District Court Erred in Refusing Motion to Stay Class Action Against Bank and Compel Arbitration of Individual Claim based on Arbitration Clause with Class Action Waiver because Class Action Waiver, and Cost-Sharing Provision, of Arbitration Clause did not Render Provision Unconscionable Eighth Circuit Holds
Plaintiff filed a putative class action in Missouri state court against Chase Bank alleging that it had imposed penalties on credit card holders and that it had violated Missouri’s Merchandising Practices Act (MMPA); in essence, the class action complaint alleged that Chase improperly increased the interest rate charged on credit card balances. Cicle v. Chase Bank USA, 583 F.3d 549, 2009 WL 3172157, *1 (8th Cir. 2009). According to the allegations underlying the class action complaint, plaintiff’s credit card with Chase initially “carried a 7.99% annual percentage rate (APR) on unpaid balances,” but then “increased dramatically, to 25.99%.” Id. When asked about the increase, the Bank responded that “a credit agency had reported her as past due on an unrelated loan or account, so Chase increased the APR from the 7.99% ‘Preferred Customer Pricing’ rate.” Id. Defense attorneys removed for the class action to federal court under CAFA (Class Action Fairness Act of 2005) and on the ground of federal question jurisdiction under the National Bank Act (NBA). Id. The Bank then asked the district court to stay the class action to compel plaintiff to arbitrate her individual claim pursuant to the terms of the arbitration clause in her Cardmember Agreement, which included a class action waiver. Id. The district court denied the defense motion, concluding that the class action waiver and the provisions for cost-sharing were unconscionable under Missouri law, id., at *3. The Eighth Circuit reversed, holding that the class action waiver was neither substantively nor procedurally unconscionable.
The Cardmember Agreement contained an arbitration clause, governed by the Federal Arbitration Act (FAA), that required arbitration on an individual basis of any dispute with the bank; specifically, the arbitration clause contained a class action waiver, prohibiting the cardmember from bringing “a class action or other representative action” and precluding the cardmember from being “part of any class action or other representative action.” Cicle, at *1-*2. The arbitration was to be binding, and covered “any claim, dispute or controversy by either you or us against the other, or against the employees, parents, subsidiaries, affiliates, beneficiaries, agents or assigns of the other, arising from or relating in any way to the Cardmember Agreement, any prior Cardmember Agreement, your credit card Account or the advertising, application or approval of your Account (‘Claim’).” Id., at *2. The arbitration clause provided an exception for small claims court matters, id. With respect to costs, the arbitration clause provided that the Bank would pay for the filing fee (up to $500) and, “if there is a hearing, we will pay any fees of the arbitrator and arbitration administrator for the first two days of that hearing.” Id. The agreement provided that all other fees would be “allocated in keeping with the rules of the arbitration administrator and applicable law,” and that each side otherwise would be responsible for their own attorney fees and costs, regardless of whether they prevailed, unless the arbitrator orders otherwise based on “any applicable law.” Id. Reviewing the district court’s decision de novo, see id., at *3, the Eighth Circuit reversed its refusal to enforce the arbitration clause.
The Circuit Court began by noting, “Before a contract will be deemed unenforceable on the grounds of unconscionability, a court applying Missouri law must find it both procedurally and substantively unconscionable.” See Cicle, at *4 (citation omitted). With respect to procedural unconscionability, the Eighth Circuit acknowledged that the arbitration clause was “in fine print,” but observed that “the arbitration provision was in the same size font as the rest of the [agreement]” and that “the arbitration agreement and class-action waiver were introduced by a boldfaced heading and a paragraph in all-uppercase font explaining the litigation rights that were being waived by acceptance and use of the card.” Id. Further, when the agreement was amended, plaintiff “had thirty days to reject the changes in writing, which would close her account,” thus providing her with “ample opportunity and time to opt out of the amendment before it took effect”; instead, “she continued to use the card” thereby, “according to the terms of the notice,” affirmatively accepting the terms of the amendment. Id., at *5. The Circuit Court rejected the implication that “Chase’s superior bargaining position and the lack of opportunity in the ordinary course for negotiation between consumer and bank in the application for a credit card” automatically rendered the arbitration agreement unconscionable, explaining: “These sorts of take-it-or-leave-it agreements between businesses and consumers are used all the time in today’s business world. If they were all deemed to be unconscionable and unenforceable contracts of adhesion, or if individual negotiation were required to make them enforceable, much of commerce would screech to a halt.” Id. Accordingly, the Court held that the arbitration agreement was not procedurally unconscionable.
Turning to the issue of substantive unconscionability, the Eighth Circuit stressed that the agreement expressly provided an exception for small claims court matters – the very claims most likely to be at issue with respect to disputes with cardholders. Cicle, at *5. Accordingly, plaintiff was free to “file her claim individually in small claims court, which would afford her a relatively inexpensive, quick, and easy adjudication.” Id. Indeed, “Small claims court provides ‘a practical remedy’ – an alternative venue for vindication of [plaintiff’s] rights with a judicial process specifically designed for claims like hers.” Id. The Eighth Circuit also held that while the MMPA “allows” class actions, the statute “does not suggest that public policy favors class actions or that the wrongs sought to be remedied by the MMPA would continue unabated without the availability of class actions.” Id., at *6. Moreover, nothing in the Cardmember Agreement precludes claims under the MMPA, and plaintiff could pursue such a claim, individually, and seek to recover all damages awardable thereunder, including “punitive damages, attorney’s fees, and equitable relief.” Id. Moreover, the cost-sharing clause did not render the agreement unconscionable because “the agreement leaves open, at the arbitrator’s discretion and in keeping with the applicable law, the possibility of shifting all costs, regardless of which party prevails.” Id. The mere possibility that plaintiff “could” incur substantial costs and fees was insufficient to overcome the terms of the agreement. In sum, the Eighth Circuit “disagree[d] with the District Court’s determination that the agreement to arbitrate is substantively unconscionable because of the potential that [plaintiff] could be obligated to pay excessive costs and fees.” Id., at *7. “The cost-sharing and cost-shifting provisions in the arbitration agreement save it from being unconscionable on its face. And the record does not support the court’s conclusion that the costs and fees associated with arbitration of [plaintiff’s] individual claim make the agreement unconscionable as to her.” Id. Accordingly, the Circuit Court reversed the district court order denying the Bank’s motion to compel arbitration of plaintiff’s individual claim. Id.
NOTE: The Eighth Circuit assumed for purposes of its analysis that Missouri law applied, though the Bank argued that – in light of the choice of law provision in the FAA-governed arbitration clause – Delaware law should apply. See Cicle, at *3. Specifically, the Eighth Circuit explained at page *3, “We find it unnecessary to resolve the choice-of-law question, however, because we would reverse the District Court whether we apply the law of Missouri or Delaware.”
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