Fourth Circuit Holds Arbitration Agreement May Not Waive All Federal Statutory Rights
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This week, the Fourth Circuit found an arbitration agreement invalid because it waived all federal and state laws. Although two other federal circuit courts had already found the same company’s arbitration agreement unenforceable because it called for an impossible arbitration process, the Fourth Circuit found it invalid for a new reason.
The issue in Hayes v. Delbert Services Corp., __ F.3d___, 2016 WL 386016 (4th Cir. Feb. 2, 2016), was whether a putative class of plaintiffs could assert violations of two federal statutes (Fair Debt Collection Practices Act and Telephone Consumer Protection Act) by the servicing agent of a payday lender in court, or whether they had to arbitrate the claims. The servicer relied on the arbitration clause in the loan agreement to compel arbitration. The arbitration clause called for arbitration by the Cheyenne River Sioux Tribal Nation, in accordance with the Tribe’s “consumer dispute rules.” However, the Tribe had no arbitration rules and no capacity to administer arbitrations. Those failures had led the Second and Seventh Circuits to find the arbitration agreement in the same lender’s loan agreement unenforceable. But, the arbitration clause in this case was slightly different, as it allowed the borrower the right to select either AAA or JAMS to “administer the arbitration.” So, the question in this case seemed to be whether that could save the arbitration clause, by providing a real arbitration forum.
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