Nonpayment of Arbitral Filing Fees After AAA Warnings Constitutes FAA § 3 Default/Waiver Decidable by Courts

Introduction

In 5-Star General Store v. American Express Company (1st Cir. Aug. 19, 2026), thousands of small merchants (collectively, “5-Star”) sought to arbitrate challenges to American Express’s “swipe-fee” practices and related “non-discrimination provisions” through the American Arbitration Association (“AAA”), a forum designated in Amex’s arbitration agreement.

A dispute arose over AAA administrative filing fees in more than 5,000 demands. AAA’s administrator determined that each affected case required a $3,500 fee, allocating $350 to the merchant and $3,150 to Amex. 5-Star paid its portion; Amex refused to pay its portion despite repeated AAA warnings that the cases would be administratively closed. AAA then administratively closed the cases for nonpayment and stated the closure was final.

5-Star subsequently filed a federal class action asserting that Amex’s nonpayment waived Amex’s right to arbitrate. Amex moved under the Federal Arbitration Act (“FAA”) to stay the litigation and compel arbitration. The district court denied the motion, finding Amex in “default” under 9 U.S.C. § 3 and, alternatively, waiver. Amex appealed.

The core issues on appeal were (1) who decides whether Amex defaulted/waived—court or arbitrator—and (2) whether Amex’s refusal to pay AAA fees constituted waiver/default barring a stay and compelled arbitration.

Summary of the Opinion

The First Circuit affirmed. It held:

  • The district court had authority under 9 U.S.C. § 3 to determine whether Amex was “in default in proceeding with such arbitration,” and, on these facts, Amex’s nonpayment of AAA fees was “litigation-related activity” permitting the court (not an arbitrator) to decide waiver/default under circuit precedent.
  • Amex’s deliberate refusal to pay the tribunal-assessed fees—after repeated warnings and with the foreseeable result that AAA would close the cases—was conduct inconsistent with an intent to arbitrate and therefore amounted to waiver; waiver constitutes “default” for § 3 purposes, barring a stay and compelled arbitration.
  • The district court did not abuse its discretion in rejecting Amex’s “unclean hands” defense; 5-Star committed no misconduct directly related to the merits of the controversy.

Analysis

Precedents Cited

1) Marie v. Allied Home Mortg. Corp.

Marie v. Allied Home Mortg. Corp., 402 F.3d 1 (1st Cir. 2005) is the opinion’s central gatekeeping authority on allocation of decision-making between courts and arbitrators when “default”/waiver is asserted in response to a motion to stay and compel arbitration.

  • Statutory anchor: Marie emphasizes that a court may grant a stay under FAA § 3 only if the applicant “is not in default in proceeding with such arbitration.” Because courts must decide whether § 3’s condition is satisfied, “questions about default are within the court’s ambit.”
  • Default includes waiver: Marie recognizes that “default” has “generally been viewed” as including “waiver,” making waiver analysis integral to § 3 determinations.
  • “Litigation-related activity”: Marie instructs that courts may decide waiver issues “at least” where the waiver claim turns on litigation-related conduct, because courts are well-suited to evaluate such conduct and because doing so promotes efficiency.

The First Circuit applied Marie’s logic to conduct occurring inside the arbitral process itself: Amex’s refusal to pay AAA fees before any arbitrator was appointed, resulting in administrative closure of the same disputes later brought to court. The panel characterized this as litigation-related in the relevant sense: conduct “within the very same litigation in which the party attempts to [now] compel arbitration.”

2) Howsam v. Dean Witter Reynolds, Inc.

Amex invoked Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) to argue that nonpayment of fees is a “procedural” question for an arbitrator. The First Circuit did not resolve the broader procedural/substantive allocation debate because Marie controlled: Howsam did not “disturb the traditional rule” that waiver by conduct—at least where tied to litigation-related activity—is presumptively for the court.

3) Pre-Paid Legal Servs. v. Cahill and Dealer Comput. Servs. Inc. v. Old Colony Motors, Inc.

The panel acknowledged, without deciding, an asserted circuit split regarding who decides the consequences of fee nonpayment:

  • Pre-Paid Legal Servs. v. Cahill, 786 F.3d 1287 (10th Cir. 2015) (court decides nonpayment issue).
  • Dealer Comput. Servs. Inc. v. Old Colony Motors, Inc., 588 F.3d 884 (5th Cir. 2009) (arbitrator decides).

Rather than entering that debate, the First Circuit narrowed its holding: under Marie, on these specific facts—no arbitrator appointed, repeated warnings, and final administrative closure—the district court could decide waiver/default.

4) In re Tyco Intern. Ltd. Sec. Litig.

In re Tyco Intern. Ltd. Sec. Litig., 422 F.3d 41 (1st Cir. 2005) supported the proposition that conduct before AAA can constitute waiver. This helped rebut Amex’s attempt to distinguish waiver based on the forum in which the conduct occurred.

5) Morgan v. Sundance, Inc., United States v. Olano, and Toddle Inn Franchising, LLC v. KPJ Assocs., LLC

The panel applied modern waiver doctrine as articulated by the Supreme Court:

  • Morgan v. Sundance, Inc., 596 U.S. 411 (2022) supplied the governing definition of waiver in the arbitration context: “the intentional relinquishment or abandonment of a known right.”
  • United States v. Olano, 507 U.S. 725 (1993) was cited as the source of that waiver formulation.
  • Toddle Inn Franchising, LLC v. KPJ Assocs., LLC, 8 F.4th 56 (1st Cir. 2021) reinforced that arbitration rights, like other contract rights, may be waived explicitly or “through an implicit course of conduct.”

The First Circuit also noted that earlier First Circuit waiver tests (including prejudice-focused formulations referenced in Joca-Roca Real Est., LLC v. Brennan, 772 F.3d 945 (1st Cir. 2014)) were “abrogated on other grounds” by Morgan, and therefore it applied Morgan’s framework.

6) Vaquería Tres Monjitas, Inc. v. Irizarry and Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co.

The “unclean hands” discussion relied on:

  • Vaquería Tres Monjitas, Inc. v. Irizarry, 587 F.3d 464 (1st Cir. 2009) (standard of review; nexus requirement).
  • Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806 (1945) (misconduct must relate directly to the merits).

The court affirmed that 5-Star’s conduct—participating in the fee dialogue and paying its assessed share—did not constitute merits-related misconduct.

Legal Reasoning

1) Authority to decide default/waiver under FAA § 3

The opinion’s structural move is to link FAA § 3’s text to judicial competence: because § 3 conditions a stay on the applicant not being “in default in proceeding with such arbitration,” a court cannot grant a stay without first determining default. Since “default” encompasses waiver, waiver becomes a threshold judicial inquiry when invoked to oppose a stay/compel motion.

The court then applied Marie’s “litigation-related activity” rubric to these facts. Key features making the conduct “litigation-related” and suitable for judicial determination included:

  • The federal claims matched the same set of claims presented (and then closed) at AAA.
  • No arbitrator had been appointed; therefore, there was no arbitral decision-maker poised to adjudicate waiver or manage a restart.
  • AAA’s administrator had repeatedly warned that nonpayment would lead to closure, and then closed the cases and deemed the closure final.
  • Efficiency and FAA speed goals would be undermined by sending the parties back to AAA for a “do-over” after closure caused by the movant’s own nonpayment.

2) Substantive finding of waiver/default

Applying Morgan’s definition, the court treated Amex’s conduct as an intentional relinquishment of the arbitral forum for these disputes. The analysis turned less on abstract disagreement about fee levels and more on the practical consequences of Amex’s choice after repeated warnings: refusing to pay meant the cases would not proceed and would be closed.

The court found waiver by conduct because Amex’s actions were “inconsistent with an intent to arbitrate.” Specifically:

  • Amex had clear notice of the fee assessment and the closure consequence.
  • Amex nonetheless refused to pay the invoiced amount assigned by AAA.
  • The refusal caused (and foreseeably caused) the administrative closure of the arbitrations.

Because waiver qualifies as “default” for FAA § 3, Amex could not satisfy the statutory condition for obtaining a stay and compelled arbitration.

3) Unclean hands

The First Circuit affirmed the rejection of unclean hands on the merits (and therefore did not need to decide whether unclean hands is even available in this posture). Unclean hands requires misconduct directly related to the merits; the record showed only that 5-Star engaged the fee process and paid the fees assessed to it.

Impact

1) A concrete rule against strategic “arbitrate-but-don’t-fund” behavior

The decision strengthens a practical enforcement principle: a party that insists on arbitration, but then refuses to pay tribunal-required fees necessary to initiate or maintain the arbitration—after repeated warnings—risks a judicial finding of waiver/default that bars later attempts to compel arbitration.

2) Court-centered threshold inquiry where the arbitral process never meaningfully begins

By characterizing pre-appointment nonpayment leading to administrative closure as “litigation-related activity” under Marie v. Allied Home Mortg. Corp., the First Circuit makes it more likely that district courts in the circuit will decide waiver/default issues when:

  • no arbitrator has been appointed,
  • the arbitration forum has closed the cases for nonpayment, and
  • the movant seeks a “restart” through a stay/compel motion.

3) Effects on mass arbitration economics

The factual setting—thousands of parallel demands and a dispute over per-case fees—tracks modern “mass arbitration” strategy. The opinion signals that fee pressure tactics can backfire: refusing to pay tribunal-set fees to avoid scaling costs may result in losing the contractual arbitration right altogether for those disputes.

4) Limited reach (and an open question)

The court explicitly avoided deciding the broader Howsam/procedure question and did not resolve the inter-circuit tension highlighted by Pre-Paid Legal Servs. v. Cahill and Dealer Comput. Servs. Inc. v. Old Colony Motors, Inc.. The holding is fact-bound: it rests on repeated warnings, deliberate nonpayment, no arbitrator appointment, and final administrative closure.

Complex Concepts Simplified

  • FAA § 3 “stay”: A pause in the court case so the dispute can be handled in arbitration. The statute allows this only if the party asking for the stay is not “in default” in proceeding with arbitration.
  • “Default” in arbitration: Not merely losing on the merits—rather, failing to move the arbitration forward as required. Courts often treat “default” as including waiver.
  • Waiver: Giving up a right (here, the right to arbitrate). Under Morgan v. Sundance, Inc., waiver is the intentional relinquishment of a known right and can be shown by conduct inconsistent with later insisting on arbitration.
  • Administrative closure: The arbitration provider closes the case for procedural reasons (here, unpaid fees), preventing appointment of an arbitrator and halting the matter in that forum.
  • “Litigation-related activity” (Marie): Conduct closely connected to the dispute’s procedural posture such that courts are well-positioned to decide whether the conduct constitutes waiver/default when a party later seeks to compel arbitration.
  • Unclean hands: An equitable defense barring relief when the party seeking relief engaged in misconduct directly related to the subject matter. It is not triggered by ordinary advocacy or compliance with tribunal instructions.

Conclusion

5-Star General Store v. American Express Company establishes a consequential, practice-focused rule in the First Circuit: when a party refuses to pay arbitration filing fees assessed by the designated forum—despite repeated warnings and with the foreseeable result that the forum closes the cases—courts may treat that conduct as waiver and thus “default” under FAA § 3, denying a stay and a motion to compel arbitration. The decision reinforces the FAA’s emphasis on efficient dispute resolution by preventing a party from derailing arbitration through nonpayment and then demanding a judicial “reset.”