Arbitration Waiver by Filing-Fee Nonpayment: When Refusing to Pay Backfires

Arbitration waiver by filing fee nonpayment is the rare moment when a mandatory arbitration clause turns against the company that wrote it. Here is the direct answer for an owner who signed one under protest: if a larger business forces you toward arbitration and then refuses to pay its share of the filing fees, a court can rule that it forfeited the right to arbitrate at all. The dispute goes back to court. On August 19, 2026, the First Circuit did exactly that to American Express, affirming that a company unwilling to pay for arbitration cannot then demand it.

That ruling matters because the usual power runs the other way. The big vendor drafts the clause, the small counterparty signs it, and the clause quietly strips away the courtroom. Nonpayment of fees flips the leverage. It is one of the few defenses that a locked-in small business or consumer can actually use.

How Arbitration Waiver Through Filing-Fee Nonpayment Works

Federal law does most of the work here. Under 9 U.S.C. § 3, a court will pause a lawsuit and send the parties to arbitration only if the party asking for that pause “is not in default in proceeding with such arbitration.” Default is the hinge. The First Circuit held that default under Section 3 includes waiver, and that a party who deliberately refuses to pay the fees that keep an arbitration alive has waived the right to insist on it.

The logic is almost mechanical. Arbitration is a private service, and someone has to fund it. When the party that demanded arbitration will not pay, the administering body closes the case. The court treated that closure as the foreseeable result of the company’s own choice, not an accident it could later blame on the process. Refuse to pay, lose the forum.

The Amex Case: A $17 Million Bill It Would Not Pay

The facts read like a strategy that outsmarted itself. Thousands of merchants brought individual arbitration demands against American Express over its anti-steering and swipe-fee rules, the same conduct behind a separate antitrust fight. The American Arbitration Association set a $3,500 filing fee per demand, with each merchant owing $350 and Amex responsible for the rest. Multiplied across the mass of claims, Amex’s share came to roughly $17 million.

Amex disputed the fees and did not pay. Even after the AAA warned that the cases would be administratively closed, it still did not pay, and the AAA closed them. The merchants then sued in federal court in Rhode Island. When Amex moved to compel arbitration, the district court refused, and in 5-Star General Store v. American Express Co., No. 25-1023, the First Circuit affirmed. As Public Citizen’s litigation group summarized the holding, a company cannot pocket the benefit of an arbitration clause while refusing to fund the arbitration it compels.

The irony is sharp. The Supreme Court’s own 2013 Amex ruling in Italian Colors blessed the very clauses that funnel claims into individual arbitration. Thirteen years later, the tactic of not paying for that arbitration is what reopened the courthouse.

Why It Backfires on the Bigger Party

Mass arbitration is the pressure that makes this backfire. The clause was drafted to block class actions and force claims one at a time, on the bet that few people would bother. Then merchants filed by the thousand. The per-case fee built as a deterrent now lands on the drafter, and stalling on it can revive the class litigation the clause was meant to kill.

Where This Shows Up in Everyday Contracts

You do not have to be one of thousands of merchants for this to matter. The same clause language sits in the agreements small businesses sign every week, and a fee standoff can surface in any of them:

• Merchant processing agreements. Payment processors and card networks lean on arbitration clauses heavily, and their fee obligations are exactly what tripped Amex.
• SaaS and platform terms of service. The click-through terms behind your software, marketplace, or payment platform almost always compel arbitration, usually under AAA or JAMS rules.
• Franchise agreements. Franchisors routinely require franchisees to arbitrate, and the franchisor is the party with the deeper pockets and the fee exposure.
• Vendor and supply contracts. Any one-sided arbitration rights waiver buried in a vendor contract can cut against the drafter once fees come due.

What a Small Business Should Actually Do

Start before the dispute, because the clause controls everything that follows. Read the arbitration provision in any agreement a larger counterparty hands you, and understand what it commits you to. We walk through that analysis in our guide to the true cost of arbitration clauses in small business contracts, including which safeguards are worth negotiating while you still have leverage.

If a dispute is already live and the other side is dragging its feet on arbitration fees, document every notice and deadline from the administering body. The record of a deliberate refusal, warned in advance, is what turned the Amex case. Keep the emails. Keep the closure notice.

Then weigh your forum honestly, because arbitration is not always the enemy. For many owners it is still faster and cheaper than a courtroom, a trade-off we lay out in our overview of alternative dispute resolution for small business contract disputes. The First Circuit did not abolish arbitration. It held one party to the bargain it wrote.

The lesson is narrow but useful. A mandatory clause is only as strong as the willingness to pay for it, and a large company’s refusal can hand the smaller party the one thing the clause was meant to take away. If you are staring at an arbitration clause you did not draft, or a counterparty that will not fund the process it demanded, a short review of your specific contract is the cheapest way to learn which door is still open.

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This article is general information, not legal advice. Waiver and the enforceability of arbitration clauses are fact-specific and vary by contract and jurisdiction; consult a licensed attorney about your particular situation.