Business parties who seek the advantages of arbitration, including protection from class actions, must take care to comply with the arbitral forum’s requirements or risk losing those advantages. This is the upshot of the Eleventh Circuit’s recent decision in Merritt Island Woodwerx, LLC v. Space Coast Credit Union, 2025 WL 1450492 (11th Cir. May 21, 2025)(per curiam).
The case was an interlocutory appeal from the denial of a credit union’s motion to compel arbitration. The plaintiffs claimed that the credit union charged fees that violated their checking account agreements. The checking account agreements included an arbitration provision which chose the American Arbitration Association to administer any arbitration, under its rules.
The root cause of the credit union’s arbitration enforcement problems was the AAA’s requirement for pre-registration of consumer arbitration provisions. Arbitration provisions submitted for registration are assessed for compliance with the AAA’s Due Process Protocol applicable to consumer provisions, and a registration fee is collected. The credit union had not registered its provision by the time one of the plaintiffs demanded arbitration. The case presented a role reversal for most consumer arbitration controversies; it was a consumer who first sought to enforce arbitration but was turned away by the AAA because the credit union had not pre-registered its provision. That consumer and another plaintiff then filed a would-be class action.
The credit union responded by moving to compel arbitration. The district court denied that motion, concluding that the credit union had failed to perform its obligations under the arbitration agreement by failing to take the steps necessary to be eligible for AAA arbitration until more than a month after the AAA had declined the consumer’s arbitration demand. By delaying, the district court held that the credit union had waived its contractual right to arbitrate. The credit union appealed to the Eleventh Circuit.
The Eleventh Circuit began by adopting a strained construction of the arbitration provision, which anticipated the possibility that the chosen arbitration forum, the AAA, might not be available: “[i]f [the] AAA is unavailable to resolve the Claims, and if you and we do not agree on a substitute forum, then you can select the forum for the resolution of the Claims.” Instead of interpreting the provision as a whole and in the context of an overall agreement for arbitration, the court construed that sentence of the provision in isolation and held that the reference to “substitute forum” in the arbitration provision included judicial forums as alternatives. The more plausible reading is that the reference to an alternative forum in the arbitration provision meant an alternative arbitral forum. Adopting that reading would have sent the case back to district court and into arbitration. (Most substitute-forum provisions in arbitration agreements require the counterparty’s consent to the selection of an alternative forum. The overly-generous draftsmanship here may have ended up costing the credit union its arbitration right.)
From there, the court also held that the credit union was in default under the arbitration agreement by not timely remedying its failure to register the agreement with the AAA. The Eleventh Circuit viewed the issue as governed by its decision in Bedgood v. Wyndham Vacation Resorts, Inc. 88 F.4th 1355 (11th Cir. 2023), which was decided shortly after the district court’s order under appeal. The case extends Bedgood, however, in a significant way. In Bedgood, the party seeking arbitration took no action whatsoever to register its arbitration provision, even after the litigation was filed. Here, the credit union registered its provision with the AAA not long after the litigation was filed. Thus, when the credit union moved to compel arbitration, AAA was apparently ready to serve as the forum. The court acknowledged the difference from Bedgood but saw no distinction. “Put simply, post-filing conduct cannot cure the prior noncompliance.” The source of authority for this rule of forfeiture is unclear.
The court also held that the plaintiff who did not seek arbitration was relieved of any duty to do so because the other plaintiff had demanded arbitration and been turned away because of the credit union’s noncompliance with AAA requirements. The court remanded the case to proceed with litigation.