In re Checking Account Overdraft Litigation: Wells Fargo Loses Motion to Compel Arbitration

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While the other defendants in the massive In re Checking Account Overdraft Litigation class action opted to settle, Wells Fargo instead gambled that it could force the plaintiffs into arbitration, in an attempt to avoid the massive payouts made by the other banks. So far, that tactic has not worked out for Wells Fargo. Now, the bank is facing the prospect of paying a nine-figure settlement, as the Eleventh Circuit has upheld the trial court’s denial of Wells Fargo’s motion to compel arbitration. See Garcia v. Wachovia Corp., ___ F.3d ___, (11th Cir. Oct. 26, 2012) (available here). See also In re Checking Account Overdraft Litig., No. 09-2036 (S.D. Fla. filed June 10, 2009) (Bank of America Notice of Settlement; U.S. Bank Joint Notice of Settlement).

The Court of Appeals affirmed the district court’s holding in all respects, agreeing that Wells Fargo acted contrary to an intention to arbitrate and that it would not have been futile for Wells Fargo to have moved to compel arbitration.  Wells Fargo’s now-dissolved subsidiary, Wachovia Bank, was also rebuffed in its attempt to compel arbitration, with the district court finding that Wachovia had waived its right to arbitrate.

Wells Fargo was given two opportunities by the district court to file a motion to compel arbitration, in November 2009 and April 2010, but declined to do so. Garcia at 4-5. “Wells Fargo even told the district court that . . . it ‘did not move for an order compelling arbitration . . . nor does it intend to seek arbitration of [plaintiffs’] claims in the future.’” Id. at 5. However, like many similarly situated defendants, Wells Fargo saw an opportunity with the Supreme Court’s issuance of AT&T v. Concepcion, and just two days later filed a motion to dismiss the five putative class actions in favor of arbitration or, in the alternative, to stay the proceedings pending arbitration. Id. at 5-6.

Wells Fargo argued that it did not waive its right to compel arbitration because, prior to Concepcion, a motion to compel arbitration would have been futile, since state laws made it impossible to enforce agreements to arbitrate on an individual (rather than classwide) basis. Id. at 6. However, the court ruled that such a motion would not have been futile, since Wells Fargo had a colorable argument: that the Federal Arbitration Act preempted state laws that barred enforcement of the arbitration agreements. Id. at 12-13. The court noted that the Concepcion decision itself demonstrates that such an argument could have been successful. Id.

Whether this ruling will lead to a settlement benefitting consumers remains to be seen, but the Wells Fargo plaintiffs appear to have scored a major victory.