## Facts

- Lacy Barras opened a BB&T checking account and agreed to a Bank Services Agreement (BSA) containing an arbitration clause and a separate cost-and-fee-shifting term.
- The cost-and-fee-shifting term required the customer to pay BB&T’s costs and fees in any dispute regardless of outcome.
- Barras alleged BB&T used unfair overdraft practices, including assessing overdraft fees when sufficient funds existed and providing misleading balance information.
- Barras sued on behalf of a putative class, asserting claims including unfair and deceptive trade practices, breach of contract, and breach of the implied covenant of good faith and fair dealing.
- The case was transferred to a federal multidistrict litigation proceeding concerning checking account overdraft practices.

## Issues

1. Whether the court or an arbitrator decides enforceability when the challenge targets terms governing the arbitration mechanism.
2. Whether a substantively unconscionable cost-and-fee-shifting term renders the arbitration clause unenforceable.
3. Whether the FAA, as interpreted in *AT&T Mobility LLC v. Concepcion*, precludes application of generally applicable state unconscionability doctrine to invalidate a fee-shifting term connected to arbitration.
4. Whether the unconscionable cost-and-fee-shifting term is severable so the arbitration clause remains enforceable.

## Decision

- The Eleventh Circuit reversed the denial of BB&T’s motion to compel arbitration and remanded.
- The court held that courts decide gateway enforceability questions when the challenge is directed at the arbitration agreement or provisions governing arbitration-related dispute resolution.
- The court agreed the cost-and-fee-shifting term was unconscionable under applicable state contract law.
- The court held *Concepcion* did not bar applying generally applicable unconscionability principles to the fee-shifting term.
- The court severed the unconscionable fee-shifting term (given the contract’s severability clause and the provisions’ independence) and ordered arbitration without enforcing the invalid term.

## Legal Principles

- Gateway questions of arbitration agreement enforceability are for courts when the challenge is directed at the arbitration clause or arbitration-related terms, not merely the contract as a whole.
- The FAA permits application of generally applicable state contract defenses (including unconscionability) so long as they do not single out arbitration for disfavored treatment.
- A one-sided fee-shifting term requiring a consumer to pay the drafter’s costs and fees regardless of outcome may be substantively unconscionable under state law.
- An unconscionable term may be severed, and the remainder of the agreement (including an arbitration clause) enforced, when the contract includes a severability clause and the arbitration agreement can function independently.

## Conclusion

The Eleventh Circuit required arbitration under the BSA after holding that an unconscionable “win-or-lose” fee-shifting term could be severed, and that the FAA did not prevent courts from applying neutral state unconscionability doctrine to invalidate that term while enforcing the parties’ agreement to arbitrate.


Barras v. Branch Banking & Tr. Co., 685 F.3d 1269 (11th Cir. 2012)