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Governor Vetoes Budget Bill

Arbitration and Choice of Law (Hoffman v. Citibank)

Continuing with a few 2008 case we haven't yet mentioned ...

Where a plaintiff filed a class action lawsuit against credit card company, the District Court erred in applying South Dakota law — which was chosen in the credit card agreement — and finding that the plaintiff was a party to an arbitration agreement waiving her right to proceed with classwide claims, without first applying California’s choice of law analysis and/or addressing whether the waiver was unconscionable under California law. Hoffman v. Citibank (South Dakota), N.A. (9th Cir. 2008) 546 F.3d 1078.

Plaintiff-Appellant Laura Hoffman appeals the district court's order compelling arbitration in her class action suit against her credit card company, Defendant-Appellee Citibank (South Dakota) N.A. The district court found that Hoffman was party to an arbitration agreement that waived her right to proceed on a class basis. Applying South Dakota law-the law chosen in the credit card agreement-the district court enforced the class arbitration waiver and ordered Hoffman to proceed on a non-class basis. Nonetheless, the district court found substantial grounds for a difference of opinion regarding a controlling issue of law, “whether California law or South Dakota law should be used to determine the enforceability of the arbitration agreement,” and issued an order for immediate appeal. The case was stayed without completion of discovery. We granted permission for the appeal, and we have jurisdiction under 28 U.S.C. § 1292(b). Because we are persuaded that the district court's order compelling arbitration erroneously relied on cases that do not properly apply California choice of law rules, we remand for a determination of whether California or South Dakota law applies to the class arbitration waiver.

That clear things up a bit, right? Truly only a bit. Judge Trott's concurring opinion is interesting enough to publish verbatim and in its entirety:

Given the narrow question presented by this appeal, I concur in our per curiam opinion. Nevertheless, I add some observations designed, I hope, to shed light on remand on the underlying question: is the arbitration “agreement”-including a class arbitration waiver-enforceable, or not.

California law is far from settled. In Citibank (South Dakota), N.A. v. Walker, No. A117770, slip op. at 8, 2008 WL 4175125 (Cal.Ct.App. September 11, 2008), Division Four of the First Appellate District held in an unpublished opinion that the arbitration waiver at issue is not unconscionable or unenforceable under California law. In so holding, that court focused on a cardholder's choices:

Here, although the change was made in a “bill stuffer,” Walker was given an opportunity to opt out of arbitration. By opting out of the amendment, Walker would have been permitted to use his card until it expired, at which time he would have been able to pay off his balance under the existing terms. This does not present the same take it or leave it scenario found to be procedurally unconscionable in Discover Bank [v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005).] Moreover, Discover Bank [v. Superior Court] does not stand for the proposition that “bill stuffer” amendments are per se unconscionable.

Rather, it focuses on the take it or leave it nature of the contractual modification.

However, Division Seven of the Second Appellate District held in Firchow v. Citibank (South Dakota), N.A., No. B187081, 2007 WL 64763, at 8-9, 2007 Cal.App. Unpub. LEXIS 178, at 26 (Ct.App. Jan. 10, 2007), that the “agreement” under our legal microscope is unconscionable.

This brings us to Jones v. Citigroup, Inc., 38 Cal.Rptr.3d 461 (Ct.App.2006). In Jones, Division Three of the Fourth Appellate District declined to conclude that a similar attempt to avoid classwide arbitration was unconscionable under California law:

Our case is different [from Discover Bank v. Superior Court ]. Here, although the change was made in a “bill stuffer,” plaintiffs were given an opportunity to opt out of arbitration. By giving written notice of their rejection of the amendment, they could continue to use their cards until the cards expired and then would be able to pay off their balances under the terms of their existing agreement without acceleration. This does not present the take it or leave it scenario described in Discover [Bank v. Superior Court] or Szetela [v. Discover Bank, 97 Cal.App.4th 1094, 118 Cal.Rptr.2d 862 (2002),] as being procedurally unconscionable. Rather, it appears that defendant was cognizant of the oppressive nature of forcing a nonconsenting cardholder to either agree to arbitration or immediately cancel the account and took steps to avoid it.

The good news, if there is any good news in all of this, is that the California Supreme Court vacated and remanded the Jones decision for further proceedings in light of its decision in Gentry v. Superior Court, 42 Cal.4th 443, 64 Cal.Rptr.3d 773, 165 P.3d 556 (2007). Jones v. Citigroup, Inc., 68 Cal.Rptr.3d 530, 171 P.3d 547 (Cal.2007).

There it is. Mixed signals from the California courts. One hopes on remand in this case that the legal dust will soon settle and that our district court will have some reliable authority upon which to base its decision.

Back to Judge Guilford it goes, with the hope that the California courts will sort this mess out soon enough.

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