Introduction: a Section 3 Default in Case Where Arbitration Proponent Failed to Pay Arbitration Fees
Default in the FAA Section 3 context is not limited to litigation conduct that establishes waiver of arbitration. In Myers v. Papa Texas, LLC, ___ F.4th ___, No. 25-2020, slip op. (10th Cir. Feb. 12, 2026) the U.S. Court of Appeals for the 10th Circuit made three key points about Section 3 default in a nonpayment of fees case:
- A party that fails to pay required arbitration fees and thereby causes the arbitration administrator (here, the American Arbitration Association (the “AAA”) to close the case risks being found “in default in proceeding with such arbitration” under FAA § 3, allowing the district court to lift an the stay of litigation and resume the litigation.
- In the Tenth Circuit, the “default” inquiry under § 3 is not the same thing as waiver-by-litigation (the usual “did you litigate too much before seeking arbitration?” question). A party can avoid waiver-by-litigation and still default in arbitration by not performing the steps needed to arbitrate, especially payment of arbitration fees.
- If you want arbitration, you must be prepared to fund it, comply with the forum’s rules, and build a record showing any inability to pay or good-faith efforts to make arrangements.
What Happened
Luke Myers brought an action against his employer, Papa Texas, LLC, in federal district court. Papa Texas obtained a stay pending arbitration under FAA § 3, and the case moved toward arbitration administered by the AAA.
But arbitration is not free, particularly for business entity defendants. It runs on process—and fees, which (all too often) can be quite substantial.
The AAA demanded payment. Papa Texas did not tender it. After repeated notices and extensions, AAA closed the arbitration for nonpayment—what would one expect? Myers understandably wanted to proceed to litigation and so he asked the Court to lift the stay. Why? Because, said Myers, Papa Texas had “default[ed] in proceeding with arbitration” within the meaning of Section 3.
The district court agreed and lifted the stay. Papa Texas appealed and the Tenth Circuit affirmed.
What Arbitration-Law Issues did the Tenth Circuit Principally Address?
Myers resolved two closely-related and important FAA issues:
- What “default in proceeding with such arbitration” means under FAA § 3 when arbitration is derailed by nonpayment; and
- Whether and to what extent that § 3 “default” inquiry differs from waiver-by-litigation-conduct, especially after the U.S. Supreme Court’s instruction that courts must avoid arbitration-specific procedural rules? See Morgan v. Sundance, 596 U.S. 411, 414, 419 (2022).
Discussion
FAA § 3: “Default in Proceeding with such Arbitration” is a Real, Independent Off-Ramp for Arbitration Opponents
Most FAA practitioners instinctively think about waiver when a party engages in litigation conduct that is materially inconsistent with their agreement to arbitrate. But FAA § 3 contains specific limiting language that contemplates waiver not only by litigation conduct but other kinds of “default:” a court “shall…stay the trial…until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” 9 U.S.C. § 3.
That last clause is not window dressing or surplusage. The Tenth Circuit treated it as an independent basis to terminate a previously ordered stay and to allow the litigation to proceed. (For more on Section 3 default, see here , here, and here.)
Default is not Limited to “Waiver by Litigation”
Papa Texas tried to reframe the § 3 default question as if it were the familiar waiver framework: multi-factor tests, litigation conduct, and (prior to Morgan) prejudice. But the Tenth Circuit rejected this category error. Default in arbitration is about whether the party who asked the court to halt litigation and send the dispute to arbitration proceeded with arbitration in a manner consistent with the agreement and the forum’s requirements.
Put differently, a party can “win” the waiver-by-litigation fight but still “lose” under § 3 if it does not move the arbitration forward as required by the agreement and applicable arbitration rules.
Nonpayment that Causes the Administrator to Close the File is Compelling Evidence of Default
The panel relied heavily on practical reality: the AAA closed the case because Papa Texas didn’t pay—despite repeated warnings.
The employer tried to blunt that with alternative glosses (including arguments drawn from other circuits’ approaches and attempts to import broader “totality of the circumstances” standards). But the court viewed the facts as straightforward:
- The arbitration forum demanded payment;
- The payment obligation was clearly communicated;
- The AAA granted extensions;
- Nonpayment persisted; and
- The forum closed the case.
That sequence supported the district court’s conclusion that the party seeking arbitration had defaulted in proceeding with arbitration.
Ability to Pay can Matter—But You Must Prove it
A notable aspect of the Tenth Circuit’s analysis is what it emphasized as missing: evidence that Papa Texas could not afford the fees or tried to make alternative arrangements.
That matters for two reasons.
First, courts are understandably reluctant to let a party weaponize arbitration costs—especially when the party invoked arbitration to stop litigation—and then refuse to pay, leaving the opposing party with nowhere to go. That’s the kind of “heads, I win, tails you lose” tactic that waiver or default doctrine abhors. Cf. Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995) (party opposing waiver “wanted to play heads I win, tails you lose”).
Second, a genuine inability to pay, documented contemporaneously, could change the equities and sometimes the analysis. But the Tenth Circuit found no record support for that kind of inability here.
The Court Resisted “Arbitration-Specific” Procedural Requirements Without Weakening § 3’s Default Clause
Papa Texas attempted to draw energy from the Supreme Court’s insistence that courts not craft arbitration-specific procedural rules. The panel did not disagree with that principle. Instead, it treated § 3’s default clause as plain statutory text: if you’re the one who asked for the stay, you must not be in default while arbitration is pending.
That framing is doctrinally important. It positions § 3 default as a text-based limit on the stay remedy—not a court-made, arbitration-hostile overlay.
Seen through that lens, Section 3 is not a special judge-made procedural rule favoring arbitration agreements over other contracts. If anything, it is an FAA procedural rule that neither favors nor disfavors arbitration and simply prescribes the circumstances under which a stay is either unavailable in the first place or subject to early termination.
The Default Argument was not Waived
Papa Texas also tried a different tack: even if nonpayment could support § 3 default, Myers supposedly waived the default argument by not emphasizing it when Papa Texas first sought the stay. According to Papa Texas, Myers waived the default argument by intentionally opting not to make at the first available opportunity.
The Tenth Circuit affirmed the district court’s rejection of that contention, finding that the district court did not abuse its discretion. The Court said that the district court “was well within its discretion to conclude that nothing about Myer’s counsel’s explanation [for having earlier argued waiver rather than default], or Myer’s behavior before raising the default argument[]” evidenced an intentional relinquishment of the default argument. Slip op. at 18.
Practice Considerations for Arbitration Proponents and Arbitration Opponents
Arbitration Proponents
If you prefer to arbitrate, budget for it and document any inability to pay.
- Assume the court will expect the party who demanded arbitration to pay its share of arbitration fees promptly.
- If you cannot, create a record: declare the inability, propose structured payment, request fee relief if the rules permit it, and document pertinent communications.
- Do not let the administrator close the case and then argue later that you still want arbitration.
Arbitration Opponents
If the other side doesn’t pay, move fast. If your opponent is stalling arbitration by nonpayment:
- Request administrator enforcement (warnings, deadlines, and closure).
- Return to court and seek an order lifting the stay under FAA § 3 once default is clear.
- Preserve the record: notices, invoices, extensions, closure and other communications.
Conclusion
Myers is a clean, practitioner-facing reminder that arbitration is not self-executing. The FAA favors arbitration, but it does not require courts to keep cases on pause while the party who demanded arbitration refuses to do what the arbitration agreement requires.
Contacting the Author
If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094. PJL1@LoreeLawFirm.com.
Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.
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Tags: AAA, arbitration fees, default in arbitration, FAA § 3, Morgan v. Sundance, nonpayment, Stay Pending Arbitration, Tenth Circuit
