In Attix v. Carrington Mortgage Services, LLC, 35 F.4th 1284 (11th Cir. May 26, 2022), the Eleventh Circuit reversed a district court’s denial of a motion to compel arbitration and enforced the parties’ agreement to delegate to the arbitrator questions of arbitrability, including whether arbitration itself was precluded by the Dodd-Frank Act. The decision not only reinforces the continued importance of delegation provisions in arbitration agreements, it also is notable for its rejection of a “partial delegation” interpretation of the parties’ arbitration agreement.
Attix involved claims brought by a consumer against his mortgage servicer alleging violation of the Fair Debt Collection Practices Act (FDCPA) related to a payment he made using an automated pay-by-phone system provided by a third-party payment-service provider. In response to the consumer’s lawsuit, the defendant mortgage servicer filed a motion to compel arbitration, relying on an arbitration agreement contained in the payment-service provider’s “terms and conditions,” to which a user agrees to be bound before making a payment through the system.
The district court denied the motion to compel arbitration, concluding that a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) prohibited enforcement of the arbitration agreement. Specifically, 15 U.S.C. § 1639c, which sets out “[m]inimum standards for residential mortgage loans,” provides that “[n]o provision” of a residential mortgage loan—or any related agreement between a consumer and a creditor—“shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate [court] . . . for damages or other relief in connection with any alleged violation of this section, any other provision of this title, or any other Federal law.” 15 U.S.C. § 1639c(e)(3). According to the district court, the payment-service provider’s terms and conditions were an “agreement” between a creditor and consumer “relating to” a residential mortgage loan, such that no provision of it (i.e., the arbitration clause) could not be used to bar the district court action by requiring arbitration.
The mortgage servicer appealed the denial of its motion, and the Eleventh Circuit reversed. The court did not rule on the applicability of the Dodd-Frank Act but instead concluded that this question had to be determined by an arbitrator under the parties’ arbitration agreement.
The arbitration agreement contained two separate provisions that the court interpreted as delegating arbitrability questions to arbitration:
The court concluded that this language showed that the parties had “clearly and unmistakably agreed to delegate all questions of arbitrability to an arbitrator, including” the dispute as to “whether the parties’ agreement to arbitrate [the consumer’s] claims is enforceable under the Dodd-Frank Act.” And, because the “Dodd-Frank Act challenge relates only to the enforceability of the parties’ agreement to arbitrate the merits of his claims, not the enforceability of the parties’ separate agreement to arbitrate the arbitrability of his claims,” it “is therefore an issue or the arbitrator to decide.”
The Attix decision revisits well-trodden ground on delegation provisions in arbitration agreements. A series of Supreme Court decisions over the last few decades holds that a delegation provision—once found to exist—must be treated as a stand-alone arbitration agreement, one to arbitrate questions of “arbitrability.” That is, as long as the parties’ contract contains “clear and unmistakable” evidence that they agreed to arbitrate arbitrability, that agreement must be enforceable under the Federal Arbitration Act (FAA) absent a specific challenge to the validity or enforceability of the delegation provision itself. See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019); New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019); Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (2010); First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995). As the Eleventh Circuit also noted, the Supreme Court recently rejected an exception to this rule under which some courts would decide arbitrability, despite the existence of a delegation provision, if the asserted basis for arbitration of the parties’ claims were “wholly groundless.” See Henry Schein, Inc., 139 S. Ct. 527–28.
Writing on that slate, the Eleventh Circuit easily decided that arbitration must be compelled to allow the arbitrator to decide whether arbitration of the consumer’s claims was precluded by the Dodd-Frank Act. First, relying on the two provisions quoted above, the court concluded that the parties clearly and unmistakably agreed to delegate all questions of arbitrability to an arbitrator. As to the language in the agreement itself—“decide what is subject to arbitration”—the court noted that it previously interpreted similar language to delegate “any issue” regarding arbitrability. And, if there were any doubt, the incorporation of the AAA rules only reinforced this conclusion.
The court specifically rejected the consumer’s argument that the language “unless prohibited by law” limited the scope of the delegation provision. In what the court termed a “partial delegation” interpretation, the consumer argued that arbitrability questions of scope—i.e., whether the agreement applies to a particular dispute—were delegated to the arbitrator, but arbitrability questions going to enforceability of the arbitration agreement were left with the court. The court concluded that this interpretation was not supported by the “plain and natural reading of the clause,” which is that all questions of arbitrability are delegated to an arbitrator “unless the law prohibits the delegation of threshold arbitrability issues itself.” In addition to being based on a “strained” reading of the contractual language, the “partial delegation” interpretation also “conflicts with how delegation agreements typically work.” In fact, the court noted, “[w]e have not, to our knowledge, ever seen a ‘partial’ delegation agreement in the wild.”
Finding the existence of an agreement to delegate arbitrability, the court then considered whether the consumer had “specifically challenged the enforceability of” that agreement. As the court noted, such a challenge to validity or enforceability of a delegation agreement occurs “if, and only if, the substantive nature of the party’s challenge meaningfully goes to the parties’ precise agreement to delegate threshold arbitrability issues.” To illustrate how such a challenge could be made, the court compared the facts of Rent-A-Center, in which there was not a specific challenge to delegation, with those in Parm v. National Bank of California, N.A., 835 F.3d 1331 (11th Cir. 2016), in which there was a specific challenge.
Here, the challenge was based on the Dodd-Frank Act, which did not go to the delegation agreement itself. As the court explained, “[t]he parties have a live threshold dispute: whether their agreement to arbitrate Attix’s claims falls within the scope of § 1639c(e)(3)’s protections against arbitration.” But, “Attix does not explain how § 1639c(e)(3) bars an arbitrator from resolving that dispute,” and “he points to no language in § 1639c(e)(3) that says a court, rather than an arbitrator, must decide whether” the terms and conditions are an agreement falling within the statute.
“At the end of the day, the “arbitrability of arbitrability” is simply about the freedom to decide who decides disputes. Federal law provides, emphatically, that parties may opt out of the judicial system. One would be hard-pressed to find a topic about which the Supreme Court has provided more consistent clarity in recent years than arbitration. The Court’s precedents make clear that, when an appeal presents a delegation agreement and a question of arbitrability, we stop. We do not pass go. At some point in this litigation, someone may, perhaps, collect $200. Whether anyone will—and who will ultimately decide whether anyone does—are not questions we answer today.”
Posted by Stacey Mohr.