by Andrew Flake
Where a party wishes to take advantage of its contractual right to arbitrate, it cannot act inconsistently with that right. And that includes compliance with the administrative and policy determinations of the administering arbitral institution. So the Eleventh Circuit held recently in Merritt Island Woodwerx, LLC v. Space Coast Credit Union, considering a consumer banking dispute and an arbitration clause specifying application of AAA’s Consumer Arbitration Rules.
The brief background: Merritt Island Woodwerx, LLC entered into a Master Services Agreement (MSA) with Space Coast Credit Union that contained a mandatory arbitration clause selecting AAA and its Consumer Rules. When Woodwerx initiated an arbitration concerning Space Coast’s fees, however, it learned that Space Coast had not taken the proper steps to permit AAA to administer the case.
As the Eleventh Circuit noted, a corporate party like Space Coast “intending the AAA to administer consumer arbitrations must notify the AAA, submit its arbitration provisions for an administrative compliance review, and pay an associated fee.” Space Coast had failed to do so.
Reviewing the matter, the AAA therefore declined administration, writing to Woodwerx that under Consumer Rule 1, it had the option to proceed to submit the dispute to a court for resolution. Woodwerx and another company party to an identical customer agreement, True Touch Services, LLC, then filed a putative class action.
Only at that point, after Woodwerx and True Touch filed that action, did Space Coast submit its arbitration provisions for approval and otherwise comply with AAA’s consumer administration requirements. At that point, the Eleventh Circuit determined, it was too late: Space Coast failed to comply with AAA policies, putting it “in default” under Section 3 of the Federal Arbitration Act and rendering Section 3’s remedies unavailable to the credit union.
In particular, Section 3 of the FAA caveats the right of a party to proceed to arbitration in important way: it the dispute is subject to arbitration, the court will stay the proceeding “providing the applicant for the stay is not in default in proceeding with such arbitration.” Where Space Coast had not complied with the Consumer Arbitration Rules, which require material compliance with the standards of AAA’s Due Process Protocol, see AAA Consumer Rule 12, it was in default.
The Court summed up this portion of its ruling as follows:
Put simply, post-filing conduct cannot cure the prior non-compliance. Any rule to the contrary would result in gamesmanship by companies attempting to remedy an arbitration roadblock that they knowingly caused were they to draw a judge they didn’t like or wanted to waste counterparty resources spent on litigation. This is especially true in the arbitration context, where the parties “trade[] the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.”
Note that default under Section 3 is related, but not identical, to waiver; where waiver is the “intentional relinquishment or abandonment” of a known right, a Section 3 default involved a court’s decision whether, “under the totality of the circumstances, the party has acted inconsistently with the arbitration right.'”
Under either rubric, though, the lesson in Space Coast is two-fold. First, for any party with an arbitration clause in its contract, front-end attention to and thought about the process and the rules selected is critical — the “ounce of prevention” of downstream problems that, as this case illustrates, can include the unavailability of the process. Second, in the more general arbitration context, a party seeking arbitration must act consistently at all times with that intention. ABF
[The cases referenced are Merritt Island Woodwerx, LLC v. Space Coast Credit Union, 137 F.4th 1268, 30 Fla. L. Weekly Fed. C 2252 (11th Cir. 2025, decided May 21, 2025) and Bedgood v. Wyndham Vacation Resorts, Inc., 88 F.4th 1355, 1363, 30 Fla. L. Weekly Fed. C 503 (11th Cir. 2023).]