Lisa Flagg v. First Premier Bank

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-14052
Non-Argument Calendar
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D.C. Docket No. 1:15-cv-00324-MHC
LISA FLAGG,
on behalf of herself and all others similarly situated,
Plaintiff - Appellee,
versus
FIRST PREMIER BANK,
a South Dakota State-Chartered Bank,
Defendant - Appellant.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(February 23, 2016)
Before WILSON, JORDAN, and ROSENBAUM, Circuit Judges.
PER CURIAM:
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Lisa Flagg filed a class-action lawsuit against First Premier Bank. She
alleged that First Premier violated the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. § 1962, by facilitating the illegal transactions of
online payday lenders.
In her payday loan agreement, Ms. Flagg agreed to arbitrate all disputes
arising from her loan, and that all such disputes would be resolved “by and under
the Code of Procedure of the National Arbitration Forum.” The problem is that the
National Arbitration Forum (“NAF”) has not been accepting consumer arbitration
claims since 2009. After the NAF declined Ms. Flagg’s request to arbitrate her
claim against First Premier, she filed suit in federal district court. First Premier
moved to compel arbitration and appoint a substitute for NAF, and to stay or
dismiss the proceedings. The district court denied the motion, and First Premier
now appeals.
Under § 5 of the Federal Arbitration Act, when the arbitral forum chosen by
the parties is unavailable, the court can appoint a substitute arbitrator. See 9 U.S.C.
§ 5; Brown v. ITT Consumer Financial Corp., 211 F.3d 1217, 1222 (11th Cir.
2000). Because arbitration is a matter of contract, however, we have held that an
arbitration agreement is only enforceable if the choice of forum is not an integral
part of the agreement to arbitrate. See Inetianbor v. CashCall, Inc., 768 F.3d 1346,
1350 (11th Cir. 2014). We must decide, therefore, whether the naming of NAF
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was integral to the arbitration agreement Ms. Flagg signed. We agree with the
district court that it was integral and therefore affirm.
I
Because we write for the parties, we assume familiarity with the underlying
facts of the case and recite only what is necessary to resolve this appeal.
First Int’l is an online payday lender, which makes and collects debts on
payday loans. These payday loans—generally small loans with high fees that are
due in full on the borrower’s next “payday”—are illegal in certain states, including
Georgia. A borrower obtaining a payday loan from an online lender must usually
sign an Automated Clearing House (“ACH”) authorization agreement, which gives
the lender authority to electronically debit and credit loan transactions. The ACH
Network is the nation’s secure electronic payment transfer network. The debit and
credit transactions between borrowers and lenders such as First Int’l are performed
by banks that belong to the ACH Network, including First Premier. These banks
are required to do extensive due diligence prior to entering into an agreement with
a merchant seeking to electronically process transactions on the ACH Network.
According to Ms. Flagg’s complaint, First Premier engaged in a scheme to
allow payday lenders to make illegal payday loan credits and debits using the ACH
Network. First Premier allegedly profited from its participation in this scheme by
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charging payday lenders higher than customary fees to originate transactions on the
ACH Network.
In August of 2012, Ms. Flagg received a $250 payday loan from First Int’l.
She was required to pay back $335.00—the $250 principal and an $85 fee—within
22 days. Ms. Flagg provided an ACH authorization for her checking account with
JPMorgan Chase Bank, N.A. to obtain the loan. The loan agreement stated that the
nominal interest rate on the loan was 899.46%. And, even if timely paid off, the
payday loans offered by First Int’l automatically renew unless the borrower
affirmatively declines the renewal option at least three business days before the
loan due date. As a result, First Int’l twice debited $335.00 from Ms. Flagg’s
checking account in Georgia through the ACH Network in September and October
of 2012.
The payday loan agreement that Ms. Flagg signed contained an arbitration
provision that reads as follows:
AGREEMENT TO ARBITRATE ALL DISPUTES: By signing
below and to induce us, (First International SRS), to process your
application for a loan, you and we agree that any and all claims,
disputes, or controversies that we or our services [sic] or agents have
against you or that you have against us, our services [sic], agents,
directors, officers and employees. That arises out of your application
for one or more loans, the Loan Agreements that govern your
repayment obligations, the loan for which you are applying or any
other loan that we previously made or later makes [sic] to you, this
Agreement To Arbitrate All Disputes, collection of the loan or loans,
or alleging fraud or misrepresentation, whether under the common law
or pursuant to federal or state stature [sic] or regulation, or otherwise,
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including disputes as to the matters subject to arbitration, shall be
resolved by a binding individual (and not class) arbitration by and
under the Code of Procedure of the National Arbitration Forum
(NAF) in effect at the time the claim is filed. THEREFORE, THE
ARBITATION [sic] SHALL NOT CONDUCT CLASS
ARBITRATION. THAT IS: THE ARBITRATOR SHALL NOT
ALLOW YOU TO SERVE AS A REPRESENTATIVE, AS A
PRIVATE ATTORNEY GENERAL, OR IN ANY OTHER
REPRESENTATIVE CAPACITY FOR OTHERS IN THE
ARBITRATION. This Agreement to Arbitrate All Disputes shall
apply no matter by whom or against whom the claim is filled [sic].
Rules and forms of the NAF may be obtained and all claims shall be
filed at any NAF office, on the World Wide Web at www.arb-
forum.com, or National Arbitration Forum, P.O. Box 50191,
Minneapolis, Minnesota 55405. If you are unable to pay costs at
arbitration, your arbitration fees may be waived by the NAF. . . .
(emphasis added). Ms. Flagg signed the agreement in August of 2012. But the
NAF has not been accepting consumer cases for arbitration since July of 2009,
when it settled with Minnesota’s Attorney General, who had sued the NAF over its
affiliations with pro-creditor groups.
On January 5, 2015, counsel for Ms. Flagg sent a letter to the NAF
attempting to initiate arbitration against First Int’l and First Premier in accordance
with the NAF Code and the terms of the First Int’l loan agreement. Three days
later, on January 8, counsel received a response letter from the NAF explaining
that it is no longer able to accept consumer arbitration claims and declining to
initiate arbitration.
Because the NAF was unavailable, Ms. Flagg filed suit in federal court on
January 30, 2015. First Premier asked the district court to compel arbitration,
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arguing that § 5 of the FAA requires the appointment of a substitute for NAF. On
August 26, 2015, the district court denied First Premier’s motion.
II
We review de novo a district court’s interpretation of an agreement to
arbitrate (and whether it binds the parties to arbitrate), but we accept the district
court’s findings of fact unless they are clearly erroneous. See Multi-Fin. Sec.
Corp. v. King 386 F.3d 1364, 1366 (11th Cir. 2004).
The unavailability of the parties’ chosen forum precludes arbitration if “the
choice of forum is an integral part of the agreement to arbitrate, rather than an
ancillary logistical concern.” Inetianbor, 768 F.3d at 1349–50. “To determine
whether the forum selection clause is integral, we must consider how important the
term was to one or both of the parties at the time they entered into the agreement.”
Id. at 1350.
We turn to the text of the arbitration provision to determine the parties’
intent. The provision specifies that disputes “shall” be resolved by the NAF under
its Code in effect at the time of the claim, and does not appear to contemplate
arbitration before any other forum. Indeed, despite the fact that the NAF had
stopped accepting consumer arbitration cases more than three years before Ms.
Flagg applied for her payday loan, First Int’l continued to use arbitration
agreements designating the NAF and made no provision for the appointment of an
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alternate arbitrator. This chronology suggests that the designation of the NAF was
integral to First Int’l and counsels against a court stepping in to appoint a different
arbitral forum.
The provision also states that disputes shall be resolved under the NAF’s
Code of Procedure. In part, that Code provides: “If Parties are denied the
opportunity to arbitrate a dispute, controversy or Claim before the Forum, the
Parties may seek legal and other remedies in accord with applicable law.” Relying
on our unpublished decision in Beverly Enters., Inc. v. Cyr, 608 F. App’x 924
(11th Cir. 2015), the district court concluded that the specific references to the
NAF’s Code of Procedure indicated that the NAF was integral to the arbitration
agreement.1
In arguing for arbitration with a substitute arbitral forum, First Premier relies
on our decision in Brown v. ITT Consumer Financial Corp., 211 F.3d 1217 (11th
Cir. 2000), but that reliance is misplaced. The arbitration provision in Brown
provided only that claims were to be “resolved by binding arbitration under the
Code of Procedure of the National Arbitration Forum,” but did not explicitly
designate an arbitral forum. In this case, the arbitration agreement specifically
designates the NAF as the arbitral forum and mentions the chosen forum
1 In Beverly Enters., we held that the selection of the NAF was an integral part of the
parties’ agreement to arbitrate. Although the Beverly Enters. decision is not binding, we—like
the district court—find its reasoning persuasive here.
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throughout the agreement. See Inetianbor, 768 F.3d at 1351 (“Unlike in Brown,
the arbitration agreements we consider here select not just the rules of procedure,
but also the arbitral forum. Beyond that, unlike in Brown, here the chosen arbitral
forum is referenced throughout the arbitration agreement. As a result, Brown in no
way compels us to reach the same outcome here.”). Here, the NAF pervaded the
arbitration provision. It was designated as the exclusive forum and its Code of
Procedure was selected to govern all claims. The provision directed consumers to
file their claims with and obtain required forms from any NAF office, online at the
NAF website, or by sending a request to the NAF’s mailing address. Furthermore,
as we noted in Beverly Enters., 608 F. App’x at 925, the Brown decision predated
the consent decree in which the NAF agreed not to participate in consumer
arbitrations and which Georgia courts have recognized cancels the NAF Code in
such matters. See Sunbridge Ret. Care Assocs., LLC v. Smith, 757 S.E.2d 157, 160
(Ga. Ct. App. 2014). Given these differences, we do not think Brown directs us to
compel arbitration.
III
Because the choice of the NAF as the arbitral forum was an integral part of
the agreement to arbitrate, we conclude that the district court properly denied First
Premier’s motion to compel arbitration and appoint a substitute for NAF, and to
stay or dismiss the proceedings.
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AFFIRMED.
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