Michael Dasher v. RBC Bank

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-10257
________________________
D.C. Docket Nos. 1:09-md-02036-JLK; 1:10-cv-22190-JLK
MICHAEL DASHER,
Plaintiff - Appellee,
versus
RBC BANK (USA),
d.b.a. RBC Bank,
Defendant - Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(February 10, 2014)
Before CARNES, Chief Judge, WILSON, Circuit Judge, and DALTON, ∗ District
Judge.
∗
Honorable Roy B. Dalton, Jr., United States District Judge for the Middle District of
Florida, sitting by designation.
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WILSON, Circuit Judge:
This dispute arose when Michael Dasher and other checking account
customers sued RBC Bank for allegedly charging excessive overdraft fees in
breach of their account agreement. 1 The Dasher action is part of the larger
Checking Account Overdraft Multidistrict Litigation (MDL) pending in district
court.2 At issue here is the district court’s denial of RBC’s renewed motion to
compel arbitration. The district court denied the motion, despite the fact that an
earlier version of the parties’ agreement contained an arbitration clause, because
that agreement was entirely superseded by a newer agreement that is silent on
arbitration. When, under state law, parties agree to supersede an old contract by
forming a new one, basic contract principles require us to look only to the new
agreement for evidence of the parties’ intent. Looking to the new agreement here,
the parties’ silence provides no evidence that they agreed to be bound to arbitrate
their disputes. Accordingly, we affirm.
I.
1
Plaintiffs allege, among other things, that RBC reordered debit card purchases at the end
of each day to draw funds for larger purchases before smaller ones rather than drawing funds
chronologically. The effect was to artificially deplete accounts in fewer transactions, leaving
more numerous but smaller purchases to be drawn from a depleted account, each of which led to
a $35 overdraft fee.
2
This MDL, collectively referred to as MDL 2036, has been consolidated in the Southern
District of Florida. Two relevant actions are pending against RBC: Dasher v. RBC Bank (USA),
Case No. 1:10-cv-22190-JLK, filed in the Southern District of Florida, and Avery v. RBC Bank,
Case No. 5:10-cv-329, filed in the Eastern District of North Carolina. The Avery action is
encompassed in the Dasher action, and this opinion will refer to all relevant plaintiffs as Dasher.
2
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RBC previously appealed the district court’s denial of its motion to compel
arbitration. At that time, the relationship between the parties was governed by an
account agreement issued in 2008 by RBC and subsequently accepted by Dasher
(RBC Agreement). The RBC Agreement contained an arbitration clause with
terms broad enough to cover this overdraft fee dispute, but the district court found
the provision unenforceable because it “ha[d] the effect of deterring Plaintiff from
bringing his claim and vindicating his rights.” In re Checking Account Overdraft
Litig., No. 09-MD-02036-JLK, 2010 WL 3361127, at *2 (S.D. Fla. Aug. 23, 2010).
Before we heard RBC’s appeal, the Supreme Court decided AT&T Mobility LLC v.
Concepcion, ___ U.S. ___, 131 S. Ct. 1740 (2011). Concepcion potentially altered
the legal basis for the district court’s opinion, and the parties accordingly moved to
vacate and remand for reconsideration.
On remand, and while the RBC Agreement still governed the parties’
relationship, RBC filed a renewed motion to compel arbitration. Dasher requested
an opportunity to conduct discovery, and the request was granted. In 2012, while
discovery was ongoing and before the district court ruled on RBC’s renewed
motion, PNC Financial Services Group, Inc. (PNC) acquired RBC, giving PNC
possession of Dasher’s account. In advance of its acquisition, PNC issued an
account agreement to govern the relationship with Dasher (PNC Agreement),
3
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which Dasher accepted. Unlike the RBC Agreement, the PNC Agreement did not
contain an arbitration clause—in fact, it did not mention arbitration at all.
Subsequently, at oral argument before the district court on RBC’s renewed
motion to compel arbitration, the parties disputed whether the RBC Agreement or
the PNC Agreement controlled. RBC argued that the RBC Agreement controlled
and that the arbitration provision in that agreement was enforceable in light of
Concepcion. Dasher argued that the PNC Agreement entirely superseded the RBC
Agreement, and therefore the district court should look only to the PNC Agreement
to determine whether the parties agreed to arbitrate. Given the absence of an
agreement to arbitrate in the PNC Agreement, this would require the court to deny
RBC’s motion without reaching the question of enforceability. The district court
agreed with Dasher, concluding that the 2012 PNC Agreement entirely superseded
the 2008 RBC Agreement. Finding no evidence that the parties agreed to arbitrate
their disputes in the PNC Agreement, the district court denied RBC’s motion.
RBC timely appealed. 3
II.
On appeal, RBC argues that the district court made five reversible errors: (1)
the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., creates a presumption in
3
The district court denied RBC’s instant motion to compel arbitration without reaching
the issue of enforceability. Dasher claims that even if we disagree with the district court about
which agreement controls, the arbitration clause remains unenforceable despite Concepcion, so
we should affirm. Because we agree with the district court that the RBC Agreement has been
superseded, we too do not reach the question of enforceability.
4
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favor of arbitrability that the district court failed to apply; (2) contrary to the
district court’s holding, the PNC Agreement’s silence on arbitration cannot
invalidate the RBC Agreement’s arbitration provision; (3) the district court
improperly ignored the termination clause in the RBC Agreement; (4) the district
court improperly applied the PNC Agreement retroactively to disputes that arose
while the RBC Agreement was still in effect; and (5) 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.
“We review the denial of [a] motion to compel arbitration de novo.”
Musnick v. King Motor Co. of Fort Lauderdale, 325 F.3d 1255, 1257 (11th Cir.
2003). Applying this standard, we review each of RBC’s claims in turn.
A.
RBC argues that arbitration was required in this case because the FAA
creates “a presumption of arbitrability in the sense that an order to arbitrate . . .
should not be denied unless it may be said with positive assurance that the
arbitration clause is not susceptible of an interpretation that covers the asserted
dispute.” AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650, 106
S. Ct. 1415, 1419 (1986) (internal quotation marks omitted). Stated differently, the
FAA “establishes that, as a matter of federal law, any doubts concerning the scope
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of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25, 103 S. Ct. 927, 941
(1983); see also Kidd v. Equitable Life Assurance Soc’y of U.S., 32 F.3d 516, 519
(11th Cir. 1994) (same). Further, the presumption applies when an “arbitration
agreement is ambiguous about whether it covers the dispute at hand.” Granite
Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, __, 130 S. Ct. 2847, 2858
(2010). RBC contends that arbitrability is in doubt, that there is a reasonable
interpretation of the agreements that would require arbitration, and that the district
court therefore erred under the FAA by refusing to resolve doubts and interpret the
agreements in favor of arbitration.
Had the district court based its opinion on a narrow interpretation of the
RBC Agreement’s arbitration clause, or had it resolved some ambiguity in that
clause against arbitration, RBC’s claim might have merit. Given the breadth of the
RBC Agreement’s arbitration provision, however, there is no ambiguity “about
whether it covers the dispute at hand.” Id. at __, 130 S. Ct. at 2858. If the
arbitration provision is valid, it covers this dispute. Here, however, the parties do
not dispute the “scope of arbitrable issues,” Cone, 460 U.S. at 24, 103 S. Ct. at
6
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941, because neither the scope nor the interpretation of the RBC Agreement’s
arbitration clause is at issue.4
Instead, RBC and Dasher disagree about whether the RBC Agreement has
been superseded such that it does not apply to any disputes, regardless of the
breadth of its scope or how it is interpreted. The FAA’s presumption is
inapplicable in this situation, as courts are to apply “the presumption of
arbitrability only where a validly formed and enforceable arbitration agreement is
ambiguous about whether it covers the dispute at hand.” Granite Rock, 561 U.S. at
__, 130 S. Ct. at 2858 (emphasis added). Granite Rock thus precludes application
of the FAA’s presumption of arbitrability before it is determined whether there is a
“validly formed and enforceable arbitration agreement.” Id. As the Second Circuit
recognized, “while doubts concerning the scope of an arbitration clause should be
resolved in favor of arbitration, the presumption does not apply to disputes
concerning whether an agreement to arbitrate has been made.” Applied Energetics,
Inc. v. NewOak Capital Mkts., LLC, 645 F.3d 522, 526 (2d Cir. 2011). This is
essentially a dispute about whether a “validly formed . . . agreement” has been
4
There is a possibility, discussed infra in note 10, that the arbitration clause might not
cover disputes arising from acts that occurred before the RBC Agreement became effective in
2008, even if the clause remains effective. We do not decide that issue, but it is worth
mentioning as an example of when the FAA’s presumption might apply. If the RBC Agreement
is valid, the question of whether it covers disputes arising from acts that occurred before 2008
would turn on the clause’s scope, meaning the FAA’s presumption should apply. Here, we
address the very different threshold question of whether the RBC Agreement is valid, so the
presumption does not apply.
7
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made. Granite Rock, 561 U.S. at __, 130 S. Ct. at 2858; see also Applied
Energetics, 645 F.3d at 526 (explaining that the FAA’s presumption does not apply
in cases where the agreement containing an arbitration clause has been
superseded). Therefore, the district court properly refused to apply the FAA’s
presumption in favor of arbitrability.
B.
Even without applying the FAA’s presumption, RBC contends that the
parties have a validly formed, enforceable arbitration agreement. In assessing the
validity of this claim, we must be mindful of the Supreme Court’s instruction that
“arbitration is simply a matter of contract.” First Options of Chi., Inc. v. Kaplan,
514 U.S. 938, 943, 115 S. Ct. 1920, 1924 (1995). Accordingly, when determining
whether an arbitration agreement exists, “courts generally . . . should apply
ordinary state-law principles that govern the formation of contracts.” Id. at 944,
115 S. Ct. at 1924; Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1368
(11th Cir. 2005) (“[I]n determining whether a binding agreement arose between the
parties, courts apply the contract law of the particular state that governs the
formation of contracts.”). These principles dictate that courts look for evidence
that the parties “objectively revealed an intent to submit the [dispute] to
arbitration.” First Options, 514 U.S. at 944, 115 S. Ct. at 1924. Thus, to resolve
8
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this case we apply North Carolina contract law and look for objective evidence that
the parties agreed to arbitrate.
This matter is complicated by the fact that the parties dispute which
agreement controls, with Dasher arguing that the PNC Agreement replaced the
RBC Agreement and RBC contending that the RBC Agreement remains effective.
This, too, is resolved by applying state contract law without the FAA’s
presumption of arbitrability. See Applied Energetics, 645 F.3d at 526. 5 Under
North Carolina law, “[w]hether a new contract between the same parties discharges
or supersedes a prior agreement between them depends upon their intention[s] as
ascertained from the instrument[s].” Penney v. Carpenter, 231 S.E.2d 171, 173
(N.C. Ct. App. 1977) (internal quotation marks omitted).
Burgess v. Jim Walter Homes, Inc. is instructive on both state law
questions—whether the parties formed an agreement to arbitrate and whether that
agreement has been superseded. 588 S.E.2d 575 (N.C. Ct. App. 2003). In
Burgess, the parties executed a contract for the construction of a house and a
5
In Caley, we explained that “[t]he ‘federal policy favoring arbitration . . . is taken into
consideration even in applying ordinary state law.’” 428 F.3d at 1368 (quoting Cooper v. MRM
Inv. Co., 367 F.3d 493, 498 (6th Cir. 2004)). The federal policy favoring arbitration is not,
however, the same as applying a presumption of arbitrability. We only apply the presumption of
arbitrability to the interpretation of contracts if we have already determined that, under state law,
the parties formed a valid agreement to arbitrate. See Granite Rock, 561 U.S. at __, 130 S. Ct. at
2857–58 (“[C]ourts should order arbitration of a dispute only where the court is satisfied that
neither the formation of the parties’ arbitration agreement nor . . . its enforceability or
applicability to the dispute is in issue. . . . . That . . . some of our cases applying a presumption of
arbitrability to certain disputes do not discuss each of these requirements merely reflects the fact
that in those cases some of the requirements were so obviously satisfied that no discussion was
needed.”).
9
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separate arbitration agreement which was incorporated by reference into the
underlying contract. Id. at 576. No work was performed pursuant to the contract,
but several years later, the parties executed an entirely new contract for the same
construction project with different costs and specifications. Id. Again, the new
contract referenced a separate arbitration agreement, but no separate arbitration
agreement was ever prepared or signed. Id. at 576–77. Because the new contract
did not contain its own arbitration agreement, the contract was held insufficient to
show “an agreement to arbitrate disputes between the parties.” Id. at 578 (internal
quotation marks omitted). When a dispute arose, and one party sought to compel
arbitration based on the original agreement, the court held:
[Because] the parties expressed their clear and definite intent to
execute a new contract to supersede the [prior] contract . . . the [new]
contract supersedes the [prior] contract. The [new] contract did not
incorporate by reference the prior . . . arbitration agreement. Without
the execution of a new . . . Arbitration Agreement, [defendants]
cannot prove the existence of an agreement to arbitrate all disputes
arising out of the [new] contract.
Id. (citation and internal quotation marks omitted). Burgess clearly establishes that
the RBC Agreement is superseded if “the parties expressed their clear and definite
intent to execute [the PNC Agreement] to supersede the [RBC Agreement],” and if
they did, “the [PNC] contract supersedes the [RBC] contract.” Id. (internal
quotation marks omitted).
10
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Here, the parties expressed their “clear and definite intent” that the PNC
Agreement would supersede the RBC Agreement. The RBC Agreement’s
assignment clause states:
We may transfer or assign our rights and obligations under the
Agreement in whole or in part without notice to or approval by
you . . . . [T]he terms and conditions of the Agreement will be binding
upon and inure to your benefit and our benefit as well as the benefit of
your permitted successors and assigns and our successors and assigns.
(Emphasis added.) When PNC acquired RBC, it is undisputed that PNC became a
“successor[] and assign[ee],” essentially stepping into RBC’s shoes and inheriting
all of RBC’s rights under the RBC Agreement. See 12 U.S.C. § 215a(e).
One of the rights PNC acquired from RBC under the RBC Agreement was
the right to change “any part or parts of the Agreement” at any time pursuant to the
RBC Agreement’s amendment clause. Further, if RBC—or its successor PNC—
exercised this right and issued a new agreement, the amendment clause stipulated
that “the most current version of the Agreement supersedes all prior versions and
will at all times govern.” (Emphasis added.)
PNC exercised its assigned right to change “any part or parts of the [RBC]
Agreement” by issuing the entirely new PNC Agreement. According to terms
drafted by RBC in the RBC Agreement, by issuing a new agreement, the parties
“supersede[d] all prior versions” of the account agreement. Thus, PNC “expressed
[its] clear and definite intent to execute a new contract to supersede” the RBC
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Agreement. Burgess, 588 S.E.2d at 578 (internal quotation marks omitted).
Further, even though RBC did not itself issue the new agreement, PNC had stepped
into RBC’s shoes. See 12 U.S.C. § 215a(e). Thus, RBC, which was then a part of
PNC, was bound by whatever decision PNC made with regard to superseding the
RBC Agreement.6 Finally, Dasher expressed his clear and definite intent to
execute a new agreement by accepting first the RBC Agreement and then the
superseding PNC Agreement. Because all parties expressed the clear and definite
intent that the PNC Agreement supersede the RBC Agreement, the district court
properly concluded that, under North Carolina law, the RBC Agreement was
entirely superseded by the PNC Agreement.
Having determined that the PNC Agreement superseded the RBC
Agreement, “we must consider whether the [PNC Agreement] alone is sufficient to
bind the parties to arbitration.” Burgess, 588 S.E.2d at 577. Our analysis turns on
whether there is sufficient evidence to show “an agreement to arbitrate disputes
between the parties.” Id. at 578 (internal quotation marks omitted). Quite clearly,
6
RBC disputes this conclusion in part because only the now-superseded RBC
Agreement, not the PNC Agreement, states that the most current version of the agreement
supersedes prior versions. They claim that if the RBC Agreement is superseded, it is paradoxical
to rely on the RBC Agreement to determine that the RBC Agreement is superseded. This
argument is not well-taken, as RBC’s argument would entirely preclude parties from contracting
for the termination of a contract. If, for example, parties set a termination date after which the
contractual terms were no longer effective, RBC would have us believe that we could not refer to
the now-terminated contract to determine the date of its termination. Similarly, the RBC
Agreement stipulated the manner and effect of superseding the agreement. There is nothing
paradoxical about enforcing those terms, which are, by definition, only applicable after the
agreement is superseded. To hold otherwise would be to render those terms meaningless.
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there is not. Indeed, the PNC Agreement is entirely silent on arbitration, providing
even less evidence of an agreement to arbitrate than was present in Burgess, where
the parties at least mentioned arbitration. Id. (finding insufficient evidence of an
agreement to arbitrate and noting that while the subsequent agreement mentioned
an arbitration addendum, that addendum was never attached or signed); see also
Emmanuel Afr. Methodist Episcopal Church v. Reynolds Constr. Co., 718 S.E.2d
201, 203 (N.C. Ct. App. 2011) (stating that, in order to form an arbitration
agreement, the parties must “specify . . . the scope and terms of their agreement”);
D.P. Solutions, Inc. v. Xplore-Tech Servs. Private Ltd., 710 S.E.2d 297, 300 (N.C.
Ct. App. 2011) (“Arbitration is simply a matter of contract . . . . [T]o determine
whether the parties agreed to submit a particular dispute or claim to arbitration, we
must look at the language in the agreement.” (internal citation and quotation marks
omitted)). It appears, then, that the district court properly denied RBC’s motion.
See Granite Rock, 561 U.S. at __, 130 S. Ct. at 2856 (“[A] court may order
arbitration of a particular dispute only where the court is satisfied that the parties
agreed to arbitrate that dispute.” (emphasis omitted)); Doe v. Princess Cruise
Lines, Ltd., 657 F.3d 1204, 1214 (11th Cir. 2011) (“[P]arties will not be required to
arbitrate when they have not agreed to do so.” (internal quotation marks omitted)).
RBC resists this straightforward application of the terms of the parties’
agreements, which would ordinarily end the inquiry, by arguing that even if the
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RBC Agreement is superseded, its arbitration clause is not. This is so, RBC
contends, because arbitration clauses can only be waived by clear and explicit
language and therefore cannot be waived by silence. See WorldCrisa Corp. v.
Armstrong, 129 F.3d 71, 75 (2d Cir. 1997) (“The [subsequent agreement] does not
mention the [prior] Agreement—much less its arbitration clause—and the
[subsequent agreement’s] provisions . . . do not constitute the kind of clear and
specific waiver required to defeat the express arbitration provision in the [prior]
Agreement.”); see also Cone, 460 U.S. at 24–25, 103 S. Ct. at 941 (applying the
FAA’s presumption to resolve “doubts concerning the scope of arbitrable issues”
when “the problem at hand is . . . an allegation of waiver”).
The obvious response is that this case does not involve waiver of an
arbitration provision at all; rather, it involves superseding the entire agreement
containing an arbitration provision and replacing that provision with silence.
These are two very different situations: waiver situations involve a still-valid
underlying prior agreement, while the situation here involves an entirely invalid
underlying prior agreement. In the waiver context, the agreements may create
ambiguity with regard to arbitration, but here, it is clear that all provisions in the
prior agreement are eliminated under state law, including the arbitration provision,
and nothing in the new agreement establishes the right to compel arbitration anew.
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At this point, RBC reaches its last line of defense. RBC claims that even
when parties supersede—rather than waive—a prior agreement containing an
arbitration clause by forming a new agreement that is silent on arbitration, the prior
agreement’s arbitration clause remains binding. In these situations, RBC contends
that the arbitration clause can only be superseded if it is specifically eliminated by
the superseding agreement. In other words, RBC claims that silence in a
subsequent agreement is per se insufficient to eliminate an earlier agreement’s
arbitration provision. This leads to the implausible conclusion that when parties
indicate a clear intent to supersede a prior agreement, that superseding language
applies to every term in the prior agreement except for arbitration provisions.
RBC claims to find support for its proposition in cases decided by our sister
circuits. In Bank Julius Baer & Co. v. Waxfield Ltd., the parties signed an
agreement requiring arbitration then entered into a new agreement that superseded
all prior agreements and contained a merger clause stating that the new agreement
constituted the entire agreement between the parties. 424 F.3d 278, 282 (2d Cir.
2005). Notwithstanding claims that the arbitration clause was superseded, the
Second Circuit held that “the Arbitration Clause . . . remain[s] in effect” because
the subsequent agreement “does not even mention arbitration.” Id. at 284, 285.
The same sequence of events occurred in Patten Securities Corp. v. Diamond
Greyhound & Genetics, Inc., and the Third Circuit compelled arbitration in part
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because “any reference to arbitration” was “[c]onspicuously absent from the”
subsequent agreement. 819 F.2d 400, 407 (3d Cir. 1987), abrogated on other
grounds by Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 287,
108 S. Ct. 1133, 1142 (1988).
Several district court decisions appear, at first glance, to support RBC’s
contention as well. For example, in Sher v. Goldman Sachs, the subsequent
agreement was silent on arbitration and expressly stated that it superseded the prior
agreement, which contained a broad arbitration clause. No. CCB-11-2796, 2012
WL 1377066, at *1–2 (D. Md. Apr. 19, 2012). The court held that “a subsequent
agreement without reference to arbitration does not overcome the presumption of
arbitration created by a broad arbitration provision in an initial agreement.” Id. at
*3. Likewise, in DeMartini v. Johns, the court held that “[a]bsent the explicit
intention to rescind an arbitration clause . . . the clause will survive even where the
prior agreement itself is rescinded by the latter agreement.” No. 3:12-cv-03929-
JCS, 2012 WL 4808448, at *6 (N.D. Cal. Oct. 9, 2012) (alterations in original)
(internal quotation marks omitted).
Despite this language, which certainly appears to support RBC’s contention,
closer examination reveals a critical distinction: in each case cited by RBC, the
prior agreement remained effective to some extent for various reasons, whereas
here, the prior agreement is entirely superseded. Consequently, whether or not the
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opinions cited by RBC explicitly recognized the point, those cases essentially
involved attempted waivers of the earlier agreement’s arbitration provision,
notwithstanding superseding language.
Patten Securities is the most readily distinguishable of the cases cited by
RBC. In that case, nothing suggested that the subsequent agreement was meant to
supersede the prior agreement. Instead, one party attempted to argue that a non-
exclusive forum selection clause in a subsequent underwriting agreement implicitly
superseded a prior agreement’s arbitration provision. 819 F.2d at 405. The court
analyzed the forum selection clause as a potential waiver, id. at 406–07 (discussing
“whether a forum selection clause is a waiver” (emphasis added)), and accordingly
applied the FAA’s presumption to its analysis, id. at 407 (citing Cone, 460 U.S. at
24–25, 103 S. Ct. at 941). Because the forum selection clause was not inconsistent
with arbitration, the court held that the arbitration provision was not “waive[d].”
Id.
In Bank Julius Baer and DeMartini, the prior agreements were explicitly
incorporated by reference into the new agreements, meaning that the prior
agreements were not actually superseded. See Bank Julius Baer, 424 F.3d at 283
(noting that the subsequent agreement stated: “all the rights and remedies . . . are
cumulative and not exclusive of any rights or remedies provided under any other
agreement” (internal quotation marks omitted)); DeMartini, 2012 WL 4808448, at
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*2 (noting that the subsequent agreement stated: “[a]ll other terms and conditions
of the original . . . Agreement . . . shall remain in full force and effect.” (alteration
in original) (internal quotation marks omitted)).
Similarly, in Sher, the subsequent agreement’s application was explicitly
limited to “matters covered by” that agreement. See 2012 WL 1377066 at *1. In
essence, it functioned as an amendment to portions of the prior agreement rather
than a superseding wholesale replacement of that agreement. Sher also cited with
approval the Second Circuit’s recognition that in circumstances where
“invalidating the first agreement ‘would . . . lead to absurd results,’” courts should
not invalidate the first agreement. Id. at *3 (quoting Bank Julius Baer, 424 F.3d at
283).
Contrary to RBC’s position, however, these cases do not hold that arbitration
clauses in entirely superseded agreements remain effective unless specifically
eliminated. Indeed, these cases could not support such a rule because none of them
dealt with an entirely superseded agreement. When an agreement containing an
arbitration provision is entirely superseded, as happened here, the existence of a
“validly formed and enforceable arbitration agreement” is called into question.
Granite Rock, 561 U.S. at __, 130 S. Ct. at 2858. And as noted above, when
making determinations related to formation, state law applies without the FAA’s
presumption. See id.; First Options, 514 U.S. at 943–44, 115 S. Ct. at 1924
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(recognizing that “arbitration is simply a matter of contract” and that “courts
generally . . . should apply ordinary state-law principles that govern the formation
of contracts” in these cases). Thus, the cases cited by RBC are inapplicable
because the RBC Agreement was entirely superseded and the FAA’s presumption
does not apply. Cf. Burgess, 588 S.E.2d at 578.
Both of our sister circuits to address the issue have held that when an
entirely superseding agreement is silent on arbitration, arbitration cannot be
compelled even if a prior agreement contained an arbitration clause. See Applied
Energetics, 645 F.3d at 524–25; Dottore v. Huntington Nat’l Bank, No. 1:09-cv-
2636, 2010 WL 3861010, at *4 (N.D. Ohio Sept. 28, 2010), aff’d 480 F. App’x 351
(6th Cir. 2012); see also Burgess, 588 S.E.2d at 578. 7 In Applied Energetics, as in
the cases cited by RBC, the subsequent agreement was silent on arbitration and
contained a merger clause, implying that it would replace a prior agreement
containing an arbitration clause. 645 F.3d at 523–24. Unlike the cases cited by
RBC, however, in Applied Energetics, nothing contradicted the subsequent
agreement’s merger clause: the prior agreement was not incorporated by reference;
the subsequent agreement did not purport to be a mere amendment to the prior
agreement; and the prior agreement’s terms were not necessary to avoid absurd
7
To avoid any confusion that may result from citing both federal and state case law to
support this point, we specifically note that the question of whether state or federal law applies is
itself a question of federal law. Thus, we cite Applied Energetics and Dottore for the proposition
that state law applies, unburdened by the FAA’s presumption. We cite Burgess to show the
outcome when we apply state law in this case.
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results. Under these circumstances, the Second Circuit held that the district court
erred by relying on Bank Julius Baer to compel arbitration. Id. at 524. Instead, the
court relied on the basic legal principle that “contracting parties are free to revoke
an earlier agreement to arbitrate by executing a subsequent agreement the terms of
which plainly preclude arbitration.” Id. at 525.
RBC attempts to salvage its “silence is per se insufficient” argument by
suggesting that the subsequent agreement in Applied Energetics did, in effect,
specifically supersede the arbitration provision. In other words, the critical factor
in RBC’s view was not the fact that the prior agreement was entirely superseded,
but rather the fact that the subsequent agreement contained an exclusive forum
selection clause that specifically precluded arbitration. This provision stated that
the parties shall resolve their disputes in state court. Id. at 525–26. The court
found that this language plainly precluded arbitration because if a dispute shall be
resolved in state court, it cannot be resolved through arbitration. Id. RBC
contends that when the Second Circuit held that the “subsequent agreement . . .
plainly preclude[d] arbitration,” id. at 525, it was referring to the exclusive forum
selection clause which specifically precluded arbitration. There is no such clause
in the PNC Agreement, and therefore RBC asks us to distinguish Applied
Energetics.
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RBC misunderstands the basis for the Second Circuit’s holding in Applied
Energetics. To be sure, the Second Circuit noted that the forum selection clause
precluded arbitration, id., but the Second Circuit made clear that this was not the
primary basis for its holding: “Even assuming, . . . that the [arbitration clause and
the forum selection clause] could reasonably be read as complementary, we
conclude that the district court erred in applying the presumption in favor of
arbitration.” Id. at 526. Unlike Bank Julius Baer, which involved a mere waiver
of the prior agreement containing an arbitration provision, Applied Energetics
involved an entirely superseding subsequent agreement. Id. (“[T]he Placement
Agreement [that is silent on arbitration] superseded the Engagement Agreement
[containing an arbitration provision].”). Therefore the FAA’s presumption did not
apply because “while doubts concerning the scope of an arbitration clause should
be resolved in favor of arbitration, the presumption does not apply to disputes
concerning whether an agreement to arbitrate has been made.” Id.
It is critical that neither Bank Julius Baer nor Applied Energetics relied on
the FAA’s presumption to determine the threshold question of whether the prior
agreement was entirely superseded. In Bank Julius Baer, the court applied the
FAA’s presumption only after determining that the superseding language in the
merger clause would not be given full effect. 424 F.3d at 283–85. In Applied
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Energetics, the court analyzed whether the prior agreement was entirely
superseded under state law. 645 F.3d at 526.
Because this case is like Applied Energetics and not like Bank Julius Baer in
that the RBC Agreement was entirely superseded, the FAA’s presumption simply
does not apply. RBC’s contention that silence is insufficient to invalidate a prior
agreement’s arbitration provision may well be correct when the FAA’s
presumption applies, but in cases like this where that presumption does not apply,
arbitration clauses must be treated like any other portion of a party’s agreement.
And when “all prior agreements” are superseded, as they were here, a prior
arbitration agreement is superseded because it obviously fits within the category of
“all prior agreements.”
This is precisely the conclusion reached by the Sixth Circuit in Dottore
under facts that are nearly identical to those in this case. See 2010 WL 3861010, at
*1–2. There, a bank and its customer replaced their original account agreement
that contained an arbitration clause with a completely new agreement that did not
mention arbitration but was “in every respect a fully self-contained document.” Id.
at *2, *4. The district court denied the bank’s motion to compel arbitration, and
the Sixth Circuit affirmed, even though the subsequent agreement neither
mentioned arbitration nor contained an exclusive forum selection clause. See
Dottore, 480 F. App’x at 353. The fact that the new account agreement did “not
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include any arbitration provision, and [did] not refer to any previously existing
agreement[]” was sufficient to render the prior agreement’s arbitration provision
ineffective. Dottore, 2010 WL 3861010, at *4.
We agree with the Second and Sixth Circuits, and hereby hold that an
entirely superseding agreement renders a prior agreement’s arbitration clause
ineffective, even if the superseding agreement is silent on arbitration. The
threshold determination of whether a subsequent agreement entirely superseded a
prior agreement is made under state law, without applying the FAA’s presumption.
If the subsequent agreement only partially supersedes the prior agreement, amends
it, or waives some but not all of its provisions, the second question is whether the
arbitration provision was among the superseded, amended, or waived provisions. 8
If, however, the subsequent agreement entirely superseded the prior agreement,
then the second question is whether the subsequent agreement alone supports a
motion to compel arbitration, and this determination is also made under state law
without applying the FAA’s presumption. Applying that test here, as already
8
In Bank Julius Baer, the court applied the FAA’s presumption when answering this
question, but our efforts to distinguish Bank Julius Baer should not be taken as an implicit
endorsement of that decision. Here, the facts are analogous to those in Applied Energetics, and
we are persuaded by the reasoning used in that case. Applied Energetics clearly and accurately
articulated the Supreme Court’s precedent, which holds that while doubts concerning the “scope
of arbitrable issues should be resolved in favor of arbitration,” Cone, 460 U.S. at 24–25, 103 S.
Ct. at 941, the FAA’s presumption applies only after the court is “persuaded that the parties’
arbitration agreement was validly formed,” Granite Rock, 561 U.S. at __, 130 S. Ct. at 2858. In
other words, the FAA’s presumption applies to questions of scope but not to questions of
formation. We adopt this rule without discussing whether or not it was properly applied in Bank
Julius Baer and other cases cited by RBC that invoked the FAA’s presumption to decide whether
an arbitration clause had been waived by a subsequent agreement.
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discussed, the RBC Agreement was entirely superseded, and the PNC Agreement
does not support a motion to compel arbitration on its own.
C.
RBC contends, in the alternative, that the district court must be reversed
because arbitration can be required pursuant to the RBC Agreement’s termination
clause. That clause states:
Transactions initiated prior to the effective date of termination of the
Agreement will not be affected by the termination. Transactions
initiated prior to termination will continue to be subject to the terms
and conditions of the Agreement.
RBC claims that the RBC Agreement was effectively terminated when PNC issued
the PNC Agreement, and therefore the RBC Agreement’s terms still apply to the
dispute in question, which arose prior to this termination. Further, courts have
consistently held that arbitration provisions survive the termination of the
agreements containing those provisions. See, e.g., Nolde Bros., Inc. v. Local No.
358, Bakery & Confectionary Workers Union, 430 U.S. 243, 255, 97 S. Ct. 1067,
1074 (1977). The district court disagreed, holding that the RBC Agreement was
superseded rather than terminated, but RBC insists this is a distinction without a
difference.
RBC is incorrect. In cases like Nolde Brothers, the parties terminated their
contractual relationship, leaving the reviewing court with two options: look to the
now-terminated agreement, or resolve the dispute without resort to any agreement
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at all. The Court opted for the former, applying the FAA’s presumption and
reasoning that “there is little reason to construe this contract to mean that the
parties intended their contractual duty to submit grievances [to arbitration] to
terminate [with the contract]; the alternative remedy of a lawsuit is the very
remedy the arbitration clause was designed to avoid.” Id. at 254, 97 S. Ct. at 1073.
Here, the court was faced with an entirely different choice: presume the now-
superseded RBC Agreement’s terms control, or look to the newly-agreed-to PNC
Agreement. RBC asks us to choose the former based on the termination clause and
the Court’s reasoning in Nolde Brothers, but to do so in this case would be to
ignore the terms of the RBC Agreement rather than merely making a presumption
based on contractual silence. Nolde Brothers is therefore inapplicable.
Stated differently, the RBC Agreement contemplated two distinct scenarios:
one—covered by the termination clause—would occur if the parties ended their
contractual relationship, while the other—covered by the amendment clause—
would occur if the parties agreed to continue their relationship under terms of a
new agreement. When PNC acquired RBC, PNC acquired all of RBC’s rights
including its right to choose the second scenario, which PNC did by issuing the
new PNC Agreement. The result of that choice—replacing the RBC Agreement’s
terms with those in the PNC Agreement—is clearly stated in the RBC Agreement
and is not contradicted in the PNC Agreement. Thus, to rely on the termination
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clause to look back to the RBC Agreement, we would have to ignore the clause
giving PNC the right to replace the RBC Agreement. The district court properly
refused to do so and instead recognized that there was a meaningful distinction
between terminating the agreement on the one hand and superseding it on the
other, if for no other reason than that the parties agreed to treat the two situations
differently. In contract cases, no other reason is necessary.
D.
Even if we hold that the RBC Agreement’s arbitration clause is superseded,
RBC claims that because the facts giving rise to this dispute occurred while the
RBC Agreement was still effective, the dispute is subject to arbitration. In other
words, RBC claims that the terms of the PNC Agreement apply only prospectively
to govern the parties’ relationship moving forward, not retroactively to govern
interactions between the parties in the past.
In support of its claim, RBC accurately points out that where terms have
been applied retroactively, contractual language explicitly authorized that result.
See, e.g., Daniel v. Chase Bank USA, N.A., 650 F. Supp. 2d 1275, 1288 (N.D. Ga.
2009) (noting that although the original agreement did not require arbitration, the
contract stated that terms could be amended at any time and that amended terms
would apply to new transactions and “to all outstanding” debt). RBC claims that
here, by contrast, nothing in the PNC Agreement authorizes retroactive application,
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and its case becomes even stronger in light of clearly prospective language in the
RBC Agreement. The RBC Agreement states, “[w]e will normally set an effective
date for each change, but if we do not do so, the effective date will be the date we
make the change.” Thus, because the PNC Agreement did not become effective
until after litigation in this dispute began and well after the alleged breaches
occurred, RBC concludes that the RBC Agreement’s arbitration clause is
applicable to resolve this dispute.
RBC also correctly points out that Dottore and Applied Energetics are
distinguishable because in those cases, the alleged breaches occurred after the new
agreements became effective, and thus after the arbitration clauses were
superseded. Here, by contrast, the arbitration clause was not superseded until after
the facts giving rise to this dispute occurred. RBC claims that this distinction
requires us to reach a different holding here.
RBC’s argument fails because, contrary to its assertion, the parties agreed to
apply the terms of the PNC Agreement retroactively. The amendment clause in the
RBC Agreement states that “the most current version of the Agreement supersedes
all prior versions and will at all times govern.” (Emphasis added.) “At all times”
necessarily includes the past, present, and future, and therefore, according to the
terms of the RBC Agreement, the superseding PNC Agreement governs this
dispute even though the facts giving rise to it occurred in the past.
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RBC correctly notes that the PNC Agreement became effective
prospectively, but this does nothing to counter Dasher’s interpretation of the
contract. RBC’s misunderstanding is due to a mistaken conflation of two distinct
terms in the parties’ agreements: an effective date and a governing period. In
context, it is clear that an effective date is the date on which an agreement’s terms
become applicable, while the governing period establishes a time range to which
those terms apply once they become effective. In other words, once terms become
effective, they apply, but only to matters that occurred during the governing period.
When the district court decided this issue, the PNC Agreement’s terms were
effective and therefore applied, and the facts giving rise to this dispute were within
the governing period of “all times” and therefore governed the dispute at hand. 9
Further, while the alleged breaches in Dottore and Applied Energetics
occurred after the arbitration provisions were superseded, the cases stand for the
broader proposition that courts should honor the parties’ agreements relating to
arbitration. That is precisely what the district court did here. And as RBC noted, if
parties agree that terms should be applied retroactively, we honor that choice
unless prohibited from doing so. See Daniel, 650 F. Supp. 2d at 1288.
9
In contrast to the much broader phrase “at all times governs” that sets the PNC
Agreement’s governing period, RBC sent a notice to customers in 2008 advising them that “the
[RBC] Agreement will begin to govern” in 30 days. (Emphasis added.) The fact that RBC had
used clearly prospective language—“begin to govern”—makes us even more confident that the
phrase “at all times governs” was meant to authorize both prospective and retroactive application
of any new agreement’s terms.
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The question remains whether there is a prohibition on retroactively
applying the terms of the PNC Agreement as the parties intended. RBC argues that
we should answer in the affirmative, to which Dasher responds that RBC is
attempting to have it both ways. As Dasher explains, RBC is seeking to compel
arbitration to resolve all disputes in this case, even though many of the fees at issue
were assessed before an arbitration clause was added to the RBC Agreement for
the first time in 2008. To explain this anomaly, which would have us retroactively
apply terms adding an arbitration provision while refusing to retroactively apply
terms superseding that same provision, RBC points to § 2 of the FAA. That
provision states that “an agreement in writing to submit to arbitration an existing
controversy . . . shall be valid . . . .” 9 U.S.C. § 2. There is, however, no statutory
authorization permitting parties to remove from arbitration an existing controversy.
RBC’s argument again fails. The fact that Congress explicitly required
courts to honor retroactively applicable arbitration agreements in no way suggests
that courts are prohibited from honoring parties’ agreements to retroactively apply
terms removing such provisions. After all, “arbitration is simply a matter of
contract,” First Options, 514 U.S. at 943, 115 S. Ct. at 1924. Thus, courts should
simply enforce the parties’ agreements, whether that means adding a retroactively
applicable arbitration provision or removing it. Why, then, was § 2 necessary?
The answer is that “[t]he FAA was enacted . . . in response to widespread judicial
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hostility to arbitration agreements.” Concepcion, __ U.S. at __, 131 S. Ct. at 1745.
Section 2 therefore ensured that courts would “place arbitration agreements on an
equal footing with other contracts,” id. (emphasis added), and permit parties to add
retroactively applicable arbitration clauses, just as it would permit parties to
remove them. Thus, the terms of the parties’ agreements compelled the district
court to apply the PNC Agreement’s terms retroactively, and nothing in the FAA
prohibits that result. 10
There is one final reason to conclude that the PNC Agreement’s terms
should be applied retroactively, and that is North Carolina’s policy requiring that
contracts be construed against the drafter. See, e.g., Chavis v. S. Life Ins. Co., 347
S.E.2d 425, 427 (N.C. 1986). If RBC had intended to limit the applicability of the
PNC Agreement’s terms to future disputes, RBC could have used the phrase
“begin to govern” as it had before; instead, it used the phrase “at all times govern.”
While it may seem odd—and to RBC, regrettable—that RBC’s successor
voluntarily undermined RBC’s pending attempt to arbitrate, that is a product of the
agreement RBC drafted, which gave its assignee not only the right to compel
arbitration but also the power to retroactively eliminate that right. The district
10
Applying these principles, it appears that RBC is incorrect about which of the two
agreements governs retroactively. As discussed supra in note 9, when the RBC Agreement and
its arbitration clause were issued, RBC stated that they would “begin to govern” in 30 days,
apparently precluding retroactive application of the RBC Agreement and its arbitration clause.
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court properly applied the terms of the parties’ agreements as they were written
and refused to relieve RBC of the consequences of its own drafting.
E.
Finally, RBC argues that if the RBC Agreement is superseded for purposes
of eliminating the arbitration provision, it should also be superseded for purposes
of eliminating the provisions Dasher alleges were breached. See, e.g., Allied-Bruce
Terminix Cos. v. Dobson, 513 U.S. 265, 281, 115 S. Ct. 834, 843 (1995) (holding
that states may not “decide that a contract is fair enough to enforce all its basic
terms (price, service, credit), but not fair enough to enforce its arbitration clause”).
Further, RBC insists the district court violated the FAA’s command, as interpreted
by the Supreme Court in Concepcion, not to single out arbitration provisions for
disfavored treatment. __ U.S. at __, 131 S. Ct. at 1746 (prohibiting states from
using contract “defenses that apply only to arbitration or that derive their meaning
from the fact that an agreement to arbitrate is at issue”).
RBC’s argument again fails for a number of reasons. First, the district court
has not ruled on whether Dasher’s claims are still viable; RBC merely predicts that
the court will allow those claims to proceed. RBC’s complaint is therefore
premature, and even if RBC were correct in the abstract—which it is not—we
could not reverse on this basis until the district court actually treated some other
provision more favorably than the arbitration provision.
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Second, and more importantly, RBC confuses two very different situations.
RBC claims it had the right to compel arbitration under the RBC Agreement and
that the district court denied that right, even though that agreement was not
effective when the district court ruled. Dasher, by contrast, claims that he had the
right not to be charged excessive overdraft fees under the RBC Agreement and that
RBC violated that right at a time when that agreement was still effective. In other
words, when RBC’s right to compel arbitration was denied by the district court,
RBC did not have a right to compel arbitration because the only agreement
granting that right was not effective, but when Dasher was charged allegedly
excessive fees, he did have a right not to be charged those fees because the
agreement granting him that right was effective.
Far from applying a “defense[] that appl[ies] only to arbitration,”
Concepcion, __ U.S. at __, 131 S. Ct. at 1746, the district court was applying basic
principles of North Carolina contract law—and common sense—that claims for
breach accrue when a breach occurs. See Miller v. Randolph, 478 S.E.2d 668, 670
(N.C. Ct. App. 1996). Thus, Dasher’s claim accrued the moment RBC charged
allegedly excessive fees. Finally, we note that if Dasher, like RBC, was asserting
that the RBC Agreement’s terms protect him today—that is, if he asserted a claim
for breaching the RBC Agreement based on an excessive overdraft fee charged
today—the district court would be required to dismiss his claims, just as it rejected
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RBC’s claim that it was entitled to arbitration because the agreement granting that
right was no longer effective. But this is not what Dasher is asserting, and it is this
critical distinction in timing, not hostility towards arbitration, that explains the
difference in treatment between the two parties’ claims under the RBC Agreement.
III.
For the foregoing reasons, we agree with the district court’s conclusion that
RBC cannot compel arbitration here. State law applies when courts determine
whether a valid arbitration agreement is in effect, and the FAA’s presumption does
not. Under North Carolina law, the RBC Agreement was entirely superseded, and
the arbitration agreement in that agreement therefore became ineffective. Based on
this conclusion, the district court properly looked to the PNC Agreement to
determine whether the parties agreed to arbitrate their disputes. Under North
Carolina law, the PNC Agreement’s silence is insufficient to form such an
agreement. Further, based on the terms of the agreements, the PNC Agreement
applies retroactively. Because the agreement governing the dispute at hand does
not permit RBC to compel arbitration, the district court properly denied RBC’s
motion.
AFFIRMED.
33