On March 27, 2023, Plaintiff Merritt Island Woodwerx, LLC (Woodwerx), filed a dispute with the AAA against Space Coast Credit Union (Space Coast) relating to charges on its account. Shortly thereafter, the AAA issued a letter to Woodwerx and Space Coast explaining that it would not “administer this claim and any other claims between Space Coast Credit Union and its consumers at this time” because Space Coast had not submitted its consumer dispute resolution plan for review or paid the fee pursuant to Rule 12 of the AAA Consumer Arbitration Rules. The arbitration failed to proceed.

On June 7, 2023, Woodwerx and True Touch Services, LLC (True Touch) brought a putative class action suit against Space Coast in federal court for the charges on their respective accounts. Two days later, Space Coast filed its plan and paid the required fee to the AAA. On July 24, the AAA approved the plan and stated it would administer Space Coast’s future consumer-related disputes.

Space Coast then moved to compel arbitration of the Woodwerx and True Touch disputes. The district court denied the motion, reasoning that Space Coast failed to perform its contractual obligations under the arbitration agreement by not taking the necessary steps for the AAA to administer the dispute for over a month after the AAA declined Woodwerx’s original arbitration demand. The district court concluded that by delaying compliance, Space Coast had waived its contractual right to arbitration.

Eleventh Circuit holds that noncomplying parties may not move to compel arbitration

Space Coast raised four arguments on appeal. First, that the MSA required the plaintiffs to arbitrate, regardless of the AAA’s refusal to administer the dispute. Second, that it had not waived its right to arbitration and was therefore entitled to a stay under Section 3 of the FAA . Third, that at a minimum, True Touch was not excused from attempting to arbitrate because of Woodwerx’s unsuccessful attempts to do so. Lastly, that the plaintiffs should have been directed to arbitrate pursuant to Section 4 of the FAA. The court disagreed with all of Space Coast’s arguments and affirmed the district court’s order.

The court held that a federal court was a forum under the substitute-forum clause of the MSA. It was unpersuaded by Space Coast’s argument that the heading of the section – “Selection of Arbitrator” – limited the clause’s scope to include only arbitration forums. Rather, the relevant substitute-forum sentence reads “forum for the resolution of the Claims” broadly, which includes a federal district court.

Further, the court found that Space Coast “acted inconsistently with [its] arbitration right” and therefore waived it. The Court reemphasized its holding in Bedgood, namely, that “the AAA was empowered to conclude that [the company’s] arbitration clause violated its policies…and that [the company] was in default” as to its arbitration rights under Section 3. The court was not persuaded by the fact that Space Coast had cured its issues with the AAA.

Third, the court explained that True Touch’s failure to request arbitration was irrelevant to whether it could pursue this action in federal court “given the evidence of futility in the form of the AAA’s declination letter to Woodwerx.” Because True Touch possessed an identical agreement to Woodwerx’s rejected agreement, it was not required to attempt arbitration before filing in federal court.

Lastly, the Eleventh Circuit held that Space Coast was not entitled to an order directing arbitration pursuant to Section 4 of the FAA. The court explained that Woodwerx’s attempt to arbitrate was not a “failure, neglect, or refusal by which [Space Coast] could have been aggrieved.” As to True Touch, the court noted that although True Touch did not attempt to arbitrate, it was by no fault of its own. Rather, the court explained, “[t]o the extent that [Space Coast] is aggrieved, it was aggrieved either by its own failure [to comply by filing the arbitration clause and paying the fee] or, at the very least, by the AAA’s decision.”

Impact of the Woodwerx decision

Initially, Woodwerx and Bedgood may seem – in the court’s own words – like “odd case[s],” but their implications are significant for companies utilizing arbitration clauses. The clear message from Woodwerx is that courts take seriously any issues related to the procedural requirements of the arbitral administrators chosen by the parties. Specifically, courts will not compel arbitration when they perceive a company to be engaging in “gamesmanship” by failing to have its arbitral “ducks in a row” with its chosen administrator but later attempting to utilize arbitration in the same dispute. It also speaks to a trend – including the Supreme Court’s decision in Morgan v. Sundance, Inc., 142 S. Ct 1708 (2022), which held that prejudice is not required to find waiver of arbitration – showing that courts are not treating arbitration as sacrosanct as they did in the past.

At a minimum, companies utilizing arbitration must ensure they abide by the rules of the chosen arbitral administrator, and in the event of a procedural defect, work expeditiously to cure it before an action is filed in court. Though Woodwerx did not address the question of whether curing a defect before an adverse party files an action in court would be a waiver of arbitration rights, companies are better off ensuring they meet all arbitration administrator requirements before an arbitral demand is made.

Client Alert 2025-148