by Andrew Flake
A new Fourth Circuit opinion reminds us of the analysis required when parties arguing that federal statutory claims should be excluded from arbitration. In Espin v. Citibank, N.A., returning military personnel brought claims under the Servicemembers Civil Relief Act (SCRA), a statute providing credit-related protections for active military, including limits on interest rates.
The plaintiffs brought their claims in federal court, alleging in part that Citibank had not complied with requirements to reduce the interest they paid on revolving debt. When Citibank then moved to compel arbitration, based on its form credit agreement, the plaintiffs pointed to what they considered the SCRA’s non-waiver language, included as part of a 2019 amendment:
“Any person aggrieved by a violation” of the SCRA “may in a civil action . . . be a representative party on behalf of members of a class or be a member of a class, in accordance with the Federal Rules of Civil Procedure, notwithstanding any previous agreement to the contrary.” 50 U.S.C. § 4042(a)(3).
In particular, this language uses terms and rule references – “civil action” and the FRCPs’ class action provisions – that contemplate action in court, not in an arbitral forum. Additionally, the SCRA confers the ability to participate in a federal court class action “notwithstanding any previous agreement to the contrary.” That latter language in particular, said the plaintiffs, was Congress calling out agreements to arbitrate.
A sound position, the reader might reasonably observe, and in this case, the district court certainly agreed. But the Fourth Circuit viewed it differently, and in particular, relied on this principle expressed in the Supreme Court’s 2012 CompuCredit Corp. v. Greenwood opinion: arbitration agreements are enforceable, even when the claims concerned are federal statutory claims, “unless the FAA’s mandate has been overridden by a contrary congressional command.”
Via the majority opinion in CompuCredit, the Supreme Court has required that this kind of clear Congressional command come in the form of language in the statute that mentions arbitration explicitly, not by inference. And applying that opinion, the Fourth Circuit found that Congress had not intended to override arbitration agreements – that while the forum would be different, the plaintiffs would still have the ability to enforce their rights under the SCRA.
This concept was key to CompuCredit, the idea that even for a federal statute setting out a civil remedy,, and notwithstanding the statute’s reference to an “action,” “court” or like language, arbitration is a satisfactory forum for enforcement of a party’s statutory rights.
Per Justice Scalia in that case “we have repeatedly recognized that contractually required arbitration of claims satisfies the statutory prescription of civil liability in court.” While I know practitioners who would disagree with Justice Scalia’s observation as a practical matter, his statement is at least accurate as to Supreme Court precedent, which does not consider references to “court,” “civil actions,” or like nomenclature clear enough to preclude arbitration.
The basic notion of an arbitration clause as simply a means of forum-selection; and indeed, the CompuCredit majority uses that very example, suggesting that the “essential thing,” as opposed to a “right to sue” in court, is a “guarantee of the legal power to impose liability.”
Applying this standard, the Fourth Circuit in Espin found that the SCRA lacked an unambiguous Congressional command against arbitration. Interesting, and I suspect there was more briefing on this point than the opinion reveals, the Fourth Circuit had to determine that the SCRA’s reference overriding “prior agreements,” was to prior agreements that might have restricted the ability to proceed as a class:
We conclude that the clause “notwithstanding any previous agreement to the contrary” confirms the authority of persons aggrieved to bring federal class actions despite any previous agreement to the contrary.
Here, the Fourth Circuit viewed the SCRA as giving service members a permissive right, the ability without the obligation, to bring a federal class action in court.
But another wrinkle in Espin, and one worth noting because it arises often, is that the Citibank agreements contained a waiver of the right to proceed in an arbitration on a class basis. Here’s the language:
Claims brought as part of a class action, private attorney general or other representative action can be arbitrated only on an individual basis. The arbitrator has no authority to arbitrate any claim on a class or representative basis and may award relief only on an individual basis.
So the Fourth Circuit’s overall idea seems to be that, while the servicemember plaintiffs started out with a presumptive right to sue in federal court as a class, which no prior agreement could have restricted, by subsequent agreement, these plaintiffs in fact waived that right. In this view, the “no class action” language merely restricts the scope of the arbitration.
Regardless of this parsing, what really carried CitiBank’s position in Espin was the textual analysis in CompuCredit and other precedent that asks whether a statute explicitly mentions arbitration or not; in the case of the SCRA, it did not.
And one other statute at issue in Espin, the Military Lending Act, which did mention arbitration, was treated differently; the Fourth Circuit found Congress intended to override arbitration and thus remanded to the district court the question of how to handle those MLA claims.
For parties litigating these issues, the key takeaway from Espin, based on precedent, is that parties challenging the arbitrability of federal statutory face an uphill battle.
At the same time, take heart. Certainly, the CompuCredit opinion heavily weights unequivocal textual evidence that Congress intended to foreclose arbitration. Yet, a case-specific analysis of arbitrability is always required, leaving ample room for good lawyering and sound analysis and argument — as to the meaning of text of the statute as well as other potential sources of Congressional intent. -ABF
[The cases discussed are Espin v. Citibank, N.A., 126 F.4th 1010 (4th Cir., decided Jan. 28, 2025) and CompuCredit Corp. v. Greenwood, 565 U.S. 95, 132 S. Ct. 665, 181 L. Ed. 2d 586 (2012).