- Case
- Hernandez v. MicroBilt Corp.
- Court
- U.S. Court of Appeals for the Third Circuit
- Citation
- No. 22-3135 (3d Cir. Dec. 5, 2023)
- Decided
- December 5, 2023
- Bottom line
- An arbitration clause that strips away FCRA remedies like punitive damages and attorney's fees may end up sending your case back to court.
Background
Maria Del Rosario Hernandez applied for a loan in 2020. The lender used a MicroBilt product to verify her identity and bank account. According to the opinion, the report mixed in information about other people who shared her name, one of whom was on a government watch list, and the lender denied her application based on that inaccurate information. Hernandez sued MicroBilt under the FCRA.
MicroBilt moved to compel arbitration under terms Hernandez had accepted while applying for the loan. The terms required arbitration before the American Arbitration Association under its rules, made each party responsible for its own attorney’s fees, and barred punitive and consequential damages. Hernandez dismissed her suit and filed with the AAA.
The AAA classified the agreement as a consumer agreement governed by its Consumer Arbitration Rules. Those rules say the AAA will administer a consumer case only if the agreement substantially complies with its Consumer Due Process Protocol, and that if the AAA declines, either party may take the dispute to court. The AAA found the damages limitation conflicted with the Protocol’s principle that an arbitrator should be able to award any relief available in court, and asked MicroBilt to waive it. MicroBilt refused, and the AAA declined to administer the case. The district court reinstated Hernandez’s complaint, and then denied MicroBilt’s motion to compel arbitration.
What the court held
The Third Circuit affirmed. The court explained that under § 4 of the Federal Arbitration Act, a court may compel arbitration only when a party has failed to arbitrate as agreed. Hernandez had done what the agreement required. By incorporating the AAA rules, the parties agreed that the AAA would administer the case and that either could go to court if the AAA declined. She was therefore not in default of the agreement.
The court rejected MicroBilt’s argument that an AAA administrator, rather than an arbitrator, had improperly decided an arbitrability question; the AAA’s decision was an administrative one the parties had authorized. It found no conflict between the agreement’s “exclusive resolution” clause and Hernandez’s return to court, because that clause incorporated the same rules that sent her there. And it held it lacked authority to review whether the AAA’s decision was correct, or to sever the damages limitation, because the agreement did not condition her right to return to court on the AAA being right.
Our take
We think Hernandez is correct and practically important. Companies that write arbitration clauses choose the forum and the rules. A company that selects the AAA, then insists on terms the AAA will not administer, should not be able to keep the consumer out of both arbitration and court. The opinion holds the drafter to the deal it wrote.
The case also shows why remedy-stripping clauses are a poor bet for defendants in FCRA cases. The statute provides punitive damages and attorney’s fees for willful violations, and the fee-shifting provision is what makes most consumer cases economically possible. Clauses that eliminate those remedies invite exactly what happened here.
The decision has limits. It turns on the specific AAA Consumer Rules the agreement incorporated. Agreements that name a different provider, or that contain fallback provisions, may lead to different results. And it does not hold the damages limitation unenforceable as a matter of law; the court found it unnecessary to decide that issue.
What it means if your report is wrong
If a company that reported false information about you points to an arbitration clause, do not assume your claim is over. Read the clause for the provider it names, the rules it incorporates, and any limits on damages or fees. Those details can determine whether the case belongs in arbitration at all, and who pays for it. A free case review can assess how Hernandez affects a claim, with no fee unless we win.
Sources
Primary
Commentary we reviewed
- Public Citizen Consumer Law & Policy Blog — 3rd Circuit won't force arbitration where defendant won't follow AAA rules
- Carlton Fields — Third Circuit affirms order denying motion to compel arbitration after AAA declines to administer arbitration
Updated November 1, 2026. "Our take" is the firm's opinion. This page is general information, not legal advice, and later decisions may change the law.