FAA § 3 Default Rule: Nonpayment of Arbitral Fees Permits Lifting a Stay, Distinct from Waiver

Introduction

In Myers v. Papa Texas, LLC (10th Cir. Feb. 12, 2026), Luke Myers, a pizza delivery driver, brought a class/collective action asserting Fair Labor Standards Act (FLSA) and related claims against his employer, Papa Texas, LLC. Although Myers’s employment paperwork contained an arbitration clause designating the American Arbitration Association (AAA), the first AAA arbitration was terminated after Papa Texas failed to pay its required filing fees. When Myers later returned to federal court and the parties attempted (unsuccessfully) to restart arbitration, the district court lifted its FAA stay, finding Papa Texas had “defaulted” in arbitration under 9 U.S.C. § 3.

The appeal presented a tight statutory question with practical consequences: when an employer’s fee nonpayment causes AAA closure, is the employer “in default in proceeding with such arbitration,” permitting the court to lift the stay and allow litigation to proceed?

Summary of the Opinion

The Tenth Circuit affirmed the order lifting the FAA stay. The court held that, under circuit law, failure to pay arbitration fees constitutes a “default” under § 3, and Papa Texas’s nonpayment justified lifting the stay. The court also:

  • treated AAA’s refusal to proceed without renewed consent as a practical barrier, but framed the dispositive issue as Papa Texas’s § 3 default;
  • rejected Papa Texas’s attempt to equate waiver (litigation-conduct doctrine) with default (failure to proceed in arbitration);
  • held Papa Texas forfeited its argument that the second lawsuit was a materially new dispute outside the earlier default; and
  • rejected Papa Texas’s claim that Myers waived the “default” argument by not emphasizing it earlier in the litigation sequence.

Analysis

Precedents Cited

Pre-Paid Legal Servs., Inc. v. Cahill

Pre-Paid Legal Servs., Inc. v. Cahill, 786 F.3d 1287 (10th Cir. 2015), is the decision doing most of the work. The Myers panel quoted its central rule: “Failure to pay arbitration fees constitutes a ‘default’ under § 3.” Applying that rule, the panel treated Papa Texas’s fee nonpayment—followed by AAA administrative closure—as quintessential § 3 default.

Papa Texas tried to narrow Pre-Paid Legal by arguing that a default should not “nullif[y] that same arbitration agreement forever and ever,” and that Myers’s second lawsuit was meaningfully different. The panel declined to decide the broader “forever and ever” question because it concluded Papa Texas had not preserved a “new dispute” theory below. Thus, Pre-Paid Legal controlled on the record as litigated.

Peterson v. Shearson/Am. Exp., Inc.

Peterson v. Shearson/Am. Exp., Inc., 849 F.2d 464 (10th Cir. 1988), supplied the familiar multi-factor test for waiver of arbitration by litigation conduct. The panel used Peterson to emphasize that waiver doctrine is structured around litigation behavior (invoking “the litigation machinery,” delay, counterclaims, discovery advantages, etc.), not around performance failures inside the arbitral forum (like nonpayment of fees). This helped the court reject Papa Texas’s effort to collapse waiver and default into a single inquiry.

Morgan v. Sundance, Inc.

Morgan v. Sundance, Inc., 596 U.S. 411 (2022), appeared in a footnote context: the district court had recognized that Morgan abrogated prejudice-to-the-opponent as a special arbitration-specific waiver consideration. In Myers, Morgan reinforced a broader theme: courts should not invent arbitration-specific procedural rules. But the panel treated the core problem as statutory—§ 3’s explicit “not in default” condition—not as a court-created, arbitration-favoring doctrine.

Sink v. Aden Enterprises, Inc.

Sink v. Aden Enterprises, Inc., 352 F.3d 1197 (9th Cir. 2003), was discussed because Papa Texas invoked it to argue for a more forgiving, fact-intensive default approach (e.g., considering reasons for nonpayment). The panel clarified that Pre-Paid Legal cited Sink chiefly on who decides default (court vs. arbitrator), not to dilute the default rule. Even if Sink-style considerations applied, the panel noted the district court’s factual findings fit the pattern: repeated notices, extensions, and no showing of inability to pay.

Tesone v. Empire Mktg. Strategies

Tesone v. Empire Mktg. Strategies, 942 F.3d 979 (10th Cir. 2019), was used for the proposition that forfeiture may not apply if “the district court explicitly considers and resolves an issue of law on the merits.” Papa Texas argued the district judge had treated the second lawsuit as a “new case.” The panel rejected that reading as a distortion: the district judge’s “new case” remark concerned settlement-enforcement jurisdiction, while repeatedly acknowledging the claims were substantively the same.

United States v. McGehee; State Farm Mutual Auto Insurance Co. v. Petsch; O'Tool v. Genmar Holdings, Inc.

These cases structured the argument about procedural waiver of an argument:

  • United States v. McGehee, 672 F.3d 860 (10th Cir. 2012), distinguished waiver (intentional relinquishment) from forfeiture (failure to timely raise).
  • State Farm Mutual Auto Insurance Co. v. Petsch, 261 F.2d 331 (10th Cir. 1958), supplied the elements of waiver (existing right, knowledge, intent to surrender).
  • O'Tool v. Genmar Holdings, Inc., 387 F.3d 1188 (10th Cir. 2004), supplied the abuse-of-discretion standard for a district court’s finding about waiver-by-omission of an argument.

The panel deferred to the district court’s judgment that Myers did not intentionally relinquish the default theory merely because his counsel initially leaned on “waiver” language.

State v. McKinley Cnty. Bank

State v. McKinley Cnty. Bank, 252 P. 980 (N.M. 1927), appeared when Papa Texas argued AAA’s “consent to reopen” practice showed lack of mutual assent. The panel treated this argument as self-defeating: if there were truly no meeting of the minds, then there would be no arbitration agreement at all—an outcome inconsistent with Papa Texas’s attempt to compel arbitration.

Legal Reasoning

1) The FAA’s structure: § 3 stay conditioned on “not in default”

The opinion is anchored in statutory text. 9 U.S.C. § 3 mandates a stay of litigation for arbitrable issues provided that “the applicant for the stay is not in default in proceeding with such arbitration.” The panel reasoned that the stay mechanism itself ordinarily pressures a claimant to arbitrate: if the stay remains, the case “will go nowhere” in court until arbitration “has been had.” Thus, the consent dispute with AAA was practically important but not conceptually controlling—default is the gatekeeper.

2) Nonpayment of fees = default

Applying Pre-Paid Legal Servs., Inc. v. Cahill, the court treated Papa Texas’s fee nonpayment (despite AAA warnings and an extension) as a straightforward § 3 default. The district court’s factual findings—repeated notices, failure to pay, no record evidence of inability to pay—were not clearly erroneous.

3) The “new case” and “such arbitration” debate avoided on preservation grounds

Papa Texas attempted to reframe the case around the phrase “such arbitration” in § 3, implying a default should be dispute-specific and not permanently disabling. The panel did not resolve the scope question because, in its view, Papa Texas failed to preserve a claim that Myers’s second lawsuit presented a meaningfully different dispute. The court emphasized that Papa Texas’s own filings spoke in terms of “reopen[ing]” arbitration—undercutting any “new dispute” framing.

4) Default is not waiver (and does not require the Peterson factors)

The panel rejected the notion that a default analysis must track the waiver-by-litigation framework from Peterson v. Shearson/Am. Exp., Inc.. Waiver concerns inconsistent litigation conduct; default here concerns nonperformance in the arbitral process. The court read Pre-Paid Legal as announcing a categorical rule for this scenario: failure to pay fees constitutes default.

5) No “argument waiver” by Myers

Even though Myers initially argued “waiver” of arbitration, the district court was within its discretion to find no intentional surrender of the “default” theory. The panel treated counsel’s “we could have argued default” statement as insufficient to establish the intent element required by Petsch and McGehee.

Impact

  • Fee-payment compliance becomes dispositive for stay seekers. Employers (and other parties who seek FAA stays) must treat arbitral fee obligations as litigation-critical. Missing fees can convert a pro-arbitration posture into immediate exposure in federal court.
  • Default doctrine gains autonomy from waiver doctrine. The opinion reinforces that courts need not—and should not—shoehorn arbitral nonperformance into waiver-by-litigation factors.
  • Preservation matters for “new dispute” / “such arbitration” theories. Parties wishing to argue that a later lawsuit is materially different (and thus not governed by a prior arbitral default) must clearly litigate and develop that theory in the district court.
  • AAA administrative closure can have substantive consequences. Where AAA closes a case for employer noncompliance and signals reluctance to administer future cases, the practical result may be loss of an arbitral forum and return to court—even if the arbitration clause remains on paper.
  • Class/collective action implications left open. The panel expressly stated it expressed “no opinion” on how default might affect Myers’s ability to bring a class or collective action, leaving significant downstream questions unresolved.

Complex Concepts Simplified

  • FAA stay (9 U.S.C. § 3): A court pause button. If claims must be arbitrated, the court usually must stop the lawsuit while arbitration happens—unless the party asking for the pause is “in default” in arbitration.
  • Default in arbitration: Not paying required arbitral fees (or otherwise failing to proceed) such that arbitration cannot move forward. In this circuit, fee nonpayment that leads to closure is default.
  • Waiver of arbitration: Losing the right to arbitrate because your litigation conduct is inconsistent with arbitration (e.g., waiting too long, using court discovery). This uses the Peterson factors and is conceptually different from default.
  • Forfeiture vs. waiver (of an argument): Forfeiture is failing to raise an argument in time; waiver is intentionally giving it up. The court found Papa Texas forfeited certain theories and found Myers did not waive his default argument.
  • “Meeting of the minds” / mutual assent: A contract requires shared agreement on essential terms. Papa Texas’s “no assent” point backfired because it implied there might be no arbitration agreement at all.

Conclusion

operationalizes the FAA’s “not in default” condition: when a party seeking a § 3 stay fails to pay AAA fees and arbitration is closed, the party is in default and the federal court may lift the stay and proceed with litigation. The decision also clarifies doctrinal boundaries—default is not waiver—and underscores litigation discipline: parties must preserve “new dispute” theories and must treat arbitral fee obligations as essential to maintaining the protections of an arbitration clause.