Contract Formation

In a dispute involving fraudulent charges, the District of Connecticut required American Express and the cardmember to resolve their issue in arbitration, pursuant to the cardmember agreement, as amended. AmEx provided notice of the arbitration provision in a document titled “Important Changes to Your Account Terms,” which explained the changes to the arbitration provision and stated that cardmembers have the opportunity to reject the provision, which the cardmember here did not. The cardmember “claimed to have no recollection of any Arbitration Provision contained in his Cardmember Agreement nor any recollection of receiving any particular amendment to his Cardmember Agreement which imposed an Arbitration provision, or which required him to opt out of an Arbitration participation.” Nonetheless, the cardmember admitted that, at all times relevant, “he and his accounts were subject to the terms of a Cardmember Agreement.”

The cardmember did not deny receipt of the amendment or refute any evidence provided by AmEx “that he was, in fact, mailed the various amendments to his Cardmember Agreements.” Accordingly, the court determined that the cardmember’s use of his credit card after receiving the various amendments to his cardholder agreement constituted acceptance of their terms, including the arbitration provisions contained therein.

Errato v. Am. Express Co., No. 3:18-cv-01634 (D. Conn. Aug. 23, 2019).

A district court has granted a motion to compel arbitration based on an arbitration clause in an agreement sent via text message and agreed to via a reply text.

Lexington Law Firm, a debt collection company, was sued in a putative class action under the Electronic Funds Transfer Act after purportedly deducting funds without consent.

Lexington moved to compel arbitration. It had sent the named plaintiff a text message agreement that contained an arbitration clause requiring him “to arbitrate all disputes and claims between [him] and Lexington on an individual basis only.” The plaintiff responded with a text that said: “Agree.” The plaintiff opposed Lexington’s motion. He claimed, inter alia, that there was no mutual assent and that the arbitration clause was unconscionable because it was a contract of adhesion and because it was so broadly worded. The district court disagreed.

The plaintiff had been given the agreement and had agreed to it. The court distinguished, among other things, cases involving “browsewrap” agreements in which a website user “agreed” to terms and conditions merely by using a website. Although the court found the agreement minimally procedurally unconscionable because it was a contract of adhesion, that did not render the agreement unconscionable as a whole. The agreement was not substantively unconscionable merely because it was broadly worded, at least where, as here, the plaintiff’s claims were related to the agreement he signed. The court therefore dismissed the putative class action.

Starace v. Lexington Law Firm, No. 1:18-cv-01596 (E.D. Cal. June 27, 2019).

The plaintiff sought coverage for property loss due to Hurricane Irma, and the defendant successfully moved to compel arbitration. The plaintiff opposed arbitration, arguing that the subject policy was unsigned and thus did not constitute a signed written agreement to arbitrate. As Florida law recognizes that an insurance application and the policy together “form the contract of insurance,” the district court found that the plaintiff’s signature on its insurance application “is sufficient to constitute a signature on a written agreement to arbitrate.”

The district court further rejected the plaintiff’s arguments that: “(1) it had no knowledge of the arbitration provision and (2) the Policy’s Service of Suit clause supersedes the arbitration provision or renders it ambiguous.” The plaintiff was instructed to carefully read the entire policy and “cannot now contend that it was unaware of the arbitration provision.” Furthermore, “[t]he Policy mandates arbitration and the Service of Suit Clause merely provides a means for the parties to go to court to either compel arbitration or enforce an arbitration award. Indeed, courts consistently read arbitration clauses and service of suit clauses as compatible.”

Gold Coast Prop. Mgmt. Inc. v. Certain Underwriters at Lloyd’s London, No. 1:18-cv-23693 (S.D. Fla. June 14, 2019)

The plaintiff challenged the formation of an arbitration clause contained in her employment contracts and acknowledgment of employee handbooks, arguing: (1) there was no “meeting of the minds” and therefore there was not the mutual assent necessary for contract formation; and (2) the agreement was procedurally unconscionable because the plaintiff’s “assent was obtained through misrepresentation, she never had a meaningful opportunity to bargain, and there was a gross disparity in the parties’ bargaining power.” A Mississippi federal court rejected the plaintiff’s first argument, finding that there was a meeting of the minds, but deferred the procedural unconscionability argument to the arbitrator under the agreement’s delegation clause.

The Fifth Circuit upheld the ruling on contract formation, as the district court “correctly found that the electronic communications transmitting the Arbitration Agreement clearly identified an arbitration agreement as the subject of the communications … [and the plaintiff] was given the opportunity to read the Agreement and certified” that she had done so. The plaintiff’s “unilateral lack of diligence” in failing to do so “does not preclude contract formation under Mississippi law.”

However, the Fifth Circuit reversed with respect to procedural unconscionability, as that “objection challenges the formation of the Arbitration Agreement itself, the district court had the duty to resolve this challenge.” Thus, the case was remanded to the district court to resolve the issue.

Bowles v. Onemain Fin. Grp., LLC, No. 18-60749 (5th Cir. June 19, 2019)

The plaintiff sued his former employer for discrimination, retaliation, hostile work environment, and violations of the Missouri Human Rights Act. The defendant moved to compel arbitration based on the parties’ Mutual Agreement to Arbitrate (MAA). The MAA incorporated the rules of the American Arbitration Association and the Judicial Arbitration & Mediation Services, both of which authorize the arbitrator to resolve threshold, or “gateway,” questions of arbitrability. As the court observed, the U.S. Supreme Court has held that the incorporation of these rules into an arbitration agreement constitutes a “clear and unmistakable” expression of the parties’ intent to delegate arbitrability issues to the arbitrator, “unless the provision delegating such authority to the arbitrator is specifically challenged.” Here, the plaintiff did not specifically challenge the MAA’s delegation provision; he argued only that the MAA as a whole was unenforceable for lack of consideration. As such, the court granted the defendant’s motion to compel arbitration.

Murphy v. Oracle Am., Inc., No. 4:19-cv-01207 (E.D. Mo. June 19, 2019)