Eleventh Circuit Affirms that Waiting Too Long to Raise an Arbitration Agreement’s Delegation Clause Waives the Right to Have the Arbitrator Decide Issues of Arbitrability

By Christopher Reese

The United States Court of Appeals for the Eleventh Circuit recently confirmed that waiting too long to raise an arbitration agreement’s delegation clause waives the right to ask the court to send threshold questions of arbitrability to the arbitrator for resolution.

In Johnson v. KeyBank National Association, David Johnson, a customer of KeyBank, filed a putative class action against KeyBank alleging that the bank violated Washington law by changing the order of posting of debit card transactions to increase the overdraft fees it charged on his account. KeyBank moved to compel arbitration and stay all proceedings, but did not mention the arbitration agreement’s delegation clause.  Johnson opposed, arguing that the arbitration agreement was unconscionable under Washington state law, and the district court agreed, denying the motion to compel arbitration because the arbitration agreement’s class action waiver effectively prohibited individual plaintiffs from filing claims due to the potentially high costs.

The Eleventh Circuit vacated the district court’s order and remanded for further consideration in light of the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion.  On remand, KeyBank filed a renewed motion for arbitration, raising the arbitration agreement’s delegation clause for the first time.  On August 27, 2013, the district court granted KeyBank’s motion to compel arbitration, finding that the delegation clause required the arbitrator to resolve threshold questions of arbitrability.  Johnson appealed.

On appeal, the Eleventh Circuit began by noting that its precedent states that arbitration should not be compelled when the party seeking to compel arbitration has waived that right.  Under that precedent, waiver occurs when the party seeking arbitration substantially participates in litigation to a point inconsistent with an intent to arbitrate and the opposing party suffers prejudice in the form of incurring litigation expenses that arbitration was designed to alleviate.

Here, the Eleventh Circuit noted that KeyBank proceeded for years without raising the delegation clause, giving the impression that it believed the district court should resolve threshold questions of arbitrability.  In addition, the Court held that Johnson undoubtedly suffered prejudice as a result, incurring substantial attorney’s fees in litigating the threshold questions before the district court and on appeal.

The lesson from this case is simple: if a litigant’s arbitration agreement contains a delegation clause and the litigant prefers resolution of threshold questions of arbitrability by the arbitrator, the delegation clause should be raised at the earliest opportunity, usually in the motion to compel arbitration, to avoid any claims of waiver.

If you think you have consent to autodial a cell phone, you may need to think again

By Stephen J. Shapiro

The Telephone Consumer Protection Act (TCPA) prohibits the use of automated dialing systems to call cell phones without the consent of the “called party.” Therefore, creditors often request and receive consent from debtors to autodial their cell phones. A recent case out of the Eleventh Circuit, though, illustrates just how easily a creditor can run afoul of the TCPA, even when it believes it has consent. Specifically, when a debtor who has consented to receive autodialed calls to his cell number surrenders the number and it is assigned to someone else, the creditor can violate the TCPA by autodialing the number, even if the creditor did not know the number was reassigned.

In Breslow v. Wells Fargo Bank, N.A., a creditor attempted to collect a debt by using an automated dialer to call the cell phone number its debtor had provided on an account application.  Unbeknownst to the creditor, the debtor had surrendered the cell phone number and it had been reassigned to the plaintiff sometime after the debtor included it on the account application. The plaintiff, in both her individual capacity and on behalf of her minor child, who was the primary user of the cell phone, sued the creditor for violating the TCPA.

On motions for summary judgment the creditor took the position that the intended recipient of a call – here, the debtor – is the “called party” for purposes of the TCPA. Because it intended to call the debtor and because the debtor had consented to receive such calls, the creditor argued that it had the consent of the “called party” and had not violated the TCPA. The district court rejected this argument, and entered summary judgment in favor of the plaintiffs.

On appeal, the Eleventh Circuit affirmed. After noting that the TCPA does not define “called party” and then examining the act’s legislative history to divine Congress’ intent, the Court held that the term “called party,” as used in the relevant section of the TCPA, “means the subscriber to the cell phone service or user of the cell phone called.” Because neither the plaintiff nor her child – the subscriber and user of the cell phone at the time of the calls at issue – had consented to receive autodialed calls to the number, the Court agreed with the district court’s conclusion that the creditor had violated the TCPA. In reaching this result, the Court adopted the reasoning of the Seventh Circuit, which previously had arrived at the same conclusion. And, although it did not mention it, the Court’s definition of “called party” was similar to, though somewhat broader than, the definition that a different panel of the Eleventh Circuit offered in a decision earlier this year.

The Eleventh Circuit noted in the Breslow opinion that the TCPA, which was enacted in 1991, “may not comport with current cell phone trends.” The Court also pointed out that requiring creditors to confirm the validity of consent previously obtained is a burdensome endeavor that, in any event, may be of limited value given that such “confirmation is good only for that moment in time.” Indeed, the Court noted that “[t]here is no guarantee that the customer will continue to use the cell phone” number, especially after he begins receiving collection calls on it. The Court concluded, though, that these issues must be addressed by Congress, not by the courts.

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