Eleventh Circuit Sends More Overdraft Litigation to Arbitration

By Robyn Hagan Cain on July 13, 2012 | Last updated on March 21, 2019

The Eleventh Circuit Court of Appeals is full of overdraft litigation.

In March, we told you about Maxine Given, an Eleventh Circuit litigant who was challenging an M&T checking account arbitration clause. This week, we have Lacy Barras, a Branch Banking and Trust (BB&T) customer who claims that BB&T charges overdraft fees for payments from checking accounts, even when the account contains sufficient funds to cover the payments.

Barras also alleged that BB&T supplies inaccurate and misleading information about account balances, and fails to notify customers about changes to policies for processing checking account transactions, thereby increasing overdraft charges assessed against customers.

BB&T moved to compel arbitration of all of Barras' claims under an arbitration provision contained in BB&T's Bank Services Agreement (BSA). The district court denied BB&T's motion to compel arbitration, but that was before the Supreme Court decided AT&T Mobility, LLC v. Concepcion, (holding that § 2 of the Federal Arbitration Act prohibited the invalidation of an arbitration agreement based on a state law prohibiting contractual waivers of class-based arbitration and litigation).

The Eleventh Circuit remanded the case to the district court for reconsideration, and the district court, once again, denied BB&T's arbitration motion. This time, the court ruled that BB&T had waived its right to submit the question of arbitrability to the arbitrator because BB&T had previously submitted the issue to the district court and the Eleventh Circuit, and lost.

The district court also ruled that the mandatory arbitration provision was unconscionable, because only BB&T could recover any costs and attorneys' fees resulting from arbitration and BB&T could recover these fees by withdrawing them from Barras' account without notifying her.

And so the case landed back in the Eleventh Circuit.

The appellate court determined that cost-and-fee-shifting provision in BB&T's BSA was unconscionable and unenforceable as written under South Carolina law, but concluded that the provision was severable.

Under South Carolina law, "if a court as a matter of law finds any clause of a contract to have been unconscionable at the time it was made, the court may refuse to enforce the unconscionable clause, or so limit its application so as to avoid any unconscionable result." The appellate court reasoned that, even if BB&T had waived its contractual right in the severability provision, South Carolina law still would permit a court to "limit the application" of the cost-and-fee-shifting provision.

Here, because the BSA arbitration provision was capable of operating independently of the unconscionable cost-and-fee-shifting provision, the Eleventh Circuit Court of Appeals reversed and remanded the case with instructions to compel arbitration.

The bad news for banking customers suing in Eleventh Circuit feeder courts? Any challenge to a bank's overdraft policies will likely be settled in arbitration.

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