer preliminary questions related to a dispute to an arbitrator. The
amended agreement stated that “[a]ny Claim shall be resolved upon the election of
you or us, by binding arbitration pursuant to this Arbitration Provision and the
applicable [arbitration rules].” It defined a “Claim” as “any claim, dispute, or
controversy between you and us arising from or relating to this Agreement or your
Account(s), including, without limitation, the validity, enforceability, or scope of
this Arbitration Provision or this Deposit Account Agreement.” In other words,
according to the delegation clause, either party could choose to have an arbitrator
decide threshold questions of arbitrability like unconscionability.
KeyBank claims that customers like Johnson were notified of the 2001
addition of the delegation clause through a direct mailing. In addition, KeyBank
alleges that Johnson received notice of the arbitration agreement and delegation
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clause through mailings or statement messages in 2004 and 2009. Johnson
maintains that he does not recall receiving notice of the arbitration agreement.
Johnson filed a putative class action on February 18, 2010, in the United
States District Court for the Western District of Washington. Johnson alleged that
KeyBank violated Washington law by changing the order of debit card transactions
to increase the overdraft fees it charged on Johnson’s account. In April 2010, the
United States Judicial Panel on Multidistrict Litigation transferred the case for
pretrial purposes to a multidistrict proceeding pending in the United States District
Court for the Southern District of Florida.
On May 3, 2010, KeyBank moved to compel arbitration and stay all
proceedings. KeyBank invoked the arbitration provision in Johnson’s deposit
agreement and cited the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 3, 4.
Johnson opposed the motion, claiming the provision was unconscionable as a
matter of Washington state law. In both its original motion and its reply in
support, KeyBank asked the district court to decide the threshold question of
unconscionability. On June 16, 2010, the district court refused to compel
arbitration. The court found the arbitration provision was substantively
unconscionable because, in light of a class action waiver, the potentially high costs
of arbitration would discourage individual actions. KeyBank appealed.
Less than a week after the district court entered this order, the United States
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Supreme Court issued its decision in Rent-A-Center, West, Inc. v. Jackson, 561
U.S. 63 (2010). The Court held that delegation clauses were enforceable: when a
contract so provides, courts must allow an arbitrator to consider an
unconscionability challenge to an arbitration agreement as a whole. Id. at 70-72.
Because jurisdiction over this case already had passed to the Eleventh Circuit on
appeal, KeyBank moved the district court for an indicative ruling under Federal
Rule of Civil Procedure 62.1. KeyBank’s motion asked the trial court to signal
that it would reconsider its order in light of Rent-A-Center if given permission by
this Circuit. The district court denied the Rule 62.1 motion.
On August 21, 2012, the Eleventh Circuit vacated the district court order
refusing to compel arbitration and remanded “for further consideration in light of”
three subsequently issued cases: Rent-A-Center, 561 U.S. 63; AT&T Mobility
LLC v. Concepcion, 131 S. Ct. 1740 (2011); and Cruz v. Cingular Wireless, LLC,
648 F.3d 1205 (11th Cir. 2011). Johnson v. Key Bank Nat’l Ass’n, No. 10-12957-
DD (11th Cir. Aug. 21, 2012). On remand, after limited arbitration-related
discovery, KeyBank filed a Renewed Motion to Compel Arbitration. Following a
hearing, the district court on August 27, 2013, granted KeyBank’s renewed motion
and ordered arbitration on the threshold question of arbitrability because the
deposit agreement contained an enforceable delegation clause. This timely appeal
ensued.
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II.
A.
We review de novo a district court order granting a motion to compel
arbitration. Cruz, 648 F.3d at 1210.
KeyBank, citing to non-arbitration cases, argues that we should review the
district court’s underlying factual findings for clear error and that we should infer
unstated factual findings consistent with the court’s decision. This relaxed
standard of review does not fit the summary-judgment-like nature of an order
compelling arbitration, which is “in effect a summary disposition of the issue of
whether or not there has been a meeting of the minds on the agreement to
arbitrate.” Magnolia Capital Advisors, Inc. v. Bear Stearns & Co., 272 F. App’x
782, 785 (11th Cir. 2008) (unpublished) (quoting Par-Knit Mills, Inc. v.
Stockbridge Fabrics Co., 646 F.2d 51, 54 n.9 (3d Cir. 1980)). In applying de novo
review to an order compelling arbitration, we follow a long line of established
precedent. See, e.g., Dale v. Comcast Corp., 498 F.3d 1216, 1219 (11th Cir.
2007); Bautista v. Star Cruises, 396 F.3d 1289, 1294 (11th Cir. 2005); Emp’rs Ins.
of Wausau v. Bright Metal Specialties, Inc., 251 F.3d 1316, 1321 (11th Cir. 2001).
B.
“Arbitration should not be compelled when the party who seeks to compel
arbitration has waived that right.” Morewitz v. W. of Eng. Ship Owners Mut. Prot.
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& Indem. Ass’n (Luxembourg), 62 F.3d 1356, 1365 (11th Cir. 1995). “[Q]uestions
of arbitrability must be addressed with a healthy regard for the federal policy
favoring arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24 (1983). But “the doctrine of waiver is not an empty shell.” Morewitz,
62 F.3d at 1366. Waiver occurs when both: (1) the party seeking arbitration
“substantially participates in litigation to a point inconsistent with an intent to
arbitrate”; and (2) “this participation results in prejudice to the opposing party.”
Id. Prejudice exists when the party opposing arbitration “undergo[es] the types of
litigation expenses that arbitration was designed to alleviate.” Id. (citing E.C.
Ernst, Inc. v. Manhattan Constr. Co., 559 F.2d 268, 269 (5th Cir. 1977) (per
curiam) 1).
Two binding Eleventh Circuit decisions from the same Checking Account
Overdraft Litigation MDL involved here held that similarly situated banks had
waived similar delegation clause arguments. See Barras, 685 F.3d 1269; Hough,
672 F.3d 1224. In Barras, BB&T Bank moved to compel arbitration. When the
district court denied its motion on unconscionability grounds, BB&T appealed to
this Court. We remanded for further consideration in light of Concepcion. On
remand, BB&T renewed its motion to compel arbitration, but then, for the first
time, it argued that a delegation clause specified that an arbitrator, not the court,
1
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), we adopted as
binding precedent all decisions of the former Fifth Circuit handed down before October 1, 1981.
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should decide the threshold question of arbitrability. The district court refused to
compel arbitration, ruling that BB&T had “waived its right to arbitrate the
threshold issue of unconscionability.” Barras, 685 F.3d at 1274. On appeal, we
affirmed the finding of waiver. We distinguished Rent-A-Center, where the
defendant had preserved the delegation clause issue because it “argued consistently
that [the threshold] issue was assigned by agreement to the arbitrator.” Id. “In
contrast, BB&T litigated its case for over a year without moving the district court
to submit the threshold issue of enforceability to the arbitrator; rather, it asked the
district court to hold that the arbitration agreement was enforceable.” Id. Because
BB&T did not initially invoke the delegation clause, the plaintiff “had incurred the
expense of opposing the original motion as well as on appeal to this Court.” Id.
Similarly, in Hough, Regions Bank moved to compel arbitration. The
district court denied the motion on unconscionability grounds, but the Eleventh
Circuit vacated and remanded for reconsideration in light of Concepcion. On
remand, Regions for the first time pointed to a delegation clause, but the district
court found Regions waived that argument by failing to raise it in its original
motion to compel or in its reply in support of that motion. Again, we affirmed.
“Regions did not invoke [the] delegation provision in response to the Houghs’
arguments that the clause was unconscionable. Regions instead asked the district
court to ‘deny the conscionability challenge.’” Hough, 672 F.3d at 1228.
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“Regions, as a party to the contract it signed, is presumed to know that it had the
right to arbitrate the issue of conscionability, and waived that aspect of the
agreement to arbitrate by taking actions that were inconsistent with that right of
arbitration.” Id. (citations omitted). Hough drew support for its waiver decision
from Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204 (11th Cir. 2011), in which
we rebuffed a defendant’s belated attempt to enforce a delegation clause when at
first “it asked the district court to decide for itself whether the dispute was subject
to arbitration.” Id. at 1213. “Only when the matter was illuminated by the light of
an unfavorable decision from the district court did the cruise line suddenly see that
the court ought not have answered the question after all.” Id.This case is materially indistinguishable from Barras and Hough, and the
two-pronged Morewitz waiver analysis yields the same result here: KeyBank has
waived enforcement of the delegation clause. First, KeyBank substantially
participated in litigation in a way that was inconsistent with an intent to have an
arbitrator determine the enforceability of the arbitration provision. When arguing
its original May 3, 2010, motion to compel arbitration, KeyBank made no mention
of the delegation clause. Instead, in its accompanying memorandum of law,
KeyBank declared that “[t]his [District] Court must determine which state law to
apply in analyzing whether KeyBank’s Arbitration Provision is ‘unconscionable’
under state law.” In its reply brief concerning the same motion, KeyBank stated,
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“[a]s both parties in this case acknowledge, the first issue for this [District] Court
to determine is whether there is an actual conflict between the laws of Washington
and Ohio with respect to the specific terms of the class action waiver.” Plainly,
KeyBank asked the court to resolve the threshold question of arbitrability. The
district court did so on June 16, 2010, when it entered an order denying KeyBank’s
motion to compel arbitration because the arbitration provision was unconscionable.
Only after the district court refused to compel arbitration did KeyBank -- in its
unsuccessful motion for a Rule 62.1 indicative ruling -- ask the district court to
enforce the delegation clause and submit the threshold question to arbitration.
As for the second prong, Johnson suffered prejudice from KeyBank’s failure
to raise the delegation clause argument earlier. “Substantially invoking the
litigation machinery qualifies as the kind of prejudice . . . that is the essence of
waiver.” E.C. Ernst, 559 F.2d at 269. “A prime objective of an agreement to
arbitrate is to achieve ‘streamlined proceedings and expeditious results.’” Preston
v. Ferrer, 552 U.S. 346, 357 (2008) (quoting Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985)).
Instead of pressing the delegation clause from the start, KeyBank took
Johnson two trips around the pretrial-motion-and-appeal carousel: first to litigate
the threshold question of arbitrability in the district court, and second to double-
back and reconsider who should decide the threshold question. KeyBank invoked
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the district court’s litigation machinery to decide the gateway issue, forcing
Johnson to spend resources opposing the original motion and contesting its appeal
-- precisely the kind of litigation costs that the delegation provision intended to
alleviate. See Morewitz, 62 F.3d at 1366. By slowing the process and magnifying
its costs, KeyBank’s delay undermined the purpose of the Federal Arbitration
Act’s “liberal federal policy favoring arbitration agreements.” Moses H. Cone
Mem’l Hosp., 460 U.S. at 24.
Barras and Hough compel the conclusion that Johnson suffered prejudice
sufficient to create waiver because KeyBank’s delay forced him to bear the same
types of costs and engage in the same types of procedures. See Barras, 685 F.3d at
1274; see also Morewitz, 62 F.3d at 1366 (“We conclude that [defendant] had
ample opportunity to demand arbitration well in advance of the decision that
significantly changed the legal position of the parties to the prejudice of
[plaintiff].”). At the outset, KeyBank had every chance to ask the district court to
refer the threshold question to an arbitrator. See Given v. M&T Bank Corp., 674
F.3d 1252, 1257 n.1 (11th Cir. 2012) (holding, in a case from the same MDL, that
a bank did not waive a delegation clause argument “because the bank has raised it
throughout the litigation”). KeyBank instead chose a different path that drove up
Johnson’s litigation expenses. Waiver requires that KeyBank live with its
decision.
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None of KeyBank’s arguments against waiver are persuasive. First,
KeyBank argues that our round one remand impliedly excluded the possibility of
waiver by allowing KeyBank to raise anew the delegation clause issue highlighted
in Rent-A-Center. KeyBank invokes the mandate rule, a subsidiary of the law-of-
the-case doctrine, which “compels compliance on remand with the dictates of the
superior court and forecloses relitigation of issues expressly or impliedly decided
by the appellate court.” United States v. Ben Zvi, 242 F.3d 89, 95 (2d Cir. 2001)
(emphasis omitted) (quoting United States v. Bell, 5 F.3d 64, 66 (4th Cir. 1993)).
But KeyBank reads far too much into our earlier order. By remanding to the
district court for “further consideration in light of [Concepcion, Rent-A-Center, &
Cruz],” the remand left open the possibility that KeyBank had waived a Rent-A-
Center delegation clause argument. Our action was akin to a Supreme Court “mass
production, assembly-line remand order” that vacates a lower court decision and
remands for further consideration in light of recent precedent. United States v.
Ardley, 273 F.3d 991, 994 (11th Cir. 2001) (Carnes, J., concurring in the denial of
rehearing en banc). “There is no implication in the standard language of those
orders that the [lower court] is to do anything except reconsider the case now that
there is a new . . . decision that may, or may not, affect the result.” Id. As with our
decisions in Barras and Hough, which found waiver after a remand for
reconsideration in light of Concepcion, the previous appellate remand did not
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decide whether KeyBank had preserved a delegation clause argument. See id.(noting that reconsideration in light of recent precedent properly “included whether
the appellant had procedurally defaulted [an] issue by not raising it in his briefs”).
The remand gave the district court the first crack at sorting out the implications of
recent Supreme Court and Eleventh Circuit developments without determining
how these cases applied or whether arguments had been waived.
Second, KeyBank claims that the doctrine of waiver does not apply here
because Rent-A-Center worked an intervening change in controlling law by
enforcing clauses that delegated unconscionability determinations. Barras and
Hough implicitly rejected this very argument by finding waivers instead of ruling
that Rent-A-Center caused an intervening change in the law. See Barras, 685 F.3d
at 1274-75; Hough, 672 F.3d at 1227-28. Moreover, as early as 1986, the Supreme
Court held that “[u]nless the parties clearly and unmistakably provide otherwise,
the question of whether the parties agreed to arbitrate is to be decided by the court,
not the arbitrator.” AT&T Techs., Inc., v. Commc’ns Workers, 475 U.S. 643, 649
(1986). The Rent-A-Center opinion itself acknowledged that, in the past, the Court
had “recognized that parties can agree to arbitrate ‘gateway’ questions of
‘arbitrability.’” 561 U.S. at 68-69. We are bound by the conclusions of our cases
that Rent-A-Center was not an intervening change that wiped away KeyBank’s
waiver.
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Finally, KeyBank argues that, unlike the banks in Barras and Hough, it
invoked the delegation clause when it filed a Rule 62.1 motion for an indicative
ruling after the district court had refused to compel arbitration but before the
Eleventh Circuit decided the round-one appeal. Federal Rule of Civil Procedure
62.1 lays out a district court’s options when faced with a motion for relief it cannot
grant because of a pending appeal. The district court may defer or deny the
motion, but it also may indicate that it would grant the motion on remand or that
the motion raises a substantial issue.2 See Munoz v. United States, 451 F. App’x
818, 819 (11th Cir. 2011) (unpublished) (“Rule 62.1 was adopted in 2009 . . . to
2
In full, the Rule provides:
Rule 62.1. Indicative Ruling on a Motion for Relief That Is Barred by a Pending
Appeal
(a) Relief Pending Appeal. If a timely motion is made for relief that the court
lacks authority to grant because of an appeal that has been docketed and is
pending, the court may:
(1) defer considering the motion;
(2) deny the motion; or
(3) state either that it would grant the motion if the court of appeals
remands for that purpose or that the motion raises a substantial
issue.
(b) Notice to the Court of Appeals. The movant must promptly notify the circuit
clerk under Federal Rule of Appellate Procedure 12.1 if the district court states
that it would grant the motion or that the motion raises a substantial issue.
(c) Remand. The district court may decide the motion if the court of appeals
remands for that purpose.
Fed. R. Civ. P. 62.1.
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codify the practice that most courts had been following.”). If a district court issues
an indicative ruling, remand remains at the discretion of the court of appeals. Fed.
R. Civ. P. 62.1 advisory committee’s note; see Fed. R. App. P. 12.1 (“If the district
court states that it would grant the motion or that the motion raises a substantial
issue, the court of appeals may remand for further proceedings but retains
jurisdiction unless it expressly dismisses the appeal.”). KeyBank brought a Rule
62.1 motion because it had already divested the district court of jurisdiction by
filing an interlocutory appeal in the Eleventh Circuit.
KeyBank acknowledges, as it must, that its Rule 62.1 motion came after the
district court refused to compel arbitration, but it argues that the banks in Barras
and Hough waited to mention the delegation clause until after their first motions to
compel arbitration were briefed, argued, decided, appealed, and then remanded.
KeyBank believes that because it did not wait quite so long to raise the
issue -- speaking up after the original motion had been briefed, argued, decided,
and appealed, but before it was briefed on appeal and remanded -- Johnson avoided
prejudice because the “litigation machinery” had not been substantially invoked.
Not so. KeyBank’s unsuccessful motion for an indicative ruling notably came
after Johnson had borne the costs of contesting the initial motion to compel
arbitration and after KeyBank had engaged the apparatus of appeal. KeyBank’s
Rule 62.1 attempt to revive the delegation clause argument came too late to save
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Johnson the expense of twice fighting the unconscionability battle in federal court.
It cannot save KeyBank from waiver.
Quite simply, KeyBank waived its delegation clause argument when it
waited to raise the issue until after it had asked the district court to decide
arbitrability -- and lost. See Barras, 685 F.3d at 1274-75; Hough, 672 F.3d at
1228. Accordingly, we vacate the district court order compelling arbitration on the
threshold question of arbitrability and remand for further proceedings.
VACATED and REMANDED.
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