11th Cir Compels Arbitration in Overdraft Fee Putative Class Action, Severs Allegedly Unconscionable Fee Shifting Provision from Arbitration Provision

The Eleventh Circuit Appeals held in a putative class action that:  (1) the Federal Arbitration Act did not preempt South Carolina law regarding the contract defense of unconscionability; (2) a fee-shifting provision in a bank’s deposit account agreement containing a separate mandatory arbitration provision was unconscionable and thus unenforceable; (3) the fee-shifting provision was severable from the arbitration provision; and  (4) the mandatory arbitration provision was thus enforceable.
A bank depositor filed a putative class action against Bank,  regarding charged overdraft fees on checking accounts.
The district court denied Banks’  motion to compel arbitration, ruling that the arbitration agreement was unconscionable and thus unenforceable under South Carolina law.  Bank appealed the ruling.
The bank appealed twice!   In light of the U.S. Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, 131 S CT. 1740 (2011)(“Concepcion”), the Eleventh Circuit remanded with instructions to compel arbitration, ruling that, severed from the unconscionable Fee-Shifting Provision, the mandatory arbitration provision was enforceable.
The Eleventh Circuit noted that the FAA did not preempt “‘generally applicable contract defenses’ provided by state law ‘such as fraud, duress, or unconscionability’”  See Concepcion, 131 S.Ct. at 1746. South Carolina’s test for unconscionability applied equally to arbitration as well as other agreements.  See, e.g., Community State Bank v. Strong, 651 F.3d 1241, 1267 (11th Cir. 2011).
Concluding that the terms of the Fee-Shifting Provision were unconscionable under South Carolina law, the Eleventh Circuit ruled that the Fee-Shifting Provision was unenforceable. Ruckelshaus v. Sierra Club, 463 U.S. 680, 685 (1983)(losing parties normally not entitled to recover costs and fees). 

Carol A. Lawson, Esq., 28870 U.S. Hwy19 #300, Hodusa Towers, Clearwater, FL 33761, Phone: (727) 410-2705 email: calh@gate.net