On June 10, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) does not permit a court to vacate an arbitrator’s decision to allow class arbitration where the parties authorized the arbitrator to decide the issue. Oxford Health Plans LLC v. Sutter, No. 12-135, 569 U.S. ___ (2013). In this case, a health insurance company sought to overturn an arbitrator’s holding that the contract between the company and a doctor claiming the insurer failed to fully pay him and similarly situated doctors authorized class arbitration of the claims. The parties agreed that the arbitrator should decide the issue, but in seeking to overturn the decision, the insurer argued that the arbitrator exceeded his authority under the FAA. Citing the narrow standard of judicial review under the relevant FAA provision and the “heavy burden” a party bears under that provision, the Court held that the parties’ agreement to allow the arbitrator to decide the issue of class arbitration of the claims is sufficient to show that he did not exceed his powers. The insurer argued that the Court’s holding in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) that an arbitration panel exceeded its powers when it ordered a party to submit to class arbitration should apply here. The Court rejected that argument, explaining that in Stolt-Nielsen the Court overturned the arbitral decision because it lacked any contractual basis for requiring class procedures, whereas in this case, the arbitrator construed the parties’ contract at their request.

On June 6, the CFPB released a notice and request for comment on its plan to conduct a new survey related to its ongoing study of arbitration agreements. A supporting document submitted with the notice includes the initial survey questions proposed by the CFPB. The CFPB plans to contact 1,000 credit card holders to evaluate their awareness of card agreement dispute resolution provisions, and their “assessments of such provisions.” The CFPB stated that the survey will seek information regarding card holders’ perceptions and valuations of arbitration and litigation, but will not gather data regarding respondents’ post-fact satisfaction with arbitration or litigation proceedings. Comments on the proposed survey are due by August 6, 2013.

On May 28, the U.S. Court of Appeals for the Third Circuit resolved an inconsistency in the circuit regarding the standard a court should apply when deciding a motion to compel arbitration. Guidotti v. Legal Helpers Debt Resolution, L.L.C., No. 12-1170, 2013 WL 2302324 (3rd Cir. May 28, 2013). In this case, several debt settlement firms moved to compel arbitration after being sued by a debtor who claimed the firms defrauded her and similarly situated persons. The court granted arbitration for most of the defendants but denied with regard to two, holding that the debtor’s pleading demonstrated that the parties had no meeting of the minds on an agreement to arbitrate. On appeal, the court held that the record before the district court was insufficient to prove that there was no genuine dispute of material fact regarding the agreement to arbitrate. In doing so, the court explained that it has inconsistently applied a motion to dismiss standard and a motion for summary judgment standard to motions to compel arbitration, which the court believes is in part explained by the Federal Arbitration Act’s (FAA) alternating emphasis on speed and enforcement of private agreements. To reconcile the conflict, the court held that the FAA favors resolving a motion to compel arbitration under the speedier motion to dismiss standard when the affirmative defense of the arbitrability of claims is apparent on the face of the complaint or its supporting documents. However, the court held, when the motion does not have as its predicate a complaint that clearly indicates the affirmative defense of arbitrability, a “more deliberate pace is required” and a summary judgment standard is more appropriate. The court vacated and remanded the district court’s order denying arbitration.

On April 11, the U.S. Court of Appeals for the Ninth Circuit, sitting en banc, held that a national bank could compel arbitration of a dispute involving student loans. Kilgore v. KeyBank, Nat’l Ass’n, No. 09-16703, 2013 WL 1458876 (9th Cir. Apr. 11, 2013). Former students of a failed flight-training school filed a class action in state court seeking broad injunctive relief against the bank that originated their student loans and the loan servicer. However, each of the students had executed a promissory note containing a provision requiring arbitration and prohibiting arbitration of claims on a class action basis. The bank removed the action to federal district court and moved to compel arbitration. The district court denied the motion and subsequently granted the bank’s motion to dismiss the claims. On appeal, the Ninth Circuit held that the arbitration provision was enforceable under the Federal Arbitration Act and that it was not substantively or procedurally unconscionable under state law. The court further held that the plaintiffs’ claims were not exempt from the FAA under the “public injunction” exception because the bank’s alleged statutory violations already ceased, the class affected by the alleged practices is small, and there is no real prospective benefit to the public at large from the relief sought. The court vacated the district court’s dismissal of the students’ claims, reversed the denial of the bank’s motion to compel arbitration, and remanded with instructions to the district court to compel arbitration.

On March 27, the California Court of Appeal, First Appellate District, enforced an arbitration agreement in a retail installment sales contract. Vasquez v. Greene Motors, Inc., No. A134829, 2013 WL 1232343 (Cal. Ct. App. Mar. 27, 2013). While the court held that the agreement was “procedurally unconscionable” because the agreement “was imposed on [the Defendant] without the opportunity for negotiation, and was therefore adhesive,” it reversed the lower court’s denial of a motion to compel arbitration. In so holding, the court reasoned that the level of procedural unconscionability was “minimal” and that there was no significant substantive unconscionability. The court held “the only suggestion of substantive unconscionability . . . was the failure of the clause to permit an ‘appeal’ arbitration in the event a buyer sought and was denied injunctive relief,” but that “this asymmetry is mitigated by the provision permitting a second arbitration if a buyer is denied a monetary recovery.” Finding “minimal unconscionability,” the court reversed the trial court order denying the petition to compel arbitration and directed the trial court to order arbitration.

On February 15, the U.S. District Court for the Western District of Washington held that a cable company could not force arbitration of a dispute by relying only on its standard business practices to support its claim that the plaintiff agreed to arbitrate. Permison v. Comcast Holdings Corp., No. C12-5714, 2013 WL 594304 (W.D. Wash. Feb. 15, 2013). A cable customer with accounts in Colorado and Washington sued the company alleging TCPA violations. The cable company sought to compel arbitration, claiming that “Welcome Kit” materials executed by the customer included an agreement to arbitrate. In support of its motion to compel arbitration with regard to the Colorado accounts, the cable company submitted an affidavit describing its standard business practice, which requires technicians to provide customers with the Welcome Kit, and obtain customer signatures on certain terms and conditions included in the Kit. The court held that reliance on standard business practices is insufficient. Instead, the court stated, the cable company must produce business records or testimony showing that the customer actually received the arbitration agreement and assented to its terms. The court noted that the cable company presented actual evidence with regard to the Washington account, but held that it is not clear whether that contract, and its arbitration clause, impact the customer’s TCPA claims because of imprecise pleading. The court denied the company’s motion to compel arbitration and granted the customer leave to clarify his claims. The court’s holding follows a recent 10th Circuit decision that affirmed a district court’s dismissal of claims based on unrefuted declarations submitted by a TV and internet service provider’s employees concerning its standard practices for entering into agreements provided to customers in writing by the installation technician at the time the services were installed.

Recently, the California Court of Appeals for the First and Second Appellate Districts affirmed lower court orders denying two automobile dealerships’ petitions to compel arbitration, holding that the arbitration clause in the vehicle retail installment sales contracts (RISC) was procedurally and substantively unconscionable. Norton v. Ford of Santa Monica, B237273, 2012 WL 6721400 (Cal. Ct. App. Dec. 28, 2012); Natalini v. Import Motors, Inc., A133236, 2013 WL 64611 (Cal. Ct. App. Jan. 7, 2013). Both trial courts rejected the dealerships’ motions to compel arbitration of complaints alleging multiple causes of action, including violations of the California Consumer Legal Remedies Act, Automobile Sales Finance Act, and Business and Unfair and Deceptive Acts and Practices Act, holding that the arbitration clauses in the RISCs were unconscionable. On appeal, the courts agreed that the arbitration provisions were substantively unconscionable because they were systematically structured to provide only the dealer a right and opportunity to appeal and, because the arbitration agreement provided no fee waiver for the consumer, the financial ramifications of the clause favored the corporate dealership over the individual consumer. Both courts also held that the arbitration clauses were procedurally unconscionable because they contained elements of surprise, with the First Appellate District also holding that the RISC contained elements of oppression since the contract was one of adhesion. Applying a “sliding scale” to the relative importance of each element, the courts found the arbitration clauses sufficiently substantively and procedurally unconscionable and upheld the trial courts’ denial of the dealerships’ petitions to compel arbitration.

On December 26, the U.S. Court of Appeals for the Ninth Circuit held that a national bank’s practice of posting payments to checking accounts in a particular order is a federally authorized pricing decision, and that federal law preempts the application of state law to dictate a national bank’s order of posting. Gutierrez v. Wells Fargo Bank, No. 10-16959, 2012 WL 6684748 (9th Cir. Dec. 26, 2012). In this case, after trial the district court enjoined the bank’s practice of ordering withdrawals from “high-to-low” and ordered the bank to pay $203 million in restitution. The court agreed with customers who had sued the bank on behalf of a class that the bank’s ordering practice was designed to maximize the number of customer overdrafts and related fees and as such violated the California Unfair Competition Law (UCL). On appeal, the court held that the bank’s ordering practice is a pricing decision the bank can pursue under federal law, and that the National Bank Act (NBA) preempts the unfair business practices prong of the UCL. The court also held that both the imposition of affirmative disclosure requirements and liability based on failure to disclose are preempted. However, the court held that the NBA does not preempt the customers’ claim of affirmative misrepresentations under the fraudulent prong of the UCL. The court also considered as an issue of first impression the effect of the Supreme Court’s intervening ruling in Concepcion on a judgment on appeal after trial. The court declined to grant arbitration, reasoning that the bank’s post-judgment arbitration request was contrary to its conduct throughout the litigation, and that granting the request would prejudice the plaintiff and frustrate the purposes of the Federal Arbitration Act. The court vacated the district court’s injunction and its $203 million restitution order, and directed the district court to determine appropriate relief on the state fraud claims.

On December 11, the U.S. Court of Appeals for the Tenth Circuit affirmed dismissal of plaintiffs’ claims concerning AT&T’s U-Verse services, based on forum selection and arbitration clauses in the agreements between the parties. Hancock v. Am. Tel. & Tel. Co., Inc., 11-6233, 2012 WL 6132070 (10th Cir. Dec. 11, 2012). In support of the motion to dismiss, AT&T offered declarations from its employees concerning its standard practices for entering into agreements with customers obtaining U-Verse services. Under those practices, customers purchasing U-Verse TV and Voice services agreed to terms of service (TV Terms) that included a forum selection clause. The TV Terms were provided to customers in writing by the installation technician at the time the services were installed. The customers agreed to the TV Terms by clicking on an acknowledgement and acceptance box on the technician’s laptop after being given the printed terms – the acknowledgement and acceptance stated that the customer had received and reviewed the TV Terms. Details of each acceptance were captured and stored on AT&T’s servers at the time of acceptance. Also under AT&T’s standard practices, customers purchasing U-Verse Internet Services agreed to separate terms of service (Internet Terms) during the online registration process – to complete registration, customers had to click on an “I Agree” button underneath the Internet Terms. For two of the plaintiffs, the Internet Terms included a mandatory arbitration clause at the time of registration. For another plaintiff, the mandatory arbitration clause was added after a notice of amendment, describing the new arbitration clause, was provided to the plaintiff via email. On appeal, the court held that the declarations concerning AT&T’s standard practices were admissible in evidence, and since they were not contradicted by the plaintiffs’ affidavits, the district court did not abuse its discretion by accepting the declarations as true. The court went on to hold that under AT&T’s standard practices both the TV Terms and the Internet Terms were clearly presented, and that enforceable contracts were formed between the plaintiffs and AT&T. The court also concluded that the e-mail notification process used to add the arbitration clause to the Internet Terms was sufficient to make the amendment effective.

On September 27, the U.S. District Court for the District of Nevada followed other federal courts and held that an arbitration clause within the Terms of Use agreement on Zappos.com was unenforceable given that users were neither provided with notice of the agreement nor an opportunity to affirmatively assent to the agreement. In re Zappos.com, Inc. Customer Data Sec. Breach Litig., No. 12-325, 2012 WL 4466660 (D. Nev. Sep. 27, 2012). Customers sued Zappos in several federal district courts for damages resulting from a security breach of the company’s website. After those actions were consolidated, Zappos filed a motion to compel arbitration based on the argument that by using the website the customers accepted and agreed to its Terms of Use, which included an agreement to arbitrate all claims arising from use of the website, and which were available through a hyperlink on each page of Zappos.com. Such hyperlinked Terms of Use are known as “browsewrap” agreements. The court held that despite the broad federal policy in favor of arbitration, the company had provided no evidence that the customers clicked on, viewed, or expressly manifested assent to the Terms of Use agreement, there was no acceptance of the Terms of Use provisions by customers, and thus those provisions, including the arbitration clause, were unenforceable. Moreover, the court held that because Zappos retained the unilateral right to revise the Terms of Use, the contract was illusory and therefore unenforceable. Accordingly, the court denied Zappos motion to compel arbitration.

On September 7, the U.S. Court of Appeals for the Second Circuit held that three plaintiff consumers were not bound to arbitrate certain claims related to their purchase of a discount club membership because email notice of the arbitration clause was insufficient. Schnabel v. Trilegiant Corp., No. 11-1311 WL 3871366 (2nd Cir. Sep. 7, 2012). On appeal of the district court’s denial of its motion to compel arbitration, the membership club marketer argued that it provided the plaintiffs with notice of an arbitration provision (i) through a hyperlink appearing on the page the plaintiffs would have seen before enrolling in a service offered by the defendants and (ii) through an email sent to the plaintiffs after their enrollment. The Second Circuit disagreed and affirmed the district court’s decision. According to the court, the email notice containing the arbitration clause “was both temporally and spatially decoupled from the plaintiffs’ enrollment in and use of [the membership]; the term was delivered after initial enrollment and . . . members such as the plaintiffs would not be forced to confront the terms while enrolling in or using the service or maintaining their memberships.” As such, “the email did not provide sufficient notice to the plaintiffs of the arbitration provision, and the plaintiffs therefore could not have assented to it solely as a result of their failure to cancel their enrollment in the defendants’ service.”  The court did not provide a substantive ruling on notice via a hyperlink, holding instead that the defendants forfeited their argument by failing to raise it in the district court.

On August 28, the U.S. District Court for the Central District of California held that a retailer’s so-called browsewrap agreement failed to provide the consumer with constructive notice of an agreement to arbitrate disputes and declined to enforce arbitration. Nguyen v. Barnes & Noble, Inc., No 12-0812, WL 3711081 (C.D. Cal. Aug. 28, 2012). The consumer filed suit under New York’s and California’s unfair competition and false advertising laws and other state statutes, alleging that the retailer canceled his online purchase of two sale items, causing him to have to later purchase substitute products at more expense. The retailer responded that by making the purchase through the company’s website, the consumer accepted the website’s Terms of Use, which contained an agreement to arbitrate any claims arising out of the use of that website. On the retailer’s motion to compel arbitration, the court explained that the website’s browsewrap agreement stated that any user of the site is deemed to have accepted its terms by, among other things, making a purchase. The court held that the retailer cannot show that the consumer had constructive notice of the Terms of Use because the site did not require that the consumer affirmatively assent to the terms. The court denied the retailer’s motion to compel arbitration and allowed the litigation to proceed.

On June 21, the California Second District Court of Appeal held that a defendant brokerage firm had established an agreement to arbitrate, where the brokerage account application signed by the plaintiffs incorporated by reference certain arbitration provisions of a separate client agreement.  Rodriguez v. Citigroup Global Markets, Inc., No. B230310, 2012 WL 2354637 (Cal. Ct. App. June 21, 2012). The appeals court observed that the plaintiffs had signed an account application that explicitly stated that any signatories had also agreed to all terms of a separate client agreement. Another paragraph of the same application, located directly above the signature lines, included an express acknowledgement that the client agreement included an arbitration provision. The court rejected several arguments proffered by the plaintiffs, including that (i) the references to the arbitration provision were unreadable, (ii) the plaintiffs had never received the client agreement containing the arbitration provision, (iii) the client agreement itself was not signed, and (iv) the client agreement was confusing.

On April 24, the CFPB released a request for information to inform its study of the use and impact of arbitration clauses in consumer financial services agreements. Through June 23, 2012, the CFPB is seeking information from the public regarding (i) the prevalence of use of these arbitration clauses, (ii) what claims consumers bring in arbitration against financial services companies, (iii) whether claims are brought by financial services companies against consumers in arbitration, and (iv) how consumers and companies are affected by actual arbitrations and outside of actual arbitrations. The study is required by the Dodd-Frank Act and must be completed before the CFPB can begin exercising its Dodd-Frank authority to conduct rulemakings regarding arbitration agreements. Therefore, at this time the CFPB is not seeking comments on whether and how the use of such agreements should be regulated.

The CFPB also this week extended through June 29, 2012, the comment period for its inquiry into overdraft programs and their costs, benefits, and risks to consumers.