Sevier Cnty. Sch. Fed. Credit Union v. Branch Banking & Trust Co.

Citation990 F.3d 470
Decision Date05 March 2021
Docket NumberNo. 20-5174,20-5174
Parties SEVIER COUNTY SCHOOLS FEDERAL CREDIT UNION ; Susanne Munson; Geoffrey Wolpert; Charles McGaha; Charlene McGaha; Robin Nichols ; Gregory Nichols; Rex Nichols ; Sarah Morrison, Plaintiffs-Appellants, v. BRANCH BANKING AND TRUST COMPANY, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)


This is a putative class action brought by the Sevier County Schools Federal Credit Union and other account holders (the Plaintiffs) against the Branch Banking & Trust Company (BB&T). The Plaintiffs allege that BB&T failed to honor a commitment made by one of its predecessors, the First National Bank of Gatlinburg (FNB), promising that the annual interest rate on certain high-interest Money Market Investment Accounts was guaranteed to "never fall below 6.50%."

The Plaintiffs might well prevail on the merits of their dispute with BB&T because, on the surface at least, the bank is trying to wriggle out of a commitment made years ago to these Plaintiffs by FNB. But the issue presently before us is not the merits of this dispute; instead, we must decide whether the merits should be resolved by a court or by an arbitrator. This is because BB&T's Bank Services Agreement (BSA) specifies that all disputes between the parties "shall be determined by arbitration."

BB&T moved to dismiss the complaint and to compel arbitration, which the district court granted. For the reasons set forth below, we REVERSE the judgment of the district court and REMAND the case for further proceedings consistent with this opinion.

A. Factual background

1. The 6.5% interest-rate guarantee

In 1989, the Plaintiffs opened Money Market Investment Accounts (MMIAs) with FNB. FNB guaranteed that the MMIAs’ annual rate of interest would "never fall below 6.5%." The original contract was two pages in length, did not include any provision limiting an account holder's right to enforce the agreement in court, and included the following change-of-terms provision:

Changes in the terms of this agreement may be made by the financial institution from time to time and shall become effective upon the earlier of (a) the expiration of a thirty-day period of posting of such changes in the financial institution, or (b) the making or delivery of notice thereof to the depositor by the notice in the depositor's monthly statement for one month.

2. Mergers and amendments

In March 1997, FNB merged with BankFirst of Tennessee (BankFirst). BankFirst continued paying 6.5% annual interest on the MMIAs for the next four years. In July 2001, BankFirst merged with BB&T. BB&T was aware of the MMIAs and its obligations to former MMIA-holders because, three days after the merger, BB&T converted those accounts to "Money Rate Savings Accounts" (MRSAs). The conversion apparently involved nothing more than a change of name.

Upon acquiring BankFirst in 2001, BB&T claims that it sent a BSA to each account holder. The 2001 BSA stated that, by continuing to maintain an account with BB&T, the account holders agreed to the 2001 BSA's terms. Among those terms were provisions that (1) the 2001 BSA could be amended (as it later was in 2004 and again in 2017), (2) amendments would be promulgated by written notice to the account holders, and (3) continued use of an account after receipt of notice constituted acceptance of the amendment. The 2001 BSA also included the following arbitration provision: "You and [BB&T] each have the option of requiring that any dispute or controversy concerning your account be decided by binding arbitration." This provision would have made the account holders responsible for half the initial costs of arbitration, while also allowing an arbitrator to award "the costs of arbitration or attorneys’ fees as part of the decision."

BB&T amended the BSA in 2004. The 2004 BSA, among other terms, added a class-action waiver and abolished all "special, incidental, consequential, punitive or indirect damages, including without limitation loss of profits."

In April 2017, BB&T once again amended the BSA. This amendment (the 2017 Amendment) made massive changes to the BSA, including an amendment to the arbitration provision. The provision began as follows:


It continued:

Any dispute, claim, controversy or cause of action, that is filed in any court and that arises out of or relates to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope of applicability of this agreement to arbitrate, shall be determined by arbitration before one arbitrator at a location mutually agreed upon in the state where your account is maintained, or as may be otherwise required under the JAMS Minimum Consumer Standards, which is incorporated by reference herein .... If a party elects arbitration, it may be conducted as an individual action only. This means that even if a demand for a class action lawsuit, class arbitration, or other representative action (including a private attorney general action) is filed, the matter will be subject to individual arbitration. Either party may bring a summary or expedited motion to compel arbitration or to stay the applicable litigation of a dispute in any court. Such motion may be brought at any time, and the failure to initiate or request arbitration at the beginning of litigation shall not be construed as a waiver of the right to arbitration.

The reference to "JAMS" in the above paragraph is directed to the organization formerly known as Judicial Arbitration Mediation Services, Inc. See Cal. Comm. Int. Dev. L. & Prac. § 21:120 (2020 ed.). It is a network of former judges, legal academics, and professional mediators with a background in Alternative Dispute Resolution (ADR). Id .

BB&T allegedly sent notice of the 2017 Amendment to each customer. In the notice was the following reference to the amendment of the arbitration provision: "The following paragraph replaces both the second and third paragraphs of the ARBITRATION AGREEMENT section of your [BSA]." Also in the notice was a statement that the account holders and BB&T were participating in transactions involving interstate commerce and were therefore "governed by the provisions of the Federal Arbitration Act ... and not by any state law concerning arbitration." As with the prior changes, the 2017 Amendment provided that continued use of the account after receiving notice constituted acceptance of the changes. All of the Plaintiffs maintained their MRSAs following the 2017 Amendment.

3. BB&T decides to lower the interest rate

From its initial acquisition of BankFirst in July 2001 until January 2018, BB&T—like BankFirst—respected the 6.5% interest rate for the former MMIAs. In January 2018, however, the Plaintiffs were notified that the annual percentage rate applicable to their accounts would soon drop by more than five percentage points—from 6.5% to 1.05%—in March 2018. The Plaintiffs were also informed that, starting in April 2019, the rates would "automatically adjust to BB&T's standard balance tiers, as well as to the current standard variable rate of the interest and APY [annual percentage yield]." For accounts with balances of $1,000 and up, these "standard balance tiers" reflected the industry's then-current interest rate—only 0.01% per year.

B. Procedural background

In March 2019, the Plaintiffs filed an action in the Circuit Court for Sevier County, Tennessee on behalf of themselves and all other similarly situated persons. They argued that BB&T is liable for breach of contract due to its actions in lowering the guaranteed interest rate. BB&T removed the lawsuit to federal court in a timely manner. Soon thereafter, the bank filed a motion to dismiss and to compel arbitration, which the district court granted. The district court had diversity-of-citizenship jurisdiction under 28 U.S.C. § 1332. We have appellate jurisdiction pursuant to 28 U.S.C. § 1291.

A. Standard of review and applicable law

We review de novo both the existence and validity of an agreement to arbitrate. Walker v. Ryan's Family Steak Houses, Inc. , 400 F.3d 370, 376 (6th Cir. 2005). Such review is conducted pursuant to "ordinary state-law principles that govern the formation of contracts." Glazer v. Lehman Bros., Inc. , 394 F.3d 444, 450 (6th Cir. 2005) (holding that the question of whether an arbitration provision is valid is one of state contract law). Here, the relevant law is that of Tennessee. Williams v. Smith , 465 S.W. 3d 150, 153 (Tenn. Ct. App. 2014) (noting that Tennessee follows the rule of lex loci contractus , which creates a presumption that a contract is governed by the law of the jurisdiction where it was executed); see also Smith v. Servicemaster , 2009 WL 1457143, at *3 (M.D. Tenn. May 22, 2009) ("Because arbitration agreements are fundamentally contracts, the enforceability of a purported agreement to arbitrate is evaluated according to the applicable state law of contract formation.").

An arbitration agreement may be "voided for the same reasons for which any contract may be invalidated under [Tennessee] law." Hudson v. BAH Shoney's Corp. , 263 F. Supp. 3d 661, 667 (M.D. Tenn. 2017). Before allowing a case to be arbitrated, a court must therefore examine whether the contract is valid under the law of the state where it was executed. Cooper v. MRM Investment Co. , 367 F.3d 493, 499 (6th Cir. 2004).

The Federal Arbitration Act (FAA) makes this concept explicit in its so-called "savings...

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