Current Month (February 2026)
Business Crimes & Corporate Compliance
CTA Required Revision of the CDD Rule Remains Off-Track
By William E. H. Quick, Outside Inside Counsel, LLC
The Corporate Transparency Act (“CTA”) requires certain entities to report beneficial ownership information (“BOI”) to the Financial Crimes Enforcement Network (“FinCEN”). FinCEN also administers the Customer Due Diligence (“CDD”) Rule contained within the Bank Secrecy Act, which applies to certain covered financial institutions. The CTA was intended to address, update, and possibly streamline the CDD Rule, and to serve as a check on the veracity of BOI reported to financial institutions. This is why BOI collected by FinCEN under the CTA was to be specifically made accessible to financial institutions as a class of recipients.
Specifically, “The CTA . . . requires that FinCEN rescind and revise portions of the 2016 CDD Rule within one year after the effective date of the BOI reporting rule [i.e., by January 1, 2025].” 87 Fed. Reg. 59498 at 59548. This deadline long since has passed, and FinCEN’s required rulemaking to implement the requirements of the CTA and its implementing regulations pertaining to CDD Rule revisions remain pending at this time.
The CTA identifies three purposes for its required CDD Rule revisions: “[(1)] to bring the rule into conformity with the [Anti-Money Laundering Act of 2020] as a whole, including the CTA; [(2)] to account for financial institutions’ access to BOI reported to FinCEN ‘in order to confirm the beneficial ownership information provided directly to the financial institutions’ for [Anti-Money Laundering / Countering the Financing of Terrorism] and customer due diligence purposes; and [(3)] to reduce unnecessary or duplicative burdens on financial institutions and legal entity customers.” 87 Fed. Reg. at 59507.
Interestingly, on February 13, 2026, FinCEN issued an order providing for certain exceptive relief to covered financial institutions from the CDD Rule. This relief pertains to the CDD Rule’s requirement to identify and verify the identities of beneficial owners of legal entity customers at each new account opening. Although FinCEN notes that the current order is meant, in part, to meet certain of FinCEN’s obligations under the CTA, such result appears absent in the order’s application.
As a result of FinCEN’s March 26, 2025, interim final rule that removes the requirement for U.S. companies and U.S. persons to report BOI to FinCEN under the CTA, the CTA-derived database of BOI available to financial institutions remains inadequate to support the desired purposes of the CTA’s provisions associated with the CDD Rule. One may assume that this will make future meaningful FinCEN guidance and rulemaking in this area unlikely so long as the current interim final rule remains in place, in spite of the statement by FinCEN in the recent exemptive order that “FinCEN anticipates pursuing further changes to the 2016 CDD Rule through the rulemaking process, and this exceptive relief notice will help inform those efforts.”
It bears mention that the CTA remains in effect, in spite of the limitations imposed on its implementation by the March 26, 2025, interim final rule. The CDD Rule revision and other action required under the CTA remain acknowledged but unsatisfied by U.S. Treasury and FinCEN at this time.
Labor & Employment Law
Impact of “Default” under the Federal Arbitration Act in the Tenth Circuit
By Nathaniel Spilman, Pilgrim Christakis LLP
In a recent decision, Myers v. Papa Texas, LLC (February 12, 2026), the Tenth Circuit affirmed that the District of New Mexico properly lifted the stay pending arbitration where the defendant failed to pay filing fees in a prior arbitration between the parties based on the same claims.
Myers’s First Lawsuit
In 2023, plaintiff Luke Myers filed a class and collective action complaint in the U.S. District Court for the District of New Mexico, alleging Papa Texas, LLC, had violated the Fair Labor Standards Act (“FLSA”) and other laws. After Papa Texas moved to dismiss and compel arbitration, the parties agreed to arbitrate the matter and stipulated to dismiss the lawsuit without prejudice. The case was closed.
Arbitration of the First Lawsuit
Following the stipulation to arbitrate, Myers filed an arbitration demand with the American Arbitration Association (“AAA”). In its case-opening letter to the parties, the AAA stated that Papa Texas’s share of the filing fee was due even if the matter was settled or withdrawn. After the arbitration was initiated, the parties agreed to a settlement in principle prior to the filing fee deadline. Papa Texas did not pay the filing fee before the AAA closed the arbitration, and the AAA issued a letter stating it “may decline to administer any future employment matter involving” Papa Texas (emphasis added).
Breakdown of Settlement and Myers’s Second Lawsuit
Despite notification to the AAA that the matter had settled, it became clear that the parties would not reach a settlement in the end. As a result, Myers filed another lawsuit in the District of New Mexico (rather than filing to reopen the prior lawsuit that was dismissed without prejudice). In the second lawsuit, Papa Texas moved to compel arbitration. Myers argued that the motion should be denied because Papa Texas had waived its right to arbitration through its failure to pay the AAA filing fee.
The district court concluded that Papa Texas did not waive its right to arbitrate. Because the arbitration agreement between the parties designated the AAA and it was unclear whether the AAA would accept the arbitration, the court stayed the litigation and ordered the parties to submit the matter to arbitration so they could determine whether the AAA would accept the arbitration. Thereafter, Myers reached out to the AAA requesting a determination as to whether it would arbitrate the matter, noting that he did not consent to arbitration. The AAA briefly reopened the case under a new case number before closing it given Myers’s refusal to consent.
Myers returned to the district court to lift the stay, arguing that the arbitration proceeding was in default due to the AAA’s refusal to go forward with a new case absent his consent. Thus, Myers argued “the Court is no longer required under the Federal Arbitration Act to compel arbitration,” citing Federal Arbitration Act (“FAA”) § 3 (directing courts to stay litigation over matters covered by an arbitration agreement so long as “the applicant for the stay is not in default in proceeding with such arbitration”). Papa Texas argued that it should not be deemed in default, and it requested the court compel Myers to express his consent to the AAA.
The district court ruled for Myers, finding that Papa Texas had defaulted by failing to pay the filing fee, and therefore, Myers had no duty to consent to a second proceeding. Papa Texas appealed.
Appeal to the Tenth Circuit
The Tenth Circuit stated that there was “no dispute that Myers’s FLSA and related claims are ‘referable to arbitration under [the parties’] agreement.’ The only question is whether Papa Texas is ‘in default in proceeding with such arbitration.’” In other words, if Papa Texas was not in default, the district court should not have lifted the stay, leaving Myers with the option of arbitrating, settling, or abandoning his claims. If Papa Texas was in default, then the district court correctly lifted the stay.
The Tenth Circuit addressed three main arguments from Papa Texas in support of its appeal. First, Papa Texas argued that the second lawsuit is a “new, meaningfully different case,” thus taking this case outside of Tenth Circuit precedent holding that “failure to pay arbitration fees constitutes a ‘default’” under FAA § 3. Second, it argued that waiver of the right to arbitrate and default in arbitration are effectively the same thing; therefore, because the district court found lack of waiver it also should have found lack of default. Third, Papa Texas argued that Myers waived his argument that Papa Texas’s failure to pay constituted default because Myers did not raise it until after the AAA refused to administer the second arbitration.
After analyzing all three arguments, the Tenth Circuit affirmed the district court’s decision to lift the § 3 stay. First, it held Papa Texas forfeited its argument that the second lawsuit was a substantively new dispute. The Court came to this conclusion because there was nothing in the record showing that Papa Texas asserted the second lawsuit was meaningfully different from the first lawsuit and because the district court found the second lawsuit to be based on the “same claims.” Second, in support of its argument that waiver and default are effectively the same, Papa Texas cited Eleventh Circuit caselaw utilizing a totality-of-the-circumstances test for analyzing default under § 3 (whereas the Tenth Circuit precedent had ruled that failure to pay arbitration fees alone constitutes a § 3 default). The Tenth Circuit held that the extra-circuit decisions cited either contradicted Tenth Circuit law or cut against Papa Texas’s argument. Thus, following Tenth Circuit precedent, Papa Texas was in § 3 default through its failure to pay. Third, the Tenth Circuit agreed with the district court that “nothing about Myers’s counsel’s explanation, or Myers’s behavior before raising the default argument, showed an intention to relinquish or surrender the argument.” Therefore, in short, the Tenth Circuit rejected all three of Papa Texas’s arguments and affirmed the district court’s decision to lift the § 3 stay in light of Papa Texas’s default.
Conclusion
Overall, Myers v. Papa Texas, LLC reaffirms Tenth Circuit precedent that nonpayment of arbitration fees constitutes a default for the purposes of FAA § 3 and that district courts in the Circuit need not consider other circumstances surrounding the nonpayment. Furthermore, despite finding that Papa Texas did not waive its right to arbitrate, the effect of the Tenth Circuit’s ruling is tantamount to a ruling that it had waived its right. Thus, a party to arbitration, particularly in the Tenth Circuit, should be aware that nonpayment of arbitration fees may have consequences beyond future lack of administration of different claims but may constitute an effective waiver of the right to arbitrate the present claim.
