The United States Court of Appeals for the First Circuit has sided with the plaintiffs against American Express (“Amex”), allowing a class action to proceed involving more than 5,150 merchants.
Background
In August 2023, 5-Star General Store & Deli (“5-star”), and thousands of other small merchants, demanded arbitration against Amex under an existing arbitration agreement. 5-Star challenged Amex’s “swipe fee” policies (a charge levied on merchants every time a customer uses a credit card to pay.)
In arbitration, the parties disagreed about the filing fees that Amex owed the tribunal, the American Arbitration Association (AAA), and an arbitrator was never appointed. Instead, an administrator of AAJ oversaw the dispute. After several months, the AAA administrator issued a determination stating the fees owed by the parties. 5-Star paid its share of the filing fee. Amex refused to pay.
As Amex continued to dispute the fees, the AAA administrator warned that if the fees were not paid by the due date, the claims were administratively closed for non-payment. In March 2024, the administrator informed the parties the claim was closed and not subject to reopening.
Class Action Filed
5-Star then filed a class action complaint in the District Court for the District of Rhode Island. Judge Mary S. McElroy noted, “These motions revolve around an ironic dilemma: a credit card company not paying its bills.”
5-Star alleged that Amex waived its right to compel arbitration, causing arbitration proceedings to close, which constituted a default under the Federal Arbitration Act (FAA) and a waiver under common law. Amex filed a motion to stay the proceedings under the FAA and compel arbitration back to the AAA.
The district court denied Amex’s motion, finding Amex had defaulted.
The First Circuit’s Decision
Amex appealed to the First Circuit, requesting that the decision be reversed and the proceedings forced back into arbitration. Amex argued the district court exceeded its authority in deciding whether Amex waived its right to compel arbitration, and that Amex, in refusing to pay the administrative fees assigned to it, did not waive its right to compel arbitration by its own behavior before AAA.
5-Star responded defending the district’s decision.
On August 19, 2026, the First Circuit affirmed.
On the first issue, the court held that questions about default are within the district court’s ambit because a court must decide whether a party defaulted to determine whether it should compel arbitration.
The court also held that the district court correctly evaluated default under the Supreme Court’s precedent, holding that default includes waiver.
“Under these circumstances, we conclude that Amex’s conduct was inconsistent with an intent to arbitrate,” the court wrote. “Therefore, Amex waived their right to compel arbitration and thereby defaulted in proceeding with the arbitration.“
Bryson attorney: Scott C. Harris