Summary
refusing to require arbitration where the agreement was modified after the filing of a putative class action
Summary of this case from In re Currency Conversion Fee Antitrust Litig.Opinion
NO. C-97-20118 RMW, [Docket No. 201].
May 24, 2000.
William E. Kennedy, Law Office of William E. Kennedy, Santa Clara, CA, Counsel for Plaintiff.
Eric Wright, Scott Maurer, East San Jose Community Law Center, San Jose, CA, Counsel for Plaintiff.
Jonathan D. Wolf, William E. Adams, Berliner Cohen, San Jose, CA, Counsel for Defendants.
Jonathan P. Hayden, Daniel K. Slaughter, Sarah E. Margolies, Heller Ehrman White McAuliffe, San Francisco, CA, Counsel for Defendants.
ORDER DENYING MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS
The motion of defendants Household Retail Services, Inc., Household Bank (Nevada) N.A., and Household Bank (Illinois) N.A. to compel arbitration and to stay proceedings pending arbitration was heard on May 19, 2000. The court has read the moving and responding papers and heard oral argument of counsel. For the reasons set forth below, the court denies the motion.
I. BACKGROUND
This case was filed on February 7, 1997 by Mr. Long and Mr. Wilson, on behalf of themselves and others similarly situated, alleging a variety of consumer fraud causes of action under California law, as well as violation of the federal Truth in Lending Act ("TILA"). Plaintiffs allege that the Fidelity defendants sell home water treatment systems through deceptive door-to-door sales practices and that the Fidelity defendants as well as the Household defendants are involved in a financing scheme that does not provide the required credit disclosures to the consumers. On March 6, 2000, Mr. Continolo, previously a member of the prospective class, was added as a named plaintiff in the Third Amended Complaint.
When Mr. Continolo applied for a Household credit card, the application did not contain an arbitration clause. See Hampton Decl., Exhs. 4, 5. The application did reserve the right to change certain terms.
CHANGE OF TERMS (INCLUDING FINANCE CHARGE RATE): We may, at any time and subject to applicable law: a) terminate this Agreement; b) change your credit limit; or c) change any other terms and conditions of this Agreement relating to your Account (including increasing the periodic rate of Finance Charge, increasing or adding fees or charges, or changing the method of computing the balance upon which finance Charges are assessed) by mailing written notice to you in accordance with applicable law. Subject to applicable law, we may apply such change to the outstanding balance of your Account on the effective date of the change and to new balances after that date.See Hampton Decl., Ex. 5.
In July of 1998, Household Bank (Nevada) sent Mr. Continolo and other Household credit card holders a notice entitled: "Important Changes To Your Account Agreement" that read in relevant part:
All terms of the Cardholder Agreement and Disclosure Statement attached to this notice will apply to your account effective as of your billing cycle beginning on or after September 11, 1998. . . . This provision and any resulting arbitration are governed by the Federal Arbitration Act.
ARBITRATION: You and we agree to arbitrate all claims or disputes you may have relating to your account or this Agreement, upon the request of either party. You understand that opportunities for pre-hearing discovery will be limited in arbitration and that a single arbitrator or a panel of arbitrators, not a jury, will decide your claims. You further understand that arbitration is final and binding and that the arbitrator(s) will be obligated to follow the law. . . .
You may elect not to have this "Arbitration" section apply if you write within 30 days of receipt of this notice to P.O. Box 703, Wooddale, IL 60191.See Hampton Decl., Ex. 6. Mr. Continolo did not write within 30 days to indicate he did not wish the arbitration section to apply.
Effective October 10, 1998, Household Bank (Nevada)'s existing accounts under the Fidelity credit card program, including the account of Mr. Continolo, were assigned to Household Bank (SB), N.A. (who is not a defendant). In May, 1999, Household Bank (SB), N.A. sent Mr. Continolo a change of terms notice attached to a new Cardholder Agreement and Disclosure Statement from which Mr. Continolo was not given the opportunity to opt-out. By its terms, the "agreement" became effective on the first day of the billing cycle beginning on or after July 1, 1999, and buried in ¶ 18 was the following provision:
ARBITRATION: Any claim, dispute, or controversy (whether in contract, tort, or otherwise) arising from or relating to this Agreement or the relationship which result from this Agreement, including the validity or enforceability of this arbitration clause or any part thereof or the entire Agreement ("Claim"), shall be resolved, upon the election of you or us, by binding arbitration pursuant to this arbitration provision and the Code of Procedure of the National Arbitration Forum in effect at the time the Claim is filed. Rules and forms of the National Arbitration Forum may be requested by writing to. . . . This arbitration agreement is made pursuant to a transaction involving interstate commerce, and shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1-16. Each party shall bear the expense of their respective attorney's fees regardless of which party prevails. The arbitrator shall apply relevant law and provide written reasoned finding of fact and conclusions of law. The parties agree that the award shall be kept confidential. Judgment upon the award may be entered in any court having jurisdiction. Class actions are not permitted unless the parties agree otherwise. THE PARTIES ACKNOWLEDGE THAT THEY HAD A RIGHT TO LITIGATE CLAIMS THROUGH A COURT, BUT THAT THEY AGREE TO HAVE AN ELECTION TO RESOLVE ANY CLAIMS THROUGH ARBITRATION, AND THAT THEY HEREBY WAIVE THEIR RIGHTS TO LITIGATE CLAIMS IN A COURT UPON ELECTION OF ARBITRATION BY EITHER PARTY.See Hampton Decl., Ex. 7. Defendants now move to compel arbitration of Mr. Continolo's claims and to stay these proceedings pending resolution of the arbitration based on this 1999 "agreement" pursuant to § 3 of the Federal Arbitration Act ("FAA").
"If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action 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.
II. ANALYSIS
"Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator."AT T Technologies. Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986). Defendants assert that the unilaterally imposed language in the 1999 arbitration clause qualifies as a clear and unmistakable agreement to arbitrate the issues of validity and enforceability of the arbitration clause. The court disagrees. "[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of America v. Warrior Gulf Nav. Co., 363 U.S. 574, 582 (1960).Defendants never obtained any affirmative consent from Mr. Continolo regarding incorporation of the arbitration clause as part of the existing contract. Rather, defendants required Mr. Continolo to take affirmative action if he wished to reject the incorporation of the 1998 unilateral arbitration clause. Defendants have cited no case that has upheld an arbitration agreement based on a plaintiff's failure to "opt-out" of a defendants' unilateral imposition of an arbitration clause. The Ninth Circuit has held that "[b]efore a party to a lawsuit can be ordered to arbitrate and thus be deprived of a day in court, there should be an express, unequivocal agreement to that effect." Three Valleys Municipal Water District v. E.F Hutton Company Inc., 925 F.2d 1136, 1141 (9th Cir. 1991). Mr. Continolo gave no such express, unequivocal agreement to the 1998 arbitration agreement. Then, without even giving him the opportunity to opt-out of the arbitration agreement, Household Bank (SB), N.A. unilaterally modified the arbitration clause to name the National Arbitration Forum as arbitrator and to eliminate the right to have a court decide if the arbitration clause was even valid or enforceable.
In the employment context the Ninth Circuit has specifically rejected the idea of implicit agreement to arbitration provisions. See Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756, 762 (9th Cir. 1997) ("the choice must be explicitly presented to the employee and the employee must explicitly agree to waive the specific right in question.").
Defendants argue that the insertion of the arbitration clause and subsequent modification of it was authorized by the "Change of Terms" provision in Mr. Continolo's original credit card application. However, the provision is reasonably construed as allowing Household to terminate its agreement, change the credit limit or change financial terms of the account. It cannot be reasonably construed as explicitly allowing the insertion of an arbitration clause.
The fact that Mr. Continolo was a putative class member at the time defendants communicated with him also weakens any argument that he knowingly and voluntarily entered into an arbitration agreement. Defendants gave no notice to Mr. Continolo that if he opted for the arbitration provision, he could not participate in the pending class action. Defendants failed to notify Mr. Continolo of the pending class action, yet specifically stated in the arbitration clause that "(c)lass actions are not permitted unless the parties agree otherwise."
Even assuming Mr. Continolo is deemed to have agreed to the arbitration provision, defendants' offer no justification for holding that he agreed to arbitrate acts that occurred before the effective date of that agreement. Despite the complete absence of any language in either the 1998 or 1999 arbitration provisions suggesting retroactive application, let alone the type of express, unequivocal language that is required, defendants assert the 1999 unilateral arbitration clause retroactively against Mr. Continolo. The FAA recognizes that agreements to prospectively arbitrate future disputes, as well as agreements to retroactively arbitrate past or present disputes, are enforceable. However, the act explicitly distinguishes between the two.
A written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, . . . or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.9 U.S.C. § 2 (emphasis added). Defendants have cited no case in which a court retroactively applied an arbitration clause that did not clearly and unequivocally apply to existing claims.
Accordingly, the court finds that Mr. Continolo did not consent to arbitrate this dispute.
III. ORDER
For the reasons set forth above, defendants' motion to compel arbitration and to stay these proceedings is denied.