The Eleventh Circuit recently held in Parm v. National Bank of California, that a payday lender’s arbitration clause was unenforceable because the forum selected was unavailable and no alternative forum was provided for.
In 2013, Jessica Parm obtained a loan from Western Sky Financial, LLC over the internet using her computer in Georgia. Under the terms of the loan agreement, Parm received $1,000 at an annual interest rate of 233.71%. The loan agreement stated that Western Sky could initiate fund transfers from the bank account provided by Parm, and contained an arbitration provision that stated that all disputes would be arbitrated by the Cheyenne River Sioux Tribal Nation in accordance with its consumer dispute rules.
The National Bank of California authorized fund transfers from Parm’s accounts per the loan agreement. Parm then filed a class action lawsuit against National Bank of California, alleging that it had illegally permitted Western Sky to initiate fund transfers and that the loan agreement’s arbitration provision was unenforceable as unconscionable.
In response, National Bank of California moved to compel arbitration under the loan agreement. The district court denied the motion, relying in part on Inetianbor v. CashCall, Inc., 768 F.3d 1346, 1354 (11th Cir. 2014), which held that a similar Western Sky arbitration agreement was unenforceable because “the Cheyenne River Sioux Tribe, the governing authority[,] does not authorize Arbitration” and that the referenced “consumer dispute resolution rules [ ] do not exist,” Id. For the same reasons, the district court found that the arbitral forum was unavailable and, as a result, the arbitration clause was unenforceable.
On appeal, the Eleventh Circuit affirmed, holding that the question of arbitrability could not be referred to an arbitrator because it was undisputed that the Cheyenne River Sioux Tribal Nation was unavailable as an arbitral forum, and the agreement contemplated no other forum. Further, the Court held that the choice of the Cheyenne River Sioux Tribal Nation as the arbitral forum was integral to the arbitration clause as a whole, and therefore no alternative forum could be utilized. Thus, the Eleventh Circuit concluded that the loan agreement’s arbitration clause was unenforceable, and the district court had properly denied National Bank of California’s motion to compel arbitration.