Court Compels Individual Arbitration of Consumer Class Action

In Larsen v. Citibank FSB, 871 F.3d 1295 (11th Cir. Sept. 26, 2017), the Eleventh Circuit reversed the Southern District of Florida’s denial of a motion to compel arbitration of a consumer debt class action.  The plaintiff, David Johnson, filed a putative class action alleging that Defendant KeyBank had improperly changed the sequence of debit card transactions to maximize overdraft fees charged to the account.

Johnson was a longtime KeyBank customer, having opened his first checking account with the bank in 1991. In October 2001, he opened the 2001 Signature Card.  The 2001 Signature Card Agreement specified that “all accounts opened under this Plan are subject to [KeyBank’s] Deposit Account Agreement.”  At that time, the referenced Deposit Account Agreement was KeyBank’s 1997 Agreement, which contained an arbitration provision and preserved KeyBank’s ability to make unilateral amendments to the terms of the Agreement.

KeyBank moved to compel arbitration of Johnson’s claims, contending that Johnson agreed to arbitrate by executing the 2001 Signature Card that incorporated the 1997 Agreement. The Eleventh Circuit agreed with KeyBank, finding that the 2001 Signature Card Agreement sufficiently incorporated the 1997 Agreement.

Johnson argued that the creation of the 2001 account was a continuation of his 1991 account, which predated the arbitration agreement. The Eleventh Circuit rejected this argument because the 2001 Agreement made clear that the 2001 Signature Card was a new account incorporating KeyBank’s Deposit Account Agreement.  Further, the court reasoned that Johnson knew that KeyBank retained the ability to make unilateral amendments to the terms of the Agreement, including the ability to modify the arbitration provision.  Johnson also presented an argument that he had not received a copy of the Agreement, which the Eleventh Circuit dismissed as “lean[ing] on a very thin reed.”

The Eleventh Circuit also held that the arbitration provision was not unconscionable. First, it was not procedurally unconscionable because it was not entered into with the absence of “meaningful choice.”  The fact that the agreement was a contract of adhesion did not make it unconscionable per se.  Second, the court found that the arbitration provision was not, as a whole, substantively unconscionable.  However, the court did sever a confidentiality provision contained within the arbitration agreement.  The court found the confidentiality clause to be unconscionable because it put KeyBank at an informational advantage at the outset of every dispute, because only KeyBank would have information about previous arbitrations.

Posted by Margaret Flatt.

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