Background
5-Star General Store and thousands of other merchants brought American Arbitration Association demands against Amex in August 2023, challenging Amex’s card swipe-fee policies and related non-discrimination provisions. The dispute included 5,155 arbitrations seeking damages and injunctive relief.
The AAA administrator determined that Amex owed $3,150 of a $3,500 filing fee in each relevant case, while the merchants owed $350. The merchants paid their share, but Amex continued to dispute its fee obligation. After repeated warnings that nonpayment would close the cases, AAA administratively closed them and later said the closure was final.
The Court’s Holding
The First Circuit affirmed the denial of Amex’s motion to stay the federal case and compel arbitration. A district court may decide whether a party defaulted under FAA § 3 when the asserted waiver arises from litigation-related conduct. Amex’s refusal to pay the AAA-assessed filing fees, before any arbitrator had been appointed and after repeated closure warnings, qualified as such conduct.
Amex waived its right to compel arbitration by deliberately refusing to pay the fees despite knowing that its refusal would cause the arbitrations to close. That conduct was inconsistent with an intent to arbitrate and therefore constituted default under § 3. The court also upheld the finding that the merchants had not acted with unclean hands because they participated in the fee process and paid the fees AAA assigned them.
Key Takeaways
- A party can waive arbitration by knowingly refusing to pay arbitration fees that the administering organization requires.
- When no arbitrator has been appointed and the proceedings have been closed for nonpayment, a court may decide FAA default and waiver.
- FAA waiver turns on intentional relinquishment or conduct inconsistent with a known right to arbitrate.
Why It Matters
The decision confirms that a party cannot insist on arbitration after its own nonpayment of required administrative fees causes the arbitration forum to close the cases. It also applies the Supreme Court’s waiver standard from Morgan v. Sundance without requiring a showing of prejudice.