Wisconsin Court of Appeals rules credit card agreement unconscionable.

Byline: David Ziemer

A credit card agreement that bars class action relief and contains a foreign choice of law clause is unenforceable, the Wisconsin Court of Appeals held on Jan. 25. The plaintiffs are sub-prime credit risks who received a credit card and credit card agreement from Cross Country Bank, Inc., after responding to a direct mail or other solicitation from Cross Country. Cross Country subsequently "charged off" all of the plaintiffs' accounts except for one plaintiff, who has two active accounts. The contract included a choice of law clause, which states that it is governed by federal law and Delaware law. The contract also contains an arbitration clause, requiring that all disputes be arbitrated if either party elects arbitration and that cardholders waive any rights to proceed on a class action basis if arbitration is elected. Nevertheless, the plaintiffs sued Cross Country in Dane County Circuit Court, alleging that Cross Country had engaged in illegal debt collection practices in violation of the Wisconsin Consumer Act (WCA), seeking double damages under the WCA for their finance charges. Cross Country moved to compel arbitration and stay all proceedings, but Judge Robert A. DeChambeau held that the arbitration clause was unconscionable, struck the clause from the contracts, and denied the motion. Cross County appealed, but the court of appeals affirmed in a decision by Judge Paul Lundsten. Choice of Law The court first held that Wisconsin, rather than Delaware, law applies to the dispute. In Bush v. National School Studios, Inc., 139 Wis. 2d 635, 642, 407 N.W.2d 883 (1987), the Wisconsin Supreme Court held that parties are generally free to contract for choice of law, but not "at the expense of important public policies of a state whose law would be applicable if the parties['] choice of law provision were disregarded." The court concluded that the WCA embodies an important state policy, because it protects weaker parties against those with superior bargaining power, and thus invalidates the choice of law clause. Unconscionability Applying Wisconsin law, the court next held that the arbitration clause is both procedurally and substantively unconscionable, relying extensively on Wisconsin Auto Title Loans, Inc., v. Jones, 2006 WI 53, 290 Wis.2d 514, 714 N.W.2d 155. Addressing procedural unconscionability first, the court noted that the arbitration clause was in small print, and that the accounts were opened in response to...