Summary
In Myers, the court ruled that an amendment adding an arbitration agreement which MBNA mailed to the cardholder was not effective. The Myers court found that the amendment altered plaintiff's remedies at law, and therefore was not valid. Myers, however, did not provide an analysis under Delaware law, which controls the agreement here.
Summary of this case from JAIMEZ v. MBNA AMERICA BANK, N.A.Opinion
CV 00-163-M-DWM
March 20, 2001
William A. Douglas [COR LD NTC ret], Douglas Sprinkle, Libby, MT., For Vera M. Myers plaintiff.
Gerald W. Steinbrenner [COR LD NTC ret], Milodragovich Dale Steinbrenner Binney, Missoula, MT., Richard C. Pepperman, II, [COR LD NTC ret], Sullivan Cromwell, New York, NY., For MBNA America defendant.
L.D. Nybo [COR LD NTC ret], Richard C. Pepperman, II, Conklin, Nybo, LeVeque Murphy, PC, Great Falls, MT., For North American Capitol, Corporation defendant.
Gerald W. Steinbrenner, [COR LD NTC ret], Milodragovich Dale Steinbrenner Binney, Missoula, MT., For MBNA America, counter claimant.
William A. Douglas [COR LD NTC ret], Douglas Sprinkle, Libby, MT., For Vera M. Myers, counter-defendant.
G. Patrick HagEstad, [COR LD NTC ret], Milodragovich Dale Steinbrenner Binney, Missoula, MT., Richard C. Pepperman, II [COR LD NTC ret], Elizabeth M. Zito, [COR LD NTC ret], Sullivan Cromwell, New York, NY., For First USA Bank, NA defendant.
I. Factual Procedural Background
Plaintiff Vera Myers filed this action seeking a declaratory judgment that she does not owe Defendant MBNA any money for charges accumulated on unsolicited checks that MBNA sent her. She alleges that the checks were appropriated without her knowledge by her son. She also seeks punitive damages in the amount of $300,000 for MBNA's malice in refusing to recognize that she had no outstanding debt to them and in reporting her as a credit risk to credit reporting agencies. Defendant North American Capitol is MBNA's assignee.
MBNA moves to stay the present proceedings and compel arbitration. North American Capitol did not join in the motion and did not assert in its Answer that the dispute was subject to arbitration.
The arbitration clause, in relevant part, provides:
Any claim or dispute ("Claim") by either you or us against the other . . . arising from or relating in any way to this Agreement or any prior Agreement or your account (whether under a statute, in contract, tort, or otherwise or whether for money damages, penalties or declaratory or equitable relief), including Claims regarding the applicability of this Arbitration Section or the validity of the entire Agreement or any prior Agreement, shall be resolved by binding arbitration.
. . . At your written request, we will advance any arbitration filing fee, administrative and hearing fees which you are required to pay to pursue a Claim in arbitration. The arbitrator will decide who will be ultimately responsible for paying those fees. In no event will you be required to reimburse us for any arbitration filing, administrative or hearing fees in an amount greater than what your court costs would have been if the Claim had been resolved in a state court with jurisdiction. Any arbitration hearing at which you appear will take place within the federal judicial district that includes your billing address at the time the Claim is filed.
. . . This Arbitration Section does not apply to Claims between you and us previously asserted in any lawsuits filed before the date this Arbitration Section becomes effective. However, this Arbitration Section applies to all Claims now in existence or that may arise in the future.
. . . This Arbitration Section shall survive the termination of your account with us as well as any voluntary payment of the debt in full by you, any bankruptcy by you or sale of the debt by us.
. . .
. . . [F]or the purposes of this Arbitration Section, "you" or "yours" shall mean any person or entity approved by us to use the account, including but not limited to all persons or entities contractually obligated on the account and all authorized users of the account.
. . .
If you do not wish you account to be subject to this Arbitration Section, you must write to us at MBNA America, P.O. Box 15545, Wilmington, DE 19850. . . . We must receive your letter at the above address by January 25, 2000, or your rejection of the Arbitration Section will not be effective.
Def. Ex. A at 2. The Arbitration Section became effective on February 1, 2000.
Myers held two cards from MBNA, one under a Ladies' Professional Golf Association ("LPGA") label, acquired in June 1997, and one under an L.L. Bean label, acquired in October 1997. Charges began to be accrued on the L.L. Bean card in the fall of 1998. The L.L. Bean balance was transferred to the LPGA card. Myers' monthly statement for the LPGA billing cycle from December 23, 1998, to January 23, 1999, showed a balance of $10,830.
Shortly after January 23, 1999, Myers received her account statement from MBNA and contacted them to contest the charges. MBNA's records reflect that a call was received on March 30, 1999, regarding the charges. The caller reported that Myers had been away for 3 months, had not received any statements, and did not incur any charges. Suspicion eventually focused on Myers' son, Craig Lattimore. Myers' credit line was changed to "*0000*" on April 14, 1999. See Pl. Ex. L at 81. As of April 23, 1999, MBNA's statements to Myers indicated that "Except for any remaining balance, your account is closed as you requested. To reopen your account, please call 1-800-432-2552. ext. 728." See Pl. Ex. G at 29. Myers did not incur additional charges on any account from that time until the present.
There is no indication in the record as to when MBNA sent out the amendment containing the Arbitration Section. Both Myers and MBNA presumably knew there was a controversy regarding the amount owed MENA by Myers at the time the amendment was proposed and at the time it went into effect.
II. Analysis
A. The Parties' Arguments
Myers argues that the arbitration clause is unenforceable under Montana law because there was no contractual relationship between the parties at the time the arbitration clause went into effect. Myers' position is too broadly stated. There was and still is a relationship between the parties arising from their erstwhile contract. They are still arguing about their respective rights and responsibilities under the law. The case sounds in contract. MBNA is correct that a contractual relationship is ongoing. However, if Myers is understood to say that she did not agree to arbitrate her dispute with MBNA, then her position must be analyzed.
MBNA argues that the clause is valid and enforceable, both on its own terms and as an amendment that Myers agreed to allow when she accepted a card and credit line from MBNA in 1997.
B. Applicable Law
There is no dispute that the Federal Arbitration Act ("the Act") applies if there is an agreement between the parties. 9 U.S.C. § 2 provides:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
As an exercise of Congress' Commerce Clause powers, the phrase "transaction in commerce" is very broadly construed. See, e.g., Southland Corp. v. Keating, 465 U.S. 1 (1984) (assuming that a 7-Eleven franchise agreement evidences a transaction in interstate commerce). Thus, the Act applies to this case.
However, the Federal Arbitration Act does not pre-empt state law when an arbitration clause is at issue. State law provides the law of decision. 9 U.S.C. § 2. The Supreme Court holds that "the text of § 2 declares that state law may be applied `if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally.'" Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) (quoting Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987)). Moreover, there is no federal law of contracts. State law must supply the laws and tests to determine whether an arbitration clause is a binding contract.
In the light of Montana law and the federal law of arbitration, the arbitration clause must be examined in isolation from the remainder of the contract. That a contract as a whole is unenforceable under state law principles will not preclude arbitration. As Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 476 (9th Cir. 1991), pointed out, "[a]n arbitration clause may . . . be enforced even though the rest of the contract is later held to be invalid by the arbitrator" (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967)) It is up to the arbitrator to decide the enforceability of the contract; the court may only decide the enforceability of the arbitration clause.
C. Offer Acceptance
MBNA proposed the Arbitration Section as a change in the terms of the parties' relationship that would be effective unless rejected by the card holder. In other words, MBNA skipped offer and went straight to acceptance. Myers did not perform an act and did not forego the performance of an act.
It should here be plainly set forth that an offeror has no power to cause the silence of the offeree to operate as an acceptance when the offeree does not intend it to do so. The offeree's conduct, coupled with the silence[,] may be such as to make the silence operative. The offeror's own language or other conduct may be such as to make the offeree's silence a sufficient acceptance binding upon the offeror. But an offeror can not, merely by saying that the offeree's silence will be taken as an acceptance, cause it to be such. The offeror cannot force the offeree to take pen in hand, to use a postage stamp, or to speak, under penalty of being bound by a contract by not expressing a rejection.
Joseph M. Perillo, Corbin on Contracts § 3.18 (1993 Supp. Fall 2000), at 407-08.
Circumstances may indicate that the offeree accepts the offer. See id. at 402-05. However, the only circumstance in this case that might indicate Myers' acceptance is her failure to notify MBNA of her rejection. That circumstance is dismissed by Perillo and by common sense. MBNA could argue that it gave up its right to a jury trial in exchange for Myers' doing the same. However, this is not evidence that anything was "bargained for." In sum, there is no indication that Myers agreed to arbitrate the dispute with MBNA.
D. Agreement to Amendments
In the original Credit Card Agreement, MBNA purported to reserve the power to amend the terms of the agreement between the parties:
We may amend this Agreement by complying with the applicable notification provisions of federal law and the laws of the State of Delaware. If an amendment gives you the opportunity to reject the change, and if you reject the change in the manner provided in such amendment, we may terminate your right to receive credit and may ask you to return all credit cards as a condition of your rejection. The amended Agreement (including any higher rate or other higher charges or fees) will apply to the entire unpaid balance, including the balance existing before the amendment became effective.
Pl. Ex. J at 5.
In effect, MBNA argues that Myers "bargained for" her credit line with MBNA and, in exchange, agreed to permit MBNA to impose upon their future relationship whatever terms and conditions it wished. Because the proposed amendment containing the Arbitration Section was to be integrated with the original Credit Card Agreement, MBNA concludes that Myers agreed to arbitration. It cites Larsen v. Opie, 237 Mont. 108, 771 P.2d 977 (Mont. 1989), Vukasin v. D. A. Davidson Co., 241 Mont. 126, 785 P.2d 713 (Mont. 1990), and Windemere Homeowners' Assoc., Inc. v. McCue, 1999 MT 292, 297 Mont. 77, 990 P.2d 769 (Mont. 1999).
In Larsen, the plaintiff asserted that he did not read the written contract containing the arbitration provision but relied instead on the defendant's oral representations of the contract's contents. He claimed that he was fraudulently induced into signing the contract. Citing Prima Paint, the Montana Supreme Court held that fraud in the inducement of the arbitration clause could be decided by a court, but fraud in the inducement of the contract as a whole was a matter for the arbitrator to decide. Larsen, 237 Mont. at 111-12, 771 P.2d at 979-80. Here, Myers contends that she did not agree to arbitrate. The arbitration provision was entered into well after the original contract was made. Larsen is inapposite.
In Vukasin, the agreement to arbitrate was made after the original employment contract was formed. However, the arbitration provision was inserted into the employee's performance review, "directly above the employee signature line." 241 Mont. at 127, 785 P.2d at 714. The court states that the employee signed at least one of the two performance reviews containing the arbitration provision. Id. Thus, in that case, there was some indication that the employee accepted the offer to arbitrate. No such inference can be drawn from the record here. Vukasin is inapposite.
In Windemere Homeowners' Association, the original restrictive covenants contained a provision allowing for future amendment:
"Restrictive covenants are construed under the same rules as are other contracts." Windemere Homeowners' Assoc., 1999 MT 292 at ¶ 13, 297 Mont. at 80, 990 P.2d at 772.
The covenants, conditions, restrictions and uses created and established herein may be waived, abandoned, terminated, modified, altered or changed as to the whole of the said real property or any portion thereof with the written consent of sixty-five percent (65%) of the votes from the real property described herein above. Each acre shall be entitled to one (1) vote in any election to decide any issues involving waiver, abandonment, termination, modification, alteration or change of the restrictive covenants.1999 MT 292 at ¶ 18, 297 Mont. at 82, 990 P.2d at 772. Defendant resisted two amendments to the covenants. One amendment bifurcated the effect and enforcement of the covenants between two large parcels of land. The second amendment created a homeowners' association with the power to collect assessments on one of the parcels of land. Id. at ¶¶ 8-9, 297 Mont. at 79-80, 990 P.2d at 771. Distinguishing several cases featuring narrower provisions for amendment, the Montana Supreme Court found that the provision allowing for future amendments to the covenants was sufficiently broad to authorize the amendments in question. Id. at ¶ 22, 297 Mont. at 83, 990 P.2d at 773. The provision authorizing amendment dealt specifically with amendments to restrictive covenants, and the amendments pertained to restrictive covenants.
In this case, the amendment proposed by MBNA altered Myers' and MBNA's remedies at law. The Agreement contains headings pertaining to Information Gathering and Sharing, How to Use Your Account, Repayment, Charges Made in Foreign Currencies, Payment Holidays, Billing Cycle, Account Fees and Charges, Benefits, Reasons for Requiring Immediate Payment, Refusal to Honor Your Card, Termination, Assignment, Credit Limit, Request for Credit Over Your Credit Limit, Unauthorized Use of Your Card, Governing Law, and Credit Insurance Benefits, Limitations, Costs, and Exclusions. The section headings of the original Agreement show that the scope of the Agreement is confined to the basis of the bargain between a credit card company and a credit card holder: the credit limit and payment. The amendment requiring arbitration is not foreshadowed in the original Agreement. Unlike the situation inWindemere, the scope of this agreement is much narrower. Windemere Homeowners Association is inapposite.
If MBNA's argument that Myers "agreed" to arbitration when she agreed to allow MBNA to amend the Agreement were accepted, there would be no reason to stop at arbitration. MBNA could "amend" the Agreement to include a provision taking a security interest in Myers' home or requiring Myers to pay a penalty if she failed to convince three friends to sign up for MBNA cards. Such provisions were as much within the agreement of the parties at the outset of their relationship as the arbitration provision.
III. Conclusion
Absent circumstantial evidence that Myers accepted MBNA's offer to arbitrate their disputes, the Arbitration Section cannot be enforced against Myers. Nor can her agreement to arbitrate be implied from her agreement to agree to MBNA's amendments. MBNA's motion to compel arbitration is denied.
Accordingly, IT IS HEREBY ORDERED that Defendant MBNA's motion to stay the proceedings and to compel arbitration (dkt # 11) is DENIED.