By Miguel J. Chamorro

Sometimes consumers rush to court to sue a business when they should have instead gone to arbitration. Consumers may overlook that the business’s terms and conditions required them to arbitrate their claims. The result is an embarrassing and often costly order by the court compelling the consumer to arbitration. But what happens when the consumer does seek arbitration, and the arbitration cannot proceed because the arbitral body did not approve the agreement’s arbitration clause? Short answer: the consumer can go straight to court. This time, it’s the business that gets embarrassed. And it’s a situation that comes up with some frequency, as shown by a spate of recent decisions in which businesses overlooked the need to have their chosen arbitral body approve the arbitration clauses of their consumer agreements.

The Federal Arbitration Act, 9 U.S.C. § 1, et seq. (the “FAA”), requires courts to “place arbitration agreements on an equal footing with other contracts and enforce them according to their terms.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). Litigants who skip arbitration are likely to face the FAA’s two “parallel devices for enforcing an arbitration agreement: a stay of litigation in any case raising a dispute referable to arbitration, § 3, and an affirmative order to engage in arbitration, § 4.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1983). But these devices may be unavailable to a business whose agreements require consumers to arbitrate against them if the business does not comply with the registration requirements of the arbitral body (e.g., the AAA, JAMS, or NAM). This failure is considered a “default” under section 3 of the FAA, which contemplates staying a court case until arbitration is completed, provided the litigant seeking the stay “is not in default in proceeding with such arbitration.” See Bedgood v. Wyndham Vacation Resorts, 88 F.4th 1355, 1369 (11th Cir. 2023) (holding that to determine whether a party has defaulted under section 3, a court must “decide if, under the totality of the circumstances, the party has acted inconsistently with the arbitration right.”) (quotation omitted). And sometimes pro-arbitration businesses “default” under section 3 because they did not satisfy the arbitral body’s registration requirements.

The registration requirements of arbitral bodies are not to be trifled with, especially as it relates to consumer cases.

As noted in Merritt Island Woodwerx, LLC v. Space Coast Credit Union, 137 F.4th 1268 (11th Cir. 2025), Rule 12 of the AAA’s Consumer Arbitration Rules (“Business Notification and Publicly Accessible Consumer Clause Registry”) requires a business that intends for the AAA to administer consumer arbitrations to register its consumer arbitration clause with the AAA’s Consumer Clause Registry. To register the clause, the business must submit its arbitration agreement to the AAA for an administrative compliance review and pay a related fee. The AAA, upon receiving the arbitration agreement, will review the agreement “for material compliance with due process standards contained in the Consumer Due Process Protocol.” R-12(b), AAA Consumer Arb. Rules. Only after the AAA reviews the arbitration clause submitted by the business and determines that it will administer the business’s consumer-related disputes will the AAA include the business in its Consumer Clause Registry. See R-12(d), AAA Consumer Arb. Rules. Amendments to an already-registered arbitration agreement must be resubmitted for review (likely for another fee). See R-12(c), AAA Consumer Arb. Rules. (Note: A company can undertake the registration after it has already commenced an arbitration case for an expedited review fee, which will not include the subsequent registration of the arbitration agreement with the Registry. See R-12(f), AAA Consumer Arb. Rules.)

In Merritt Island and again in Mullen v. Gas POS Inc., 2025 WL 1921765 (M.D.Ga. July 11, 2025), and Holden v. Sys. & Servs. Techs., Inc., 2025 WL 2457633 (S.D. Fla. July 22, 2025), a business failed to satisfy its registration requirements and therefore defaulted as contemplated by section 3 of the FAA. Thus, the consumers in those cases could proceed with court cases against the business despite mandatory arbitration clauses in their agreements saying otherwise. The holdings of these cases have their genesis in Bedgood v. Wyndham Vacation Resorts, 88 F.4th 1355 (11th Cir. 2023).

In Bedgood, three plaintiffs who had agreed to arbitrate any claims arising out of their timeshare agreements filed arbitration petitions with the AAA. Bedgood, 88 F.4th at 1359-60. But then something unexpected happened: the AAA rejected their arbitration petitions because the defendant had failed to register the arbitration clause of its consumer agreement as required by the AAA’s consumer rules. Id. at 1361. Consequently, the AAA declined to administer the case, and the plaintiffs then filed suit in court, prompting the defendant to file a motion that is well known to FAA practitioners: to stay the case and compel arbitration. Id.

On appeal, the Eleventh Circuit held that the defendant was not entitled to either a stay or an order compelling arbitration because the defendant was in “default” under Section 3 of the FAA (“Stay of proceedings where issue therein referable to arbitration”) and it was also not a “party aggrieved” under section 4 of the FAA (“Failure to arbitrate under agreement; petition to United States court having jurisdiction for order to compel arbitration; notice and service thereof; hearing and determination”). Id. at 1365-66. In short, the consumers could not arbitrate their cases against the business, and the business was at fault for it. Thus, the legal dispute could be adjudicated in court.

Evidently, the news did not spread enough because substantially similar facts were at issue two years later in the Merritt Island, Holden, and Mullen cases.

In Merritt Island, two plaintiffs—the holders of checking accounts at a credit union—filed petitions with the AAA pursuant to arbitration clauses in their Master Services Agreements with the credit union. Merritt Island, 137 F.4th at 1270-71. The AAA declined to administer the plaintiffs’ claims because the credit union “ha[d] not submitted its consumer dispute resolution plan for review or paid the fee.” Id. The plaintiffs then filed suit in court. Id. Two days after the complaint was filed, the credit union submitted its arbitration clause to the AAA for review, paid the filing fee, and obtained the AAA’s approval to administer the claim. Id. at 1272. But it was too late. The Eleventh Circuit held that the credit union had defaulted under Section 3 and was not “aggrieved” by account holders’ failure to arbitrate. 9 U.S.C. § 4. Id. at 1275-76. The credit union’s “post-filing conduct cannot cure the prior non-compliance.” Id. at 1276. Thus, the account holders “were within their rights … to proceed to—and remain in—litigation.” Id.

In Mullen v. Gas POS Inc., 2025 WL 1921765 (M.D.Ga. July 11, 2025), an employee first commenced arbitration against his former employer before the AAA, pursuant to his employment agreement. After the AAA informed the employee that the employer had not complied with the AAA’s requests to abide by the AAA’s Employment Due Process Protocol, the AAA stated that it would not administer any claims involving the employer until the employer notified the AAA of its intent to abide by the Protocol. Id. at *1. Even though counsel for the employee informed the employer about the AAA’s refusal to administer the arbitration, the employer still made no effort to satisfy the registration requirements. Id. Three months after the AAA’s refusal notice, the employee filed suit in court. Finally, over seven months after being notified of the AAA’s refusal, the employer “asked the AAA to reconsider its position and administer the claim,” and the AAA agreed. But in a fit of chutzpa, the employer moved to compel arbitration. Id. The employer’s efforts came too late. As explained by the court:

[T]he totality of the circumstances here demonstrate that [employer] acted “inconsistently with its right to arbitrate” by failing to comply with the AAA’s protocols and/or rules and by failing “to remedy the barrier it had caused” until long after [employee] filed his complaint. Merritt Island, 137 F.4th at 1274. Thus, the Court has no authority to stay this case under 9 U.S.C. § 3.

Nor can the Court compel [employee] to seek arbitration for a second time under 9 U.S.C. § 4. Again, [employee] has already attempted to arbitrate his claims, and any lack of access to arbitration is the fault of [employer]. Accordingly, “there was no ‘failure, neglect, or refusal’ by which [employer] could have been ‘aggrieved.’” Merritt Island, 137 F.4th at 1275 (quoting Bedgood, 88 F.4th at 1366).

Mullen, 2025 WL 1921765, at *3.

In Holden v. Sys. & Servs. Techs., Inc., 2025 WL 2457633 (S.D. Fla. July 22, 2025), a borrower commenced arbitration against a loan servicer who acquired his loan agreement, which included a mandatory arbitration clause. In the now-familiar pattern, the AAA declined to administer the case because the original lender had failed to comply with the AAA’s Consumer Due Process Protocol, the borrower then filed suit in court, and the successor loan servicer—though not a signatory to the original agreement—moved to compel arbitration. Id. at *2-3. The court denied the motion, reasoning as follows:

[Loan servicer] knew, or had reason to know, that the original loan agreement … included an arbitration provision. When [loan servicer] succeeded [original lender], it likely knew it should have taken steps to ensure that the arbitration clause was enforceable through compliance with AAA’s policies. It is telling that [loan servicer] claims AAA’s notice of noncompliance is not clear about [loan servicer’s] deficiencies, but [loan servicer] does not indicate it has contacted AAA to clarify those issues or to cure those deficiencies in its compliance. [Loan servicer] has, like the Defendant in Bedgood, “made no effort to investigate—let alone remedy—its noncompliance before the AAA.” 88 F.4th at 1366. Instead, [loan servicer] relies on the fact that the provision originally belonged to another company or that this Court can ultimately order AAA to comply. But because [loan servicer’s] actions have been “inconsistent[ ] with the intention to vindicate its contractual arbitration rights,” the undersigned finds [loan servicer] has defaulted under Section 3 [of the FAA] on its right to ask the Court to stay the trial and compel the proceeding to arbitration. Merritt Island, 137 F.4th at 1276.

Holden, 2025 WL 2457633, *5 (S.D. Fla. Aug. 27, 2025) (adopting report and recommendation).

All this goes to show that a business cannot simply include arbitration clauses in its consumer agreements and expect to enforce it like any other clause. Unlike most other clauses, the arbitration clause must be approved by the arbitral body named in the arbitration clause. As the reputable businesses discussed in this article found out, there is no way around this requirement. So, if you’re a business and you favor arbitration clauses in your consumer contracts, do it right and do it from the get-go—get the clause approved beforehand.