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Sevier County Schools Federal Credit Union v. Branch Banking & Trust Co.

United States District Court, E.D. Tennessee, Knoxville

January 10, 2020

SEVIER COUNTY SCHOOLS FEDERAL CREDIT UNION et al., Plaintiffs,
v.
BRANCH BANKING & TRUST COMPANY, Defendant.

          H. Bruce Guyton Magistrate Judge

          MEMORANDUM OPINION

          TRAVIS R. MCDONOUGH UNITED STATES DISTRICT JUDGE

         Before the Court is Defendant Branch Banking & Trust Company's (“BB&T”) motion to dismiss and compel arbitration (Doc. 12). For the following reasons, BB&T's motion (id.) will be GRANTED.

         I. BACKGROUND[1]

         BB&T is a bank organized under the laws of North Carolina, with branches in many locations, including Sevier County, Tennessee. (Doc. 13, at 2.) Plaintiffs are current or former account holders with BB&T. (Id.; Doc. 1-1, at 5.) Plaintiff Sevier County Schools Federal Credit Union is a non-profit organization located in Sevier County, Tennessee. (Doc. 1-1, at 4.) The remaining named plaintiffs are persons residing in Sevier County, Tennessee. (Id. at 4-5.)

         A. Plaintiffs' Accounts with First National Bank of Gatlinburg

         Beginning in 1989, Plaintiffs opened Money Market Investment Accounts (“MMIAs”) with First National Bank of Gatlinburg (“FNB”). (Id. at 7.) FNB advertised the MMIAs to have a rate of return guaranteed never to fall below 6.5%, subject to the account holder's compliance with certain requirements. (Id. at 7, 15.) Upon opening an MMIA, each plaintiff signed an agreement (“MMIA Agreement”) with FNB. (Id. at 7; Doc. 13, at 2.) Each MMIA Agreement reserved to FNB the right to change its terms:

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 such changes in the financial institution, or (b) the mailing or delivery of notice thereof to the depositor by the notice in the depositor's monthly statement for one month.

         (Doc. 12-2, at 2; Doc. 13, at 2.)

         On or about January 22, 1992, FNB sent letters to MMIA-holders, notifying them that FNB would no longer maintain the 6.5% rate of return due to economic pressures. (Doc. 1-1, at 8, 21.) In response to backlash from MMIA-holders, FNB circulated another letter on February 21, 1992. (Id. at 8, 22.) The February 21, 1992 letter announced that MMIAs would be discontinued on March 31, 1992, and that existing MMIAs would be closed. (Id. at 22.) However, FNB offered to transfer “all or any portion of [the] funds to any other account or a combination of accounts, ” and provided the following options: (1) account holders could put their funds in “New Money Market Investment Accounts” with a rate of interest that would be set by FNB weekly; (2) they could invest in a “Certificate of Deposit” with an interest rate of 6.5% and a choice of maturity between three months to five years; or (3) they could transfer their funds to a “Maintenance Account” with all the features of the former MMIAs except that no additional deposits would be allowed. (Id.) Each plaintiff chose the third option “after being reassured that the account would forever maintain the guaranteed 6.5% rate.” (Id. at 8.)

         B. BB&T's Transition to Ownership

         On or about March 22, 1997, FNB merged with BankFirst of Tennessee (“BankFirst”). (Id.; Doc. 13, at 3.) BankFirst continued to pay 6.5% interest in connection with the Maintenance Accounts. (Doc. 1-1, at 8; Doc. 28, at 4.) On or about July 13, 2001, BankFirst merged with and began operating as part of BB&T. (Doc. 1-1, at 8.) BB&T was aware of the Maintenance Accounts and its obligations to former MMIA-holders. (Id. at 9.) On or about July 16, 2001, BB&T converted those accounts to Money Rate Savings Accounts (“MRSAs”).[2] (Id.)

         C. Agreements Between Plaintiffs and BB&T

         As part of its acquisition of BankFirst in 2001, BB&T provided a welcome letter to each Plaintiff and a “Bank Services Agreement.” (Doc. 13, at 3.) The Bank Services Agreement stated that, by maintaining an account with BB&T, account holders agreed to the terms of the agreement. (Id.; Doc. 12-3, at 4.) The agreement further stated that its terms could be amended, that amendments would be accomplished by written notice to account holders, and that continued use of an account following notice of an amendment would constitute acceptance of the amendment. (Doc. 12-3, at 4.) The agreement also included an arbitration provision, which stated, “You and the Bank each have the option of requiring that any dispute or controversy concerning your account be decided by binding arbitration . . . .” (Id. at 9.)

         BB&T amended the Bank Services Agreement in September 2004 (the “2004 Amendment”). (Doc. 13, at 4.) Among other things, the 2004 Amendment provided that, effective October 28, 2004, the existing arbitration section (Doc. 12-3, at 9) would be replaced with a new, longer section on arbitration (see Doc. 12-4, at 2-3). The new section stated:

Any claim or dispute (“Claim”) by either you or us against the other arising from or relating in any way to your account, this Agreement or any transaction conducted at the Bank or any of its affiliates, will, at the election of either you or us, be resolved by binding arbitration. This arbitration provision governs all Claims, whether such Claims are based on law, statute, contract, regulation, ordinance, tort, common law, constitutional provision, or any other legal theory and whether such Claim seeks as remedies money damages, penalties, injunctions, or declaratory or equitable relief.

(Id. at 3.) It further stated that “Claims subject to this arbitration provision include Claims regarding the applicability of this provision or the validity of this or any prior Bank Services Agreement.” (Id.) The 2004 Amendment also stated that continued use of the account after the effective date of the amendment would constitute acceptance of the changes therein. (Id. at 2). BB&T sent notice and a copy of the 2004 Amendment to each customer, and Plaintiffs continued to use their accounts. (Doc. 13, at 4.)

         On April 13, 2017, BB&T again amended the Bank Services Agreement (the “2017 Amendment”). (Id.) The 2017 Amendment made many changes to the Bank Services Agreement, including an amendment to the arbitration provision. The new provision began:

IT IS IMPORTANT THAT YOU READ THIS ARBITRATION PROVISION CAREFULLY. IT PROVIDES THAT YOU MAY BE REQUIRED TO SETTLE A CLAIM OR DISPUTE THROUGH ARBITRATION, EVEN IF YOU PREFER TO LITIGATE SUCH CLAIMS IN COURT. YOU ARE WAIVING RIGHTS YOU MAY HAVE TO LITIGATE THE CLAIMS IN A COURT OR BEFORE A JURY. YOU ARE WAIVING YOUR RIGHT TO PARTICIPATE IN A CLASS ACTION LAWSUIT, CLASS ACTION ARBITRATION, OR OTHER REPRESENTATIVE ACTION WITH RESPECT TO SUCH CLAIMS.

         (Doc. 12-5, at 4.) It went on to state:

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 or 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. . . .

(Id.) The new provision further stated:

You and the Bank each agree that under this Agreement, you and the Bank are participating in transactions involving interstate commerce which shall be governed by the provisions of the Federal Arbitration Act . . . and not by state law concerning arbitration. . . .

(Id. at 5.) The 2017 Amendment, again, provided that continued use of the account after receipt of the notice constituted acceptance of the changes (Doc 12-5, at 4), and Plaintiffs continued to use their accounts following the amendment (Doc. 13, at 5; see also Doc. 1-1, at 5).

         BB&T sent notice of the 2017 Amendment to each customer. (Doc. 13, at 4.) The notice drew particular attention to the amendment of the arbitration provision, stating “The following paragraph replaces both the second and third paragraphs of the ARBITRATION AGREEMENT section of your Bank Services Agreement, ” and reproduces the above-reference paragraph that begins with “Any dispute, claim, controversy, or cause of action . . . .” (Doc. 12-6, at 2.)

         From its acquisition of ownership in 2001 until January 2018, BB&T honored the 6.5% interest rate for the former MMIAs.[3] (Doc. 1-1, at 9.) Plaintiffs refrained from depositing additional funds into their MRSAs and did not transfer ownership of the accounts. (Id.) However, on or about January 30, 2018, Plaintiffs received notice that the annual percentage rate of their accounts would drop to 1.05% on March 10, 2018. (Id.) Plaintiffs were also informed that, after March 31, 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 [annual percentage yield].” (Id. at 9, 26-27.) For all accounts with a balance of $1, 000 or more, the “standard balance tiers” reflected an interest rate of 0.01%. (Id. at 10, 26-27.)

         D. The Present Action

         On March 22, 2019, Plaintiffs filed this action in the Circuit Court for Sevier County, Tennessee, on behalf of themselves and all other persons similarly situated. (Doc. 1-1, at 1, 5.) Plaintiffs allege that BB&T is liable for breach of contract based on its actions in lowering the interest rate on March 10, 2018. (Id. at 10.) The action was timely removed to federal court, and, on June 3, 2019, BB&T filed its motion to dismiss and compel arbitration (Doc. 12), which is ripe for the Court's review.

         II. STANDARD OF REVIEW

         The Federal Arbitration Act (“FAA”) allows parties to a contract to agree that certain controversies arising from the contract shall be decided by an arbitrator rather than by a court. See 9 U.S.C. § 2. The primary substantive provision of the FAA is § 2, AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)), which provides, in pertinent part:

A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. This section embodies “a liberal federal policy favoring arbitration.” AT&TMobility, 563 U.S. at 339 (quoting Moses H. Cone, 460 U.S. at 24). The principal purpose of the FAA is to ensure the enforcement of private arbitration agreements according to their terms, and the broader purpose of allowing parties to submit grievances to arbitration is to facilitate “efficient, streamlined procedures tailored to the type of dispute” at issue. Id. at 344 (citations omitted); see also Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000) (“The FAA was designed to override judicial reluctance to ...


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