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9th Circuit: Arbitration agreement authorizes public injunctive relief under California law
On February 19, the U.S. Court of Appeals for the Ninth Circuit affirmed a grant of a motion to compel arbitration filed by the operator of a smartphone app that offers financial services to consumers, holding that an agreement between a consumer and the lender authorizes the arbitrator to award all injunctive remedies available in an individual lawsuit under California law. In this case, the plaintiff took out a credit-builder loan and was required to enroll in a program offered by the lender as a prerequisite for applying for the loan, which required the payment of monthly fees. After the consumer fell behind on her fees, deposits, and loan payments, she filed a putative class action suit claiming that when she tried to cancel her membership in the program, the lender informed her that she first had to pay off the loan in full, which could only happen after she paid the still-accumulating past-due membership fees. The lender moved to compel arbitration, which the district court granted, ruling that the arbitration agreement was fully enforceable and that the agreement “explicitly” did not violate the ruling established in McGill v. Citibank NA, as it allowed the arbitrator to award “all remedies in an individual lawsuit,” including, without limitation, public injunctive relief. On appeal, the 9th Circuit rejected the consumer’s argument that she could only secure public injunctive relief by acting as a private attorney general, which the arbitration agreement explicitly prohibited. “Public injunctive relief is available under California law in individual lawsuits—not just in private-attorney-general suits,” the appellate court wrote. “It follows that [the consumer] may secure that relief in arbitration under the [a]greement.” As a result, the court affirmed the district court’s order to compel arbitration.
Court again rejects “unconscionable” arbitration provision
On February 12, the U.S. District Court for the Northern District of West Virginia denied for a second time a satellite TV provider’s (defendant) motion to compel arbitration in a TCPA class action, concluding that the arbitration provision was “overbroad, absurd and unconscionable.” As previously covered by InfoBytes, the plaintiff filed a lawsuit against the defendant alleging the defendant violated the TCPA by making automated and prerecorded telemarketing calls to an individual even though her number was on the National Do Not Call Registry. The defendant moved to compel arbitration, claiming that the plaintiff’s dispute was covered by an arbitration agreement in the contract governing her cell phone service with a telecommunications company, which is an affiliate of the defendant. The district court denied the request, ruling that the allegations “did not fall within the scope of the arbitration agreement.” On appeal, the U.S. Court of Appeals for the Fourth Circuit issued a split opinion vacating a district court’s decision with the majority concluding that the allegations fit within the broad scope of the arbitration agreement, and that even though the plaintiff agreed to arbitration with a telecommunications company in 2012, the agreement extends to the TCPA allegations against the defendant after the telecommunications company acquired the defendant in 2015. Specifically, the appellate court stated that the arbitration agreement had a “forward-looking nature,” and that it seemed unlikely that the telecommunications company and its affiliates “intended to restrict the covered entities to those existing at the time the agreement was signed.” The 4th Circuit remanded the case back to the district court for consideration of unconscionability.
On remand, the district court again denied the motion, stating that the “arbitration provision is overbroad, absurd and unconscionable, and far exceeds anything contemplated by Congress in enacting the [Federal Arbitration Act].” Specifically, the court stated the plaintiff was “an ordinary wireless consumer” given a “small electronic pinpad device” with a few lines of the agreement displayed at a time and an option to skip to an acknowledgment screen, which required her signature, in order to “obtain her line of service.” She would then be “irrevocably locked in to face demands that she arbitrate any dispute arising out of any relationship with virtually any of [the telecommunications company]’s corporate cousins—a list that could, overtime, comprise [] current competitors or not-yet created subsidiaries.” Because the arbitration provision was unconscionably broad, the court denied the motion to arbitrate.
Court orders arbitration on non-signatory claims
On January 21, the U.S. District Court for the Eastern District of Pennsylvania granted a national cable provider’s motion to compel arbitration in a putative class action alleging the company violated the FCRA by checking consumer credit reports without a permissible purpose. According to the opinion, after the consumer filed the putative class action, the company moved to arbitrate the claims pursuant to a provision contained “in various written materials that were originally provided to [the consumer]’s household in 2006” upon the opening of a company account. In response, the consumer asserts that the arbitration provision is not binding on him, because he was not the signatory on the document that contains the provision. The court disagreed with the consumer, concluding that, even though he was a non-signatory, he “actively sought and obtained benefits provided pursuant to the Subscriber Agreement, such that he is equitably estopped from avoiding the Arbitration Provision contained therein.” Specifically, the court acknowledged the existence of the arbitration agreement was not in dispute, but whether the consumer was bound by it. The court found that, not only did the consumer obtain benefits from the household account, he also “exceris[ed] control over the account,” including placing servicing calls regarding the account. Moreover, because the claims filed by the consumer fall within the scope of the arbitration agreement, as they “relate[] to [company] and/or [consumer]’s relationship with [company],” and the court granted the company’s motion to compel arbitration.
California appellate court concludes lender’s arbitration provision unenforceable
On January 11, the Court of Appeals of the State of California affirmed the denial of an auto lender’s motion to compel arbitration, concluding that the arbitration clause was invalid and unenforceable. According to the opinion, in May 2019, consumers filed a class action complaint alleging the lenders charged unconscionable interest rates in violation of California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA). The company moved to compel arbitration, which the consumers opposed, arguing that the agreement was “procedurally and substantively unconscionable,” and that the California Supreme Court decision in McGill v. Citibank, N.A. (covered by a Buckley Special Alert here, holding that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable) applied. The trial court denied the motion to compel arbitration, concluding that the McGill rule applied and that the injunctive relief provision could not be severed from the rest of the arbitration agreement because severability did not apply to the class waiver provision.
On appeal, the state appellate court agreed with the trial court, concluding that the McGill rule applied. Specifically, the appellate court concluded that the injunctive relief the consumers were seeking “encompasses all consumers and members of the public,” and “an injunction under the CLRA against [the lender]’s unlawful practices will not directly benefit the Customers because they have already been harmed and are already aware of the misconduct.” Moreover, the appellate court determined that there is no precedent holding that “the remedy of public injunctions under CLRA and UCL should be limited to false advertising claims.” The court further concluded that the class waiver was not severable, stating that the lender’s argument that the arbitration agreement could not be determined void until after an appellate court reviews the viability of the class waiver was “illogical.” Accordingly, the appellate court affirmed the denial of the motion to arbitrate.
Court denies arbitration bid in tribal loan usury action
On December 10, the U.S. District Court for the Middle District of Florida denied a motion to compel arbitration filed by a collection company and its chief operations officer (collectively, “defendants”), ruling that the arbitration agreements are “unconscionable” and therefore “unenforceable” because of the conditions under which borrowers agreed to arbitrate their claims. According to the order, the plaintiffs received lines of credit from an online lending company purportedly owned by a federally recognized Louisiana tribe. After defaulting on their payments, the defendants purchased the past-due accounts and commenced collection efforts. The plaintiffs sued, alleging the defendants’ collection efforts violated the FDCPA and Florida’s Consumer Collection Practices Act (FCCPA) because the defendants knew the loans they were trying to collect were usurious and unenforceable under Florida law. The defendants moved to compel arbitration based on the arbitration agreement in the tribal lender’s line-of-credit agreement, and filed—in the alternative—motions for judgment on the pleadings.
The court ruled, among other things, that while the plaintiffs agreed to arbitrate all disputes when they took out their online payday loans, the “proposed arbitration proceeding strips Plaintiffs of the ability to vindicate any of their substantive state-law claims or rights,” and that, moreover, “the setup is a scheme to hide behind tribal immunity and commit illegal usury in violation of Florida and Louisiana law.” The court also granted in part and denied in part the defendants’ motions for judgment on the pleadings. First, in denying in part, the court ruled that because the “tribal choice-of-law provision in the [tribal lender’s] account terms is invalid,” the plaintiffs’ accounts are subject to Florida law. Therefore, because Florida law is applicable to the plaintiffs’ accounts, they present valid causes of action under the FDCPA and FCCPA. The court, however, ruled that the plaintiffs seemed to “conflate Defendants’ communications to facilitate the collection of the outstanding debts with a communication demanding payment,” pointing out that FDCPA Section 1692c(b) only punishes that latter, which “does not include communications to a third-party collection agency.”
1st Circuit: Original creditor’s arbitration agreement applies to debt buyer
On November 25, the U.S. Court of Appeals for the First Circuit affirmed a grant of a motion to compel arbitration in a debt collection action, concluding that a debt buyer holds the same arbitration rights as the original creditor under a cardmember agreement entered into with the plaintiff. The debt buyer purchased a pool of defaulted credit card debts from the original creditor, including the plaintiff’s charged-off account. After a municipal judge ruled that the debt buyer could not prove it owned the unpaid debt, the plaintiff filed a class action lawsuit alleging, among other things, that the debt buyer and its law firm (collectively, “defendants”) violated the FDCPA by attempting to collect the debt after the statute of limitations had expired. The defendants filed a motion to compel arbitration, and the district court approved the magistrate judge’s recommendation that an enforcement clause in the cardholder agreement between the plaintiff and the original creditor be enforced. The plaintiff appealed, arguing that the defendants should not be able to compel arbitration because they were not the signatories of the original cardholder agreement.
On appeal, the 1st Circuit concluded that the plaintiff offered no support for deviating from the “long-standing given in contract law. . .that ‘an assignee stands in the shoes of the assignor,’” holding that the original creditor’s rights were assigned to the debt buyer and its agents, including the right to invoke the cardmember agreement’s arbitration provision.
North Carolina Appeals Court: Original creditors’ intent required for assignment of arbitration rights
On November 3, the Court of Appeals of North Carolina issued a pair of orders (see here and here) affirming lower courts’ decisions denying a debt collector’s (defendant) motion to compel arbitration. According to the orders, the defendant purchased charged-off accounts belonging to the plaintiffs and filed individual lawsuits in several state courts seeking to collect on the debt. Default judgments were obtained against the plaintiffs in each of the actions. The plaintiffs filed suit, alleging the defendant violated certain sections of North Carolina’s Consumer Economic Protection Act by “not comply[ing] with certain statutorily enumerated prerequisites to obtain default judgments.” The defendant eventually moved to compel arbitration pursuant to an underlying agreement between the plaintiffs and the original creditor. The lower court denied the motion, ruling that the defendant—“as a nonsignatory to the credit card agreements”—had not shown it was assigned the right to arbitrate claims when it purchased the charged-off accounts. The defendant appealed the decision.
The Appeals Court considered whether there was a valid arbitration agreement between the plaintiffs and the defendant and agreed with the trial court, holding that “without any showing of the additional intent by the original creditors to assign to [the defendant], at the very least, ‘all of the rights and obligations’ of the original agreements, the right to arbitrate was not assigned in the sale and assignment of the Plaintiffs’ Accounts and Receivables as set forth in the Bills of Sale.” Moreover, the Appeals Court determined that the “trial court correctly concluded [the defendant] has not met its burden of showing a valid arbitration agreement between each Plaintiff and [the defendant] and did not err” by denying the defendant’s motion to compel arbitration.
9th Circuit affirms arbitration in putative class action against CRA
On October 21, the U.S. Court of Appeals for the Ninth Circuit affirmed arbitration in a FCRA action against a national credit reporting agency (CRA), concluding that the consumer “expressly agreed” to the 2014 terms of use, which included an enforceable arbitration provision. According to the opinion, a consumer purchased a credit score program from the CRA in June 2014 and assented to the terms and conditions, including an arbitration provision and change-of-terms provision, which stated that each time the consumer accessed the website, “she would be manifesting assent to ‘the then current’ terms of the agreement.” The consumer canceled her credit score subscription in July 2014. The consumer accessed the CRA website against in 2018 and at the time of access, the arbitration provision included a carve out for certain disputes relating to the FCRA. The consumer subsequently filed a putative class action against the CRA, alleging, among other things, a violation of the FCRA’s requirement to assist the consumer in understanding the credit scoring assessment. The district court granted the CRA’s motion to compel arbitration.
On appeal, the 9th Circuit concluded that the consumer was not bound to the new arbitration terms based on her 2018 visit to the website. The appellate court noted that the consumer did not allege she received notice of the new terms in effect, and therefore, she was bound to the 2014 terms to which she had previously assented. Moreover, the appellate court rejected the consumer’s argument that the arbitration agreement was unenforceable under the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here, holding that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable). The appellate court held that the 2014 arbitration provision did not “flatly prohibit a plaintiff seeking public injunctive relief in court,” because it subjects disputes to arbitration “to the fullest extent of the law,” which presumably would “exclude claims for public injunctive relief in California.” Thus, the appellate court affirmed arbitration.
9th Circuit splits with 4th Circuit, concludes arbitration agreement does not apply to acquired company
On September 30, the U.S. Court of Appeals for the Ninth Circuit issued a split opinion affirming a district court’s decision against arbitration in a proposed class action, which accused a satellite TV provider (defendant) of violating the TCPA by allegedly placing unauthorized prerecorded messages to customers’ cell phones without prior express written consent. According to the opinion, the plaintiff signed a contract containing an arbitration agreement with a telecommunications company in 2011 that eventually acquired the defendant in 2015. After the plaintiff filed his complaint, the defendant moved to compel arbitration, arguing that as an affiliate of the telecommunications company, it was entitled to arbitration. The district court disagreed and ruled that the contract signed between the plaintiff and the telecommunications company “did not reflect an intent to arbitrate the claim that [the plaintiff] asserts against [the defendant].”
On appeal, the majority concluded that “under California contract law, looking to the reasonable expectations of the parties at the time of the contract, a valid agreement to arbitrate did not exist between plaintiff and [the defendant] because [the defendant] was not an affiliate of the [telecommunications company] when the contract was signed.” The majority acknowledged that its decision is contrary to a recent 4th Circuit opinion (covered by InfoBytes here), in which that majority concluded that that an arbitration agreement signed by the plaintiff with the telecommunications company in 2012 when she opened a new line of service was extended to potential TCPA allegations against the defendant when the telecommunications company acquired the defendant in 2015. However, the 9th Circuit majority held that under the defendant’s interpretation of the agreement, the plaintiff “would be forced to arbitrate any dispute with any corporate entity that happens to be acquired by [the telecommunications company], even if neither the entity nor the dispute has anything to do with providing wireless services to [the plaintiff]—and even if the entity becomes an affiliate years or even decades in the future.” Moreover, the majority concluded that to enforce an agreement the plaintiff signed with the telecommunications company before it acquired the satellite TV provider would lead to “absurd results.”
In dissent, the minority wrote that because the agreement with the telecommunications company covered its affiliates and there is nothing in the agreement’s wording stating that it would only “refer to present affiliates” on the day of signing, the defendant should be able to compel arbitration.
2nd Circuit denies arbitration for sandwich chain in TCPA action
On September 15, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s denial of arbitration, concluding that a national sandwich chain’s website did not provide sufficient notice of the terms and conditions. According to the opinion, a consumer filed a TCPA action against the sandwich chain relating to unsolicited text messages he received after he entered his phone number on a promotional page of the company’s website in order to receive a free sandwich at his next visit. After entering his number, the consumer clicked a button stating “I’M IN,” which the sandwich chain argued “constituted assent to the terms and conditions contained on a separate webpage that was accessible via a hyperlink on the promotional page.” The terms and conditions included an agreement to arbitrate. The sandwich chain moved to compel arbitration of the consumer’s TCPA action and the district court denied the motion, finding that no arbitration agreement existed because “the terms and conditions were not reasonably clear and conspicuous on the promotional page itself.”
On appeal, the 2nd Circuit agreed with the district court, noting that the webpage “was relatively cluttered.” Specifically, the appellate court noted that the webpage lacked language “informing the user that by clicking ‘I’M IN’ the user was agreeing to anything other than the receipt of a coupon.” Moreover, the appellate court held that the link to the terms and conditions was not conspicuous to a reasonable user as it was in small font at the bottom of the page and was “introduced by no language other than the shorthand ‘T & Cs.’” Because the company did not provide sufficient evidence demonstrating the consumer’s knowledge of the terms and conditions, the appellate court affirmed the denial of arbitration.