Say the Magic Word: Fourth Circuit Imposes High Standard for Showing that Federal Statute Precludes Enforcement of Agreement to Arbitrate Class Claims | Robinson Bradshaw

A recent Fourth Circuit decision extends the trend of cases refusing to use federal statutes to invalidate arbitration agreements waiving the right to bring class claims in federal court.

The statute at issue in Espin v. Citibank, N.A., 126 F.4th 1010 (4th Cir. 2025)—the Servicemembers Civil Relief Act (“SCRA”)—provides special legal protections to active-duty members of the military, including a cap on the interest rate they may be charged on credit cards. The plaintiffs were former servicemembers who alleged that Citibank violated SCRA by charging them market-rate interest, after they had left the service, on credit card balances they had accrued while on active duty. They sought certification of a class of similarly situated servicemembers.

The plaintiffs, in their contracts with Citibank, had consented to arbitration and had waived their rights to class arbitration. They argued, however, that they were nevertheless permitted to bring class actions in federal court under an amendment to SCRA that Congress passed in 2019, providing that any “person aggrieved” may “be a representative party on behalf of members of a class or be a member of a class, in accordance with the Federal Rules of Civil Procedure, notwithstanding any previous agreement to the contrary” (emphasis added). Citibank argued in response that the Federal Arbitration Act (“FAA”) required enforcement of the arbitration agreement.

The Fourth Circuit observed that agreements to arbitrate statutory causes of action generally are enforced under the FAA, “unless the FAA’s mandate has been overridden by a contrary congressional command.” In recent years, the Supreme Court has been reluctant to find such an override in a wide array of federal statutes. See, e.g., Epic Systems Corporation v. Lewis, 584 U.S. 497 (2018) (National Labor Relations Act does not override FAA); CompuCredit Corp. v. Greenwood, 565 U.S. 95 (2012) (Credit Repair Organizations Act does not override FAA).

The Fourth Circuit concluded that the SCRA likewise did not evince a clear Congressional intent to make an exception to the FAA. The court read the SCRA amendment on class actions as merely authorizing plaintiffs to bring class claims in federal court. The statute did not specifically mention arbitration or invalidate agreements to arbitrate SCRA claims in so many words. The court therefore concluded that the amendment did not prohibit parties from instead agreeing to arbitrate SCRA claims on an individual basis.

The court had more difficulty explaining why the “notwithstanding any previous agreement to the contrary” clause did not preclude enforcement of the arbitration agreement. “Any previous agreement” is broad language, and on its face would include “any” agreement, including an agreement to arbitrate.

But the Fourth Circuit interpreted the clause narrowly, as simply “confirm[ing] the authority of persons aggrieved to bring federal class actions despite any previous agreement to the contrary” (emphasis in original). The court did not explain why “any agreement” does not include an agreement to arbitrate. The court also did not explain what function the clause serves under this narrow interpretation, since arbitration agreements are likely the principal way that parties waive their right to bring federal class actions.

The court also relied on the legislative history of the SCRA amendment. The court noted that the House version of the 2019 statute expressly prohibited mandatory arbitration of any SCRA claims (including individual claims), but that provision was not included in the enacted statute. The prohibition on mandatory arbitration of all SCRA claims was reintroduced in 2021 without success. The court also noted that when Congress passed the SCRA class action amendment in 2019, it commissioned a GAO report on mandatory arbitration clauses in service member contracts and cited SCRA—a request purportedly at odds with any simultaneous restriction on arbitration.

These materials, however, are not inconsistent with Congressional awareness that it had barred mandatory arbitration of SCRA class claims, even if it had not successfully barred mandatory arbitration of individual claims. The court also did not cite the title of the 2019 amendment (more significant than mere legislative history): “Preservation of Right to Bring Class Action Under Servicemembers Civil Relief Act.” “Preservation” expresses an intent stronger than a mere authorization to bring class actions already permitted by the federal rules.

The Fourth Circuit also placed special reliance on the Supreme Court’s CompuCredit case, holding that it is “particularly relevant and indeed controlling.” But in fact, CompuCredit involved statutory language considerably less explicit than that found in SCRA. The case concerned the Credit Repair Organization Act (“CROA”), which regulates credit repair organizations. The CROA, unlike the SCRA, contained no language preserving the right to bring class actions in federal court “notwithstanding any previous agreement to the contrary.” Instead, the CROA had a general anti-waiver provision, stating that “[a]ny waiver by any consumer of any protection provided by or any right of the consumer . . . shall be treated as void.” The Supreme Court refused to read this general language as applying to the private right of action provided by the CROA, and instead construed it as referring only to the substantive protections for consumers in the CROA. The CROA did not have the SCRA’s express linkage of the class action remedy and the “notwithstanding any prior agreement to the contrary” language.

The Fourth Circuit in Espin therefore effectively applied a clear statement rule, requiring Congress to expressly prohibit mandatory arbitration to trump the FAA. Consistent with this rule, the court refused to order arbitration of claims under a different statute (the Military Lending Act) that expressly cited the FAA and expressly prohibited mandatory arbitration. Absent language that explicit, it will be difficult for litigants in the Fourth Circuit who are subject to arbitration clauses to litigate class claims arising under federal statutes in federal court.