In re Checking Account Overdraft Litigation: District Court Denies Motion to Compel Arbitration, Limits Application of Concepcion

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Many of the largest payouts to class members in recent months have been in actions alleging that banks have rigged their internal software to maximize overdraft fees, typically by altering the order in which transactions are posted to customer accounts.  In March, Bank of America agreed to pay $410 million to settle overdraft claims.  The Bank of America settlement arose from a Florida-based MDL action, In re Checking Account Overdraft Litig., No. 09-MD-02036 (S.D. Fla. transferred June 10, 2009).  While Bank of America opted to settle, the remaining defendants chose to move for reconsideration of the pre-Concepcion denial of their motions to compel arbitration to enforce a class action waiver embedded in the arbitration clause.  That second set of motions was also denied, in an order issued earlier this month holding that Concepcion does not nullify all unconscionability-based defenses to the enforcement of arbitration agreements and class action waivers, and laying out a roadmap for post-Concepcion unconscionability analysis.  See In re Checking Account Overdraft Litig. (order denying renewed motions to compel arbitration) (available here).

The denial of defendants’ renewed arbitration motions presents an ideal before-and-after test case of Concepcion’s application, and reveals that Concepcion did not deal the death blow to the unconscionability doctrine as some had speculated.  The initial set of motions to compel arbitration was denied in May of 2010 because each of the defendants had required that the plaintiffs execute “deposit agreements,” requiring that all claims be arbitrated and prohibiting class actions; these terms were found to be unconscionable.  While that ruling precipitated the Bank of America settlement, the four remaining defendants—Branch Banking & Trust, M&T Bank, Regions Bank, and SunTrust—gambled on a favorable ruling by the U.S. Supreme Court in Concepcion.  These remaining defendants moved for reconsideration of the pre-Concepcion denial of the motions to compel arbitration following the Supreme Court’s 5-4 decision holding that similar terms in another consumer agreement (an arbitration clause and class action waiver) were inconsistent with and thus preempted by the Federal Arbitration Act (FAA).

Despite the seemingly on-point parallels with Concepcion, the defendants’ renewed motions to compel arbitration were denied, as Judge Lawrence King underscored that “Concepcion did not completely do away with unconscionability as a defense to the enforcement of arbitration agreements under the FAA.”  Order at 8.  Rather, Concepcion “simply narrows the permissible factors for consideration in the unconscionability analysis.” Id. at 9.  Judge King drew a sharp contrast between the “extremely consumer friendly” (id. at 4) arbitration agreement in Concepcion and the terms of the at-issue arbitration clauses.  For instance, the SunTrust arbitration agreement entitled the prevailing party to recover costs and attorney fees, and provided that those amounts could be removed from a losing customer’s SunTrust account, without notice.  See id. at 12.  Despite lacking the account-invading feature of the SunTrust agreement, both the Regions Bank and BB&T arbitration agreements provided only for the bank’s recovery of fees and costs as the prevailing party, not the customers’.  See id. at 15, 18.  These one-way fee shifting provisions were also held to be unconscionable, even under a post-Concepcion analysis.

In rigorously limiting Concepcion to its facts, the Checking Account Overdraft Litigation analysis provides the first example of a court distinguishing Concepcion on the basis of the specific provisions of the AT&T arbitration agreement.  In so doing, Checking Account Overdraft Litigation confirms that while unconscionability analysis is perhaps much transformed by Concepcion, it has not been rendered as toothless as some had predicted.