Citibank Credit Card Class Action Waiver Conscionability Considered

the california courts have explained the need for hoffman's petition for permission to be heard. please see the enclosed change in claims covered: iii. conclusion although "bill stuffer" amendments are not per se unconscio- tive and procedural elements, these components exist on a because there is some degree of consumer choice in the mar- claim be pursued on your or our behalf in any litiga- 983 (9th cir. 2007) (internal quotation marks omitted); see set forth in � 54-11-10, citibank mailed hoffman a "notice of class, non-representative) basis. given the narrow question presented by this appeal, i con- issue of law, "whether california law or south dakota law between determining that south dakota's enforcement of an unconsciona- class arbitration waiver under south dakota law is contrary to fied laws � 54-11-10; see also nygaard v. sioux valley hosp. & health u.s. 220, 226-27 (1987). the applicable state law controls case. we remand for that analysis. "claims"). tially brought in california state court but was removed to 2005). in this case, hoffman sued in california. when an waiver under south dakota law would be contrary to a funda- argued and submitted basis. nonetheless, the district court found substantial 14502 hoffman v. citibank contrary to a fundamental policy of california." id. if such a tration. see davis v. o'melveny & myers, 485 f.3d 1066, class arbitration waiver, accompanied by a non-acceptance on behalf of a california-only class, under a california statute for an of conflict of laws ("� 187(2)") dictates a different result. using the card was deemed acceptance of the changes in describing its analytical framework before concluding "that 14498 hoffman v. citibank provision was enforceable, and thus south dakota law gov- ket.") (internal citation omitted). that citibank was in a superior bargaining position to hoff- � what claims are subject to arbitration? . . . conflict with california law is found, "the court must then bank, 113 p.3d at 1110). although this test has both substan- degree. see armendariz v. found. health psychcare serv., rptr. 3d at 820-21.4 "[t]he terms and enforcement of this agreement shall be gov- member the option to sue in small claims court and requiring clude a finding of procedural unconscionability and render an the right to participate in a class nedlloyd, and therefore the district court should not have before filing an answer, citibank filed a motion to compel 461 (ct. app. 2006). in jones, division three of the fourth tively unconscionable under california law on the facts the terms of their existing agreement without accel- your card(s) under your existing terms until the end this argument misunderstands the important, albeit slight, difference substantial relationship to the parties or their transaction, or pay off his balance under the existing terms. this appellate district declined to conclude that a similar attempt of the agreement. south dakota law controls enforceability and the uncons- for the central district of california vers. see klussman v. cross country bank, 36 cal. rptr. 3d accordance with south dakota codified laws � 54-11-10. provided 25 days to reject the changes in writing. silence or . . . whether there is any other reasonable basis for the parties' 113 cal. rptr. 2d 376, 381-82 (cal. app. 2001). the disposi- ing to apply south dakota law to determine the enforceability steps to avoid it. merely mentioned nedlloyd in a conclusory statement without there it is. mixed signals from the california courts. one tion about the binding arbitration of law provision favoring south dakota law. the district court b.v. v. superior court, 3 cal. 4th 459 [834 p.2d elements often render a contract provision oppressive, and ble under california law turns on approach articulated in � 187(2) of the restatement (second) accept the binding arbitration provisions contained in $1,000 insufficient to warrant individual litigation). hoff- arbitration and stay proceedings. the district court issued an action suit against her credit card company, defendant- courts in our circuit have determined that the ability to rescind agreement that waived her right to proceed on a class basis. sumers out of individually small sums of money. [5] citibank's class arbitration waiver would be substan- the change in terms expressly gave hoffman "non- * * * tinue to use their cards until the cards expired and � who can be a party? claims must be brought in under 28 u.s.c. � 1292(b). because we are persuaded that the citibank (south dakota), n.a., the federal arbitration act is presumed to be valid and arbitration clause. egerton [v. citibank, n.a.], 2004 wl 2255296 at *4 (n.d. cal. aug. 3, 2007). v. mailcoups, inc., 469 f.3d 1257, 1281 (9th cir. 2006) (en she closes her account is procedurally unconscionable. see to reach a holding on the materially greater interest prong of this test. nev- for the ninth circuit the change in terms provided that the arbitration provision court to rely exclusively on egerton and lowman to conclude action are subject to arbitration on an individual agreement carefully. it provides ing a class arbitration waiver -- enforceable, or not. 14499hoffman v. citibank f. supp. 2d 1061, 1067-68 (n.d. cal. 2007) (finding an also klussman, 36 cal. rptr. 3d at 739-40 (citing discover app. jan. 10, 2007), that the "agreement" under our legal at 739 (emphasis added) (quoting discover bank, 113 p.3d at 1108); see [7] given this legal landscape, we remand to the district cionability defense." egerton, 2004 wl 1057739, at *2. the amount of over $4,000 "not substantial"); cohen v. directtv, citibank to reimburse or advance arbitration fees under cer- court in lowman similarly concluded that "pursuant to ned- expired, at which time he would have been able to a fundamental policy of california.2 see discover bank v. superior court, 113 p.3d 1100, 1117 render the arbitration provision unconscionable." nagrampa please read this provision of the tration waiver is not procedurally unconscionable under south dakota law opinion 2006). held in firchow v. citibank (south dakota), n.a., no. scheme to deliberately cheat large numbers of con- 14490 hoffman v. citibank microscope is unconscionable. randolph, 531 u.s. 79, 91 (2000). without advance notice, resulting in additional lump sum grant[ ] itself a license to push the boundaries of good busi- found to be procedurally unconscionable in discover our case is different [from discover bank v. supe- at 741. 985. angeles, california, for the defendant-appellee. that any dispute may be resolved appellee citibank (south dakota) n.a. ("citibank"). the dis- replaces the right to go to court, grounds for a difference of opinion regarding a controlling man's analysis. see, e.g., oestreicher v. alienware corp., 502 f.supp. 2d lloyd . . . south dakota law governs" without providing any out of individually small sums of money.' " klussman, 36 cal. rptr. 3d trict court found that hoffman was party to an arbitration granted permission for the appeal, and we have jurisdiction mental policy against unconscionable class arbitration wai- claims and remedies sought as part of a class action, under nedlloyd, if there is a fundamental conflict with california law, (1) whether the agreement is a consumer contract of b187081, 2007 cal. app. unpub. lexis 178, at * 26 (ct. you must notify us in writing within 26 days after the holder's choices: petition law, california business & professions code les, california, and gretchen a. carpenter, strange & carpen- rior court]. here, although the change was made in choice of law." nedlloyd lines b.v. v. superior court, 834 similarly situated, 5 concurrence by judge trott your account will be closed and you will be able to parties predictably involve small amounts of dam- therefore, unenforceable. see doctor's assocs., inc. v. casa- ages; and (3) whether it is alleged that the party with that the clra does not apply to credit card transactions). [2] here, the district court found that determining which `carried out a scheme to deliberately cheat large numbers of consumers er," walker was given an opportunity to opt out of articulated in restatement � 187(2) and nedlloyd, and more court concluded that the class arbitration waiver was not cited by the district court because it was brought by a california resident, arbitration bears the burden of proving that the claims at issue which would materially advance the litigation. we granted allegedly deceptive practice whose injury was felt in california. see arbitration provision enforceable. see circuit city stores, inc. the nature and scope of citibank's "instructions for non- issue." id. (internal quotations marks omitted). was cognizant of the oppressive nature of forcing a julia b. strickland, stroock & stroock & lavan llp, los (non-class, non-representative) basis, and the arbitra- district court's order compelling arbitration erroneously relied class arbitration waivers within such contracts from proce- additional choice of law analysis. lowman, cv 05-8097 tion waiver and ordered hoffman to proceed on a non-class bank [v. superior court, 113 p.3d 1100 (cal. counsel the degree of substantive unconscionability. we have held citibank printed the following message on hoffman's cv-06-00571-ajg that hoffman was unable to negotiate its terms. these two court] does not stand for the proposition that "bill or jury. arbitration procedures by binding arbitration. arbitration d.c. no.plaintiff-appellant, whether a specific class arbitration waiver is unconsciona- this brings us to jones v. citigroup, inc., 38 cal. rptr. 3d this panel retains jurisdiction over any future appeals. trott, circuit judge, concurring: bank would have continued without change for the duration court procedures. party to an arbitration agreement that was subject to a choice inc., 48 cal. rptr. 3d, 813, 820 (cal. app. 2006) (holding waiver at issue is not unconscionable or unenforceable under 14501hoffman v. citibank requisite california choice of law analysis. instead, in decid- laura hoffman, an individual, on alleged. hoffman claims that citibank's challenged billing should be used to determine the enforceability of the arbitra- 728, 739-40 (cal. ct. app. 2005); see also cal. civ. code 2005).] moreover, discover bank [v. superior opt out and whether other banks use similar provisions will of law issue presented substantial grounds for difference of circuit has "consistently followed the courts that reject the 1 finding the provision unconscionable under the substantive law of con- tion or immediately cancel the account and took trict court granted hoffman's motion, finding that the choice citystores,inc.v.mantor,335f.3d1101,1106(9thcir.2003).5 reversed and remanded. app. september 11, 2008), division four of the first appel- observations designed, i hope, to shed light on remand on the agreement contains a choice of law provision, california provision we are adding to your citi- * * * before: stephen trott, sydney r. thomas and in gentry v. superior court, 165 p.3d 556 (cal. 2007). jones 3 setting in which disputes between the contracting private attorney general or other representative v. ahmed, 283 f.3d 1198, 1199 (9th cir. 2002). in contrast, inc., 6 p.3d 669, 690 (cal. 2000). instead, "even if the evi- not base this appeal on her clra pleadings in the light of berry v. am. cally provides, how many customers exercise their ability to mine as a threshold matter "whether the chosen state has a unconscionable. rather, it appears that defendant tion agreement," and issued an order for immediate appeal. issue, we emphasize that the instant case is distinguishable from the two vided enough of a meaningful opportunity to opt out to be the initial pleading alleged a violation of california's consumer legal i. the need for remand per curiam opinion; oestreicher, 502 f.supp.2d at 1069; see also klussman, 36 cal. rptr. 3d mately $68, which easily constitutes the requisite "small would have been permitted to use his card until it provision, is unconscionable under california law. 14496 hoffman v. citibank the arbitration provision also included terms giving the card- fornia law: applying south dakota law -- the law chosen in the credit enable the court to determine whether citibank provided an proceed on an individual (non-class, non- hoffman subsequently moved to certify the district court's v. notion that the existence of `marketplace alternatives' bars a by an arbitrator instead of a judge enforceable. see shearson/am. exp., inc. v. mcmahon, 482 appearing on hoffman's november 2001 billing statement. dispute, or controversy between you and us (called in that order, the district court found that hoffman was situated california cardholders. hoffman alleged that citi- ter, los angeles, california, for the plaintiff-appellant. advising her to call citibank if she wanted another copy of the � broadest interpretation. any questions about tration as a class action, private attorney general nor any other person may pursue the claim in arbi- california law. in so holding, that court focused on a card- 14497hoffman v. citibank bank increased the class members' interest rates retroactively, tor may award relief only on an individual (non- procedural unconscionability when reviewing a contract). hoffman brought this consumer action in california state upon which to base its decision. money." discover bank, 113 p.3d at1108; see cohen, 48 cal. filed october 14, 2008 ulated in � 187(2) and nedlloyd to the particular facts of this dence of procedural unconscionability is slight, strong evi- june 9, 2008--pasadena, california however, division seven of the second appellate district dakota), n.a. v. walker, no. a117770, slip op. at 8 (cal. ct. resolved by interpreting this arbitration provision in see nedlloyd, 834 p.2d at 1152. because the procedural unconscionability citibank argues that hoffman's allegations are insufficient to prove nonconsenting cardholder to either agree to arbitra- mental policy of california. 14495hoffman v. citibank ii. analysis on remand 14485 of the class arbitration waiver remains an open question, it is premature rather, it focuses on the take it or leave it nature of factual and procedural background a contract within 21 or 30 days does not necessarily insulate cannot be ignored." klussman, 36 cal. rptr. 3d at 739 (inter- barry l. kramer, law offices of barry l. kramer, los ange- scenario described in discover [bank v. superior california law is far from settled. in citibank (south determine whether california has a materially greater interest additional charges and payments. had she notified citibank of relationship" to the instant transaction. thus, on remand the specifically because it did not address whether citibank's here, although the change was made in a "bill stuff- in 1994, hoffman opened a credit card account with citi- her non-acceptance, it appears that her relationship with citi- provision contained in this change in terms notice, are simpler and more limited than united states court of appeals because it did not apply california's choice of law analysis as then concluded without further analysis that the choice of law rotto, 517 u.s. 681, 686-87 (1996). "[t]he party resisting unconscionable and was enforceable. 14492 hoffman v. citibank 2 erned by south dakota and federal law." the agreement per- courts apply the parties' choice of law unless the analytical . . . if you notify us by that time that you do not 4 "actual, meaningful, and reasonable choice" such that its class in addition, various district courts in california have followed kluss- waiver provision that the customer is deemed to accept unless we review de novo a district court's order compelling arbi- hoffman's claims on an individual, non-class basis. per curiam: cur in our per curiam opinion. nevertheless, i add some are unsuitable for arbitration." green tree fin. corp.-ala. v. elect mandatory, binding arbitration for any claim, ness practices to their furthest limits, fully aware that rela- andrew j. guilford, district judge, presiding provisions that undermine important public policies simply under california's choice of law analysis, a court must deter- of the class arbitration waiver, the district court reasoned: hopes on remand in this case that the legal dust will soon set- action or other representative action, nor may such amount of damages." see oestreicher v. alienware corp., 502 conclude that courts are not obligated to enforce highly unfair (emphasis added.) hoffman did not notify citibank of her [1] federal courts sitting in diversity look to the law of the whether claims are subject to arbitration shall be that it could charge a higher interest rate for at least a month opinion california's choice of law rules articulated in � 187(2) and their rejection of the amendment, they could con- � 1668.3 this change in terms notice, you can continue to use raymond c. fisher, circuit judges. nable, discover bank, 113 p.3d at 159-63, a california court a "bill stuffer," plaintiffs were given an opportunity ertheless, because the district court expressed some confusion on this erned the agreement. applying south dakota law, the district the case was stayed without completion of discovery. we enforceable. expanding the record with respect to issues such tively few, if any, customers will seek legal remedies" and ble provision is counter to a fundamental policy of california and actually as how much additional time the expiration date cutoff typi- this policy, reasoning that a defendant could "essentially discussion amended complaint, alleges a violation of the unfair com- 14489hoffman v. citibank this arbitration provision is governed by the federal the name of an individual person or entity and must of two or more persons may not be joined or consoli- materially greater interest than south dakota in the outcome of this case. eral arbitration act requires enforcement of the arbitration agreement. the superior bargaining power has carried out a jones, 38 cal. rptr. 3d at 465. action or similar proceeding. in card agreement -- the district court enforced the class arbitra- therefore procedurally unconscionable. see gatton, 61 cal. order compelling arbitration for immediate appeal. the dis- banc); see also gatton v. t-mobile usa, inc., 61 cal. rptr. the good news, if there is any good news in all of this, is that providing a "meaningful opportunity to opt out" can pre- hoffman's november 2001 statement included a reminder terms notice for important informa- the contractual modification. to opt out of arbitration. by giving written notice of large numbers of consumers out of individually small sums of (cal. 2005). the california supreme court has held that federal court by citibank. the operative pleading, the first exclusively relied on those decisions. the court in egerton dural unconscionability. see oestreicher, 502 f.supp.2d at that the class arbitration waiver is unconscionable and therefore the fed- behalf of herself and all others or we require arbitration of a claim, neither you, we, court] or szetela [v. discover bank, 118 cal. rptr. that the california supreme court vacated and remanded the tion in any court. claims, including assigned claims, approximately seven years later, following the procedures then would be able to pay off their balances under �� 17200, et seq.1 acceptance instructions": acceptance" provision to determine whether the waiver pro- p.2d 1148, 1152 (cal. 1992). if either of these tests is satis- test and specifically address whether the enforceability of this that "[t]he potential for millions of customers to be over- law applied posed a close call, yet its order did not follow the california's choice of law analysis, it was error for the district arbitration: order granting citibank's motion to compel arbitration of arbitration, a dispute is resolved forum state when making choice of law determinations. see eration. this does not present the take it or leave it wl 1057739, at *2 [(c.d. cal. feb. 18, 2004)]; underlying question: is the arbitration "agreement" -- includ- also shroyer, 498 f.3d at 983. the district court's order compelling arbitration in her class statement/closing date indicated on your november arbitration act (the "faa"). terms. opinion and was a controlling question of law, the appeal of [4] hoffman concedes that south dakota has a "substantial late district held in an unpublished opinion that the arbitration tle and that our district court will have some reliable authority 2d 862 (ct. app. 2002),] as being procedurally 1070; brazil v. dell inc., no. c-07-01700, 2007 wl effective billing cycle. upon receiving notice, hoffman was walker, no. a117770, slip op. at 10 (citation omitted). these charges qualifies as a "scheme to deliberately cheat dence of substantive unconscionability will tip the scale and remedies act, california civil code �� 17500, et seq. ("clra"). hoff- man's allegation that citibank adopted this practice to ensure that south dakota law governs here. instead, the district court and therefore is enforceable if south dakota law controls. see s. d. codi- court so that it may conduct additional fact finding regarding defendant-appellee. v. citigroup, inc., 171 p.3d 547 (cal. 2007). written notification of the change at least 15 days before the standard of review and burden of proof rgk, slip op. at 3. because neither court adequately applied california has a funda- the same facts have ruled that under nedlloyd lines for publication man indicates she will not pursue her clra claim on remand, and does fied, the second inquiry is whether the "chosen state's law is including the right to a jury and rules, we remand for a determination of whether california or charged small amounts without an effective method of redress fornia's sliding scale, the non-acceptance provision renders 8097 rgk, slip op. at *3 (c.d. cal. march 24, 1072 (9th cir. 2007). an arbitration agreement governed by tive questions that the district court has thus far not addressed, october 2001 statement alerting her to the enclosed notice: 2255296, at *8 (n.d. cal. aug. 3, 2007). additionally, this whether an arbitration agreement is unconscionable and, we agree with the district court's conclusion that citibank's class arbi- south dakota law applies to the class arbitration waiver. of your current membership year or the expiration arbitration provision. arbitration. by opting out of the amendment, walker bank card agreement." the added arbitration provision sliding scale such that they need not be present in the same has held that a "bill stuffer" that includes a class arbitration district court should focus on the second step of the nedlloyd 14488 hoffman v. citibank however, are the practical impacts of citibank's "non- 1148] (1992), south dakota law governs any then the choice of law analysis would turn to whether california has a fields v. legacy health sys., 413 f.3d 943, 950 (9th cir. finding of procedural unconscionability." shroyer, 498 f.3d at sys., 731 n.w.2d 184, 195 (s.d. 2007) (requiring both substantive and representative) basis. the arbitrator will not award rptr. 3d at 352-53; flores v. transamerica homefirst, inc., bank card agreement. cohen, 48 cal. rptr. 3d at 819-20. moreover, two district 14491hoffman v. citibank enforceability or unconscionability defenses to the the broadest way the law will allow it to be enforced. no. 07-55616 would become effective on the day after the closing date lowman v. citibank (south dakota) n.a., cv 05- express publ'g, inc., 54 cal. rptr. 3d 91, 92 (cal. ct. app. 2007) (holding nal quotation marks omitted) (quoting discover bank, 113 acceptance instructions" and whether, when placed on cali- mitted citibank to change its terms by mailing hoffman pay off your remaining balance under your existing on cases that do not properly apply california choice of law agreement to arbitrate: was required to explicitly apply the analytical approach artic- change in terms regarding binding arbitration to your citi- [3] to understand the district court's reasoning, we look to unconscionable under california law, enforcement of the appeal from the united states district court plaintiff-appellant laura hoffman ("hoffman") appeals stated, in pertinent part: finance charges being improperly imposed. the suit was ini- ing powers; (2) whether the agreement occurs in a date on your card(s), whichever is later. at that time relief for or against anyone who is not a party. if you arbitration waiver is not procedurally unconscionable. circuit tract. in the choice of law context, california courts applying nedlloyd and does not present the same take it or leave it scenario either you or we may, without the other's consent, two respected judges in this district facing almost man and that citibank's contract was offered in such a way p.3d at 1108). thus, if citibank's class arbitration waiver is 2001 billing statement stating your non acceptance. dated in the same arbitration. 3d 344, 356 (cal. ct. app. 2007) ("[u]nder armendariz, we adhesion drafted by a party that has superior bargain- shroyer v. new cingular wireless serv., inc., 498 f.3d 976, [6] with respect to procedural unconscionability, it is plain tain circumstances. non-acceptance and continued to use her account by making jones decision for further proceedings in light of its decision 14500 hoffman v. citibank the class arbitration waiver conscionable when compared to to avoid classwide arbitration was unconscionable under cali- 1061, 1066 (n.d. cal. 2007); brazil v. dell, inc., no. c-07-01700, 2007 stuffer" amendments are per se unconscionable. bank subject to a written credit card agreement. the card than the chosen state in the determination of the particular 14494 hoffman v. citibank practice resulted in an additional finance charge of approxi- 14493hoffman v. citibank we respectfully conclude that the district court erred agreement contained a choice of law provision stating that discover bank require only that "the allegations allege the defendant has both egerton and lowman. neither decision properly applied if you do not wish to accept the binding arbitration before the affected customers could do anything to avoid court against citibank on behalf of herself and other similarly