Allen v. Regions Bank
(5th Cir., August 11, 2010)
Minnie and Kenneth Allen obtained a home equity loan from First American National Bank in October 1999. First American withheld funds from the loan to purchase credit life and disability insurance. In December 1999 AmSouth Bank became the successor to First American. In 2001, the Allens opened a deposit account with AmSouth. An agreement signed by the Allens in conjunction with opening their deposit account required arbitration of all disputes relating to any account or transaction with AmSouth. The agreement provided, in part, that a “dispute regarding whether a particular controversy is subject to arbitration, including any claim of unconscionability and any dispute over the scope or validity of this agreement to arbitrate disputes or of this entire Agreement, shall be decided by the arbitrator(s).” In 2004, Mr. Allen made a claim under the disability policy. AmSouth denied there was any disability insurance policy. AmSouth was subsequently succeeded by Regions Bank. In 2008, Mr. Allen was diagnosed with cancer and made another claim which was denied.
In 2009, the Allens filed suit in federal court alleging misrepresentation, fraud, bad faith, and breach of the insurance agreement. Regions Bank responded by moving to compel arbitration under the arbitration agreement executed by the Allens upon opening their deposit account in 2001. The district court denied the motion finding the deposit account agreement did not unambiguously modify the Allens’ loan agreement. The district court found, although there was an enforceable arbitration agreement as to deposit accounts, it was unenforceable as to loan accounts.
The Fifth Circuit reversed, explaining that challenges to the validity of an arbitration agreement may be heard by a court rather than an arbitrator. However, the Allens did not dispute the validity of the arbitration agreement. Rather, they disputed the applicability of the arbitration agreement to their dispute. The Fifth Circuit held, where the validity of an arbitration agreement is not in question but instead the issue involves the applicability of an arbitration provision to a particular dispute, if the parties clearly agreed that an arbitrator is to decide the arbitrability of a dispute, such agreement is enforceable. The court determined the Allens’ agreement clearly contemplated an arbitrator was to determine the issue of arbitrability of any dispute. Consequently, whether the Allens’ dispute over the loan agreement was within the scope of the arbitration agreement executed in conjunction with their deposit account was for the arbitrator to decide, not a court. The court reversed denial of the bank’s motion to compel.
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Pat Omilian and Joseph Oliva