In a class of their own: the Eighth Circuit upholds a credit card agreement's class action waiver and mandatory arbitration clause.

Author:Luetkemeyer, Lucinda Housley
Position:Case note
 
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Cicle v. Chase Bank USA, 583 F.3d 549 (8th Cir. 2009).

  1. INTRODUCTION

    "[O]nly a lunatic or a fanatic sues for S30." (1) These words, written by Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit as part of a decision noting the advantages of class action lawsuits, (2) explain the reality millions of American consumers face when they agree to an arbitration clause that contains a class action waiver. For many of these consumers, the cost of litigating or arbitrating against a corporate defendant drastically outweighs the relatively modest claims they may assert due to a company's alleged wrongdoing. As a result, consumer plaintiffs and their advocates claim that class action bans in mandatory arbitration agreements effectively immunize corporations from liability for potential wrongdoing. (3)

    In an attempt to limit class action suits, companies routinely require customers to assent to arbitration agreements that include class action waivers. (4) The Federal Arbitration Act provides that an agreement to arbitrate is enforceable unless common law contract defenses, such as unconscionability, warrant the revocation of the contract. (5) In recent years, American courts have ruled on the enforceability of class action waivers in arbitration agreements with varying results across circuits. (6) Many courts have held that class action waiver provisions are unconscionable and unenforceable, (7) whereas others have reached the opposite result. (8) Though courts are split on the enforceability of class action bans, there is a "definite trend" of courts striking them down as unconscionable. (9) Despite this trend and the growing outcry from consumer protection groups about the unfairness of such provisions, (10) these clauses remain too valuable to corporate defendants for them to give up their fight, (11) and some courts continue to uphold such clauses as enforceable. (12)

    The United States Court of Appeals for the Eighth Circuit recently joined the cadre of courts to uphold class action waivers in arbitration agreements. In Cicle v. Chase Bank USA, the court held that a Missouri woman's putative class action suit against a credit card company was barred due to the class action waiver in her card agreement's arbitration clause. (13) The Eighth Circuit reversed a sharply worded federal district court order (14) and rejected the plaintiff's contention that the class action waiver was a "de facto immunity provision[]" for the credit card company which would leave her and other similarly situation plaintiffs effectively without a remedy. (15) In reaching its decision, the Eighth Circuit overlooked Missouri's fundamental public policy disfavoring class action bars in arbitration provisions and effectively ignored several Missouri state court decisions handed down after oral argument that starkly conflict with the court's decision. (16)

  2. FACTS AND HOLDING

    Missouri resident Virginia Cicle received a Chase Bank credit card in the mail in April 2002. (17) The "Mastercard and Visa Cardmember Agreement" that accompanied the card contained a binding arbitration provision barring Cicle from participating in a class action lawsuit against Chase Bank: (18)

    ARBITRATION AGREEMENT: PLEASE READ THIS AGREEMENT CAREFULLY. IT PROVIDES THAT ANY DISPUTE MAY BE RESOLVED BY BINDING ARBITRATION. ARBITRATION REPLACES THE RIGHT TO GO TO COURT. YOU WILL NOT BE ABLE TO BRING A CLASS ACTION OR OTHER REPRESENTATIVE ACTION IN COURT SUCH AS THAT IN THE FORM OF A PRIVATE ATTORNEY GENERAL ACTION, NOR WILL YOU BE ABLE TO BRING ANY CLAIM IN ARBITRATION AS A CLASS ACTION OR OTHER REPRESENTATIVE ACTION. YOU WILL NOT BE ABLE TO BE PART OF ANY CLASS ACTION OR OTHER REPRESENTATIVE ACTION BROUGHT BY ANYONE ELSE, OR BE REPRESENTED IN A CLASS ACTION OR OTHER REPRESENTATIVE ACTION. IN THE ABSENCE OF THIS ARBITRATION AGREEMENT, YOU AND WE MAY OTHERWISE HAVE HAD A RIGHT OR OPPORTUNITY TO BRING CLAIMS IN A COURT, BEFORE A JUDGE OR JURY, AND/OR TO PARTICIPATE OR BE REPRESENTED IN A CASE FILED IN COURT BY OTHERS (INCLUDING CLASS ACTIONS AND OTHER REPRESENTATIVE ACTIONS). OTHER RIGHTS THAT YOU WOULD HAVE IF YOU WENT TO COURT, SUCH AS DISCOVERY OR THE RIGHT TO APPEAL THE DECISION MAY BE MORE LIMITED. EXCEPT AS OTHERWISE PROVIDED BELOW, THOSE RIGHTS ARE WAIVED. (19) The arbitration clause, while barring class action suits, allowed Cicle to pursue any claim against Chase in small claims court and provided that if she sought arbitration, the arbitrator could award either party attorney's fees or punitive damages to the extent permissible under the law. (20) Under the provision's terms, Chase agreed to pay for Cicle's first arbitration filing fee up to $500 and agreed to pay the arbitration costs for the first two days of hearings. (21)

    The agreement did not require Cicle's signature, as her assent to its mandatory terms was deemed to be effective when she began using the card. (22) Cicle, therefore, became a Chase cardholder on April 19, 2002, when she first used the card. (23) The cardmember agreement contained a provision that allowed Chase to change the terms of the agreement at any time, with notification to the customer. (24) Over the next few years, the cardholder agreement was revised, with notice to Cicle, on several occasions. (25)

    From January 2004 to April 2004, Chase applied a 7.99% interest rate to Cicle's purchases. (26) In May 2004, Chase received a notification that Cicle had a negative entry on her credit report from another creditor and, as a result, dramatically increased the interest rate on her purchases to 25.99%. (27) Cicle later discovered that the negative entry was due to an unpaid forty-three dollar Lane Bryant credit card bill that was never forwarded to her new ad dress. (28) Cicle received no notice of the increased interest rate, which Chase retroactively applied to the previous month's billing cycle. (29) As a result of the increased interest rate, Cicle incurred approximately eighty dollars in additional finance charges. (30) Between 2004 and 2007, Chase Bank accumulated more than $5,000,000 from retroactive late fees like the one levied against Virginia Cicle. (31)

    Over the next year, Chase amended the existing cardholder agreement several times; among these amendments was a choice-of-law clause stating that Delaware law governed in case of a conflict. (32) In order to reject Chase's proposed changes, Cicle had to affirmatively notify Chase in writing of her timely rejection, which she never did. (33) According to the cardmember agreement's terms, her continued use of the card constituted acceptance of the proposed changes. (34)

    In 2007, Cicle brought a putative class action suit in Missouri state court against Chase Bank USA, alleging that the company imposed illegal penalties and violated the Missouri Merchandising Practices Act (MMPA) when it increased the interest rate charged on her credit card balance. (35) Chase removed the case to federal court on the basis of federal question jurisdiction over the National Bank Act and diversity jurisdiction as provided for by the Class Action Fairness Act. (36) Chase then filed a motion to compel arbitration and to resist the class action litigation, citing the cardmember agreement provisions. (37)

    The U.S. District Court for the Western District of Missouri found the fee-sharing terms and the class action waiver of the arbitration agreement to be both procedurally and substantively unconscionable. (38) In her order, Judge Nanette Laughrey ruled that Missouri law applied because enforcing the card agreement under Delaware law, which assuredly would approve of the class action waiver, would be contrary to Missouri's fundamental policy under the MMPA of allowing class action lawsuits. (39) The district court determined that if the contract were enforceable under Missouri law, Delaware law would have applied to the dispute. (40)

    The district court found the cardmember agreement to be procedurally unconscionable due to the fact that it was mailed to Cicle in a "'take it or leave it' fashion." (41) The court further ruled that Chase discouraged thoughtful consideration of the contract terms when it did not require Cicle to read, sign, or acknowledge the agreement in order to accept it. (42) In addition to the finding of procedural unconscionability, Judge Laughrey found the agreement to be substantively unconscionable due to the class action waiver, which eliminated Cicle's opportunity for redress given the individual and relatively minor pecuniary damages involved in the instant dispute. (43) Finally, the court ruled that the existence of a cost-sharing provision could not overcome the harm of the class action bar due to the possibility that Cicle could nonetheless bear the brunt of financial responsibility for her claim. (44)

    The court opined at length about the practical importance of allowing plaintiffs like Cicle to pursue their claims as class actions, given the low likelihood that an attorney would undertake individual representation of a plaintiff with such a small claim. (45) In perhaps the best summation of the theme and tone of the order, the court stated:

    Although the arbitration agreement and cost-splitting provisions attempt to lessen the financial burdens on claimants, the result is the same: plaintiffs are forced to take on the same risks associated with bringing a class action without any of the benefits.... The practical effect is Chase is afforded immunity for its potential violations of the Missouri Merchandising Practices Act. (46) In an interesting move, the district court conditionally granted Chase's motion to compel arbitration and stay litigation if Chase agreed to pay all costs and fees associated with the arbitration. (47) Chase declined to pay Cicle's costs and fees, so the Western District declined to enforce the arbitration clause, finding that it was unconscionable under Missouri law. (48) Chase appealed to the Eighth Circuit...

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