By Gerald L. Maatman, Jr., Jennifer A. Riley, and Hayley Ryan
Duane Morris Takeaways: On May 1, 2026, in Bernal et al. v. Kohl’s Corporation et al., No. 24-2806, 2026 WL 1193991 (7th Cir. May 1, 2026), the U.S. Court of Appeals for the Seventh Circuit affirmed a federal district court’s denial of a petition to compel arbitration, holding that the defendant’s refusal to register its arbitration agreement with the American Arbitration Association (“AAA”), which caused the AAA to close the arbitration proceedings, did not constitute a “refusal to arbitrate” under the Federal Arbitration Act (“FAA”). The Seventh Circuit reasoned that because the parties had delegated that procedural question to the AAA, the district court had no authority to compel arbitration.
This decision is a significant win for businesses facing mass arbitration campaigns, particularly where arbitration agreements incorporate the AAA’s Consumer Arbitration Rules. The decision offers a concrete mechanism to avoid the steep filing fees such campaigns generate.
Background
Plaintiffs purchased products through Kohl’s website in 2020 and 2022 and agreed to arbitration provisions that required all disputes to be resolved through binding arbitration before the AAA under its rules, including the AAA’s Consumer Arbitration Rules. Id. at * 1. The arbitration agreement also delegated to the arbitrator exclusive authority “to resolve any dispute related to the interpretation, applicability, enforceability or formation of” the arbitration agreement. Id.
In December 2022, Plaintiffs’ counsel initiated the pre-arbitration process by serving Kohnl’s with approximately 10,000 notices of dispute, followed by an additional 44,656 notices in April 2023. These claims alleged that Kohl’s marketing practices violated California’s consumer protection laws. Id. at *2. This is a classic mass arbitration strategy in which plaintiffs’ firms file thousands of individual demands to exploit mandatory per-claim filing fees paid by corporate defendants.
On May 22, 2023, while settlement discussions were ongoing, Kohl’s modified its terms and conditions to designate the National Arbitration and Mediation tribunal (rather than the AAA) as the arbitration forum for all claims. That same day, Plaintiffs filed formal individual demands with the AAA and paid all applicable filing fees. Id. Under AAA Consumer Arbitration Rule R-12, however, a business must register its arbitration clause and pay administrative fees for the AAA to administer consumer arbitrations. Kohl’s declined to do so. As a result, the AAA exercised its discretion to decline administration, closed the cases, and refunded Plaintiffs’ filing fees. Id. at *3.
Plaintiffs then filed suit in the U.S. District Court for the Central District of California, which was later transferred to the U.S. District Court for the Eastern District of Wisconsin pursuant to the forum selection clause, petitioning the court to compel Kohl’s to register its arbitration agreement with the AAA, pay all necessary filing fees, and proceed to arbitration. Id.
The District Court’s Ruling
The U.S. District Court for the Eastern District of Wisconsin denied the petition. Relying on Wallrich v. Samsung Elecs. Am., Inc., 106 F.4th 609 (7th Cir. 2024), the district court found that the parties had bargained for the AAA to apply and interpret its own Consumer Arbitration Rules. Id. at *3. When the AAA exercised that discretion by closing Plaintiffs’ cases upon Kohl’s non-registration, the court concluded it lacked authority to override that decision. Id.
Plaintiffs filed an interlocutory appeal, arguing that Kohl’s refusal to register its agreement constitutes a refusal to arbitration in violation of the Federal Arbitration Act (“FAA”). Id.
The Seventh Circuit’s Decision
The Seventh Circuit affirmed. Id. at *7. It held that the AAA’s exercise of discretion in closing Plaintiffs’ cases “flowed directly from the parties’ agreement granting AAA that power, leaving nothing for the district court to compel under the Federal Arbitration Act.” Id.
Under the FAA, a party seeking to compel arbitration must establish: (1) an enforceable written arbitration agreement; (2) a dispute falling within the scope of the agreement; and (3) a refusal to arbitrate. Id. at *4 (citing Wallrich, Inc., 106 F.4th at 617-18). The Seventh Circuit’s analysis centered on the third element, i.e. whether Kohl’s non-registration constituted a refusal to arbitrate. Id.
The Seventh Circuit characterized the AAA’s registration requirement as a “forum-specific procedural gateway” matter – the kind of matter parties implicitly delegate to the arbitration provider when they agree to arbitrate under its rules. Id. at *6 (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 85–86 (2002)). Citing Howsam, 537 U.S. at 85, the Seventh Circuit reasoned that, absent contrary language in the arbitration agreement, parties who agree to AAA arbitration intend to withhold registration disputes from judicial review. Id. Because the AAA exercised its own discretion (consistent with the parties’ agreement) in closing the cases, there was “nothing for the district court to compel” under the FAA. Id. at *7.
The Seventh Circuit also relied on its prior decision in Wallrich, which held that a defendant’s failure to pay AAA fees, which resulted in termination of the arbitration, did not constitute a refusal to arbitrate where the outcome flowed from the parties’ agreed-upon procedures.
The Dissent
Judge Joshua P. Kolar dissented. In his view, Kohl’s non-registration “was a conscious step to depart from its agreement to arbitrate,” not a procedural question delegated to the AAA. Id. at *8. Judge Kolar warned that the majority’s reasoning stretches Wallrich’s holding too far and effectively converts “any bilateral agreement to arbitrate under AAA’s Consumer Rules into something of a unilateral option-to-arbitrate for business.” Id. at *9. Judge Kolar would have compelled Kohl’s to register so that the AAA could initiate proceedings. Id.
Implications for Companies
Bernal has immediate practical significance for companies facing mass arbitration exposure under AAA arbitration agreements. By simply declining to register its arbitration agreement with the AAA, a company can cause the AAA to close the proceedings without judicial recourse, at least in the Seventh Circuit. Businesses with AAA arbitration clauses in their consumer-facing agreements should assess whether this strategy is available and appropriate given their specific contractual language and forum.
That said, the dissent’s warning deserves attention. If other circuits adopt Judge Kolar’s reasoning, or if the AAA amends its rules in response, the window this decision opens may narrow. Companies should monitor developments carefully and consult counsel before relying on non-registration as a mass arbitration defense.